THE PLANNED sale of the government's stake in the Kenya Commercial Bank to a strategic investor has been suspended.

Treasury Permanent Secretary Mr Martin Oduor-Otieno told The EastAfrican that the sale of a 35 per cent stake in KCB had been "put on hold for a while" to assess the impact of an ongoing restructuring exercise spearheaded by the managing director Mr Gareth George.

"The government will realise better value from the sale after the rationalisation," Mr Oduor-Otieno explained, saying it was uncertain how long the deal would remain "on hold." Last week, the managing director of Shah Munge and Partners stockbrokers, Mr Arthur Namu, argued that the sale should be put off for at least a year, since the bank's performance had improved in the past one year. 

Audited results for last year showed a loss before tax of Ksh795 million ($9 million), an improvement from the Ksh2.2 billion ($25 million) loss incurred the previous year. At the Nairobi Stock Exchange, the bank's shares were trading at Ksh27 ($0.34) last week, and financial analysts predict a price of Ksh65 ($0.83) per share if the bad debt problem and huge payroll costs are done away with.

The postponement of the KCB sale, for which advertisements for a transaction advisor had already been placed in the local press, comes soon after the government announced that Telkom Kenya's tie-up to a strategic partner would be delayed by at least two months to allow for negotiations on price.

The postponement of KCB and Telkom Kenya's sale is said to have been discussed with the World Bank and the IMF when the heads of the two institutions, Mr James Wolfenson and Mr Horst Koehler paid a courtesy call on President Daniel arap Moi two weeks ago. 

However, during a press briefing in Washington, the director of the IMF's African Department, Mr Goodall Gondwe, insisted that the Telkom Kenya sale had to be completed before the IMF released $28 million in disbursements. The Telkom sale is considered important as a showcase of Kenya's commitment to a transparent divestiture exercise and is seen as the least problematic of the conditionalities.

The funds have been "locked" since December following the government's failure to reconstitute the Kenya Anti-Corruption Authority (Kaca) as an effective anti-corruption watchdog. Other points of conflict include its failure to enact an Economic Crimes Bill and a Code of Ethics for civil servants in the three arms of government – judiciary, executive and parliament. The IMF's position is that disbursements will not resume until these bills are passed. 

Although parliament is set to resume next week, its rigid timetable means the crucial Bills are likely to be passed in mid May at the earliest before parliament goes for a three-week recess. Telkom sale is also likely to be through around that time.

Assuming the Bills are passed then and the IMF is given a one month's lead time to assess their effectiveness, the earliest aid disbursements can resume is July. 

If agreement is reached to restart the disbursements, the IMF would release $28 million comprising $8 million that was to be released in December and another $20 due now. Should an agreement be delayed until July, the amount will increase to $72 million since a tranche of $43 million is due in June. 

The IMF had only released $43 million of the $250 million intended for economic and drought assistance under a poverty reduction and growth facility running up to 2003 before the programme went "off-track". The World Bank is also holding $100 million and other lenders some $150 million, although a $300 million debt rescheduling programme, including $157 million in payments due this year, is not affected. 

An IMF mission is already in Nairobi, led by Mr Menachem Katz, who has replaced Mr Jose Fajgenbaum as senior advisor on Kenya. The team will gauge the status of the Bills and assess Kenya's fiscal policy with special scrutiny given to both the current and next year's budget.

*Reported by Peter Munaita in Nairobi and Kevin J . Kelley in Washington