* Restructuring to cut 15.9 bln shilling debt
* Funds to be invested in grid
* Government to sit out of cash call
(Adds details)
By Helen Nyambura-Mwaura
NAIROBI, Oct 28 (Reuters) - Kenya Power and Lighting will raise 7-10 billion shillings ($87-124 million) from its rights issue to spend on its grid, its chief executive said on Thursday.
The company, which is the east African nation's sole power transmitter and distributor, is redeeming government preference shares at no cost and converting them into ordinary shares for the rights issue.
The company accumulated a 15.9 billion shilling loss over five years, which was converted into preference shares for the government in 2003.
"KPLC is now seeking to convert a large part of these preference shares through a capital base restructuring process because...the shares have generally been perceived by both lenders and investors as debt with a significant fixed payment obligation," Chief Executive Joseph Njoroge told journalists.
The firm paid the government a fixed dividend payout of 7.85 percent or 1.25 billion shillings after making a 5.6 billion shilling pretax profit in the 2009/10 financial year.
The government's shareholding will initially rise to 69.7 percent from 40 percent. However, the government will not take up its share of the rights issue, which offers 20 shares for every 51 held, whittling down its stake to 50.1 percent.
Kenya Power shares have surged this year in anticipation that the restructuring would favour shareholders.
The firm will raise slightly more than 25 billion shillings of equity capital during the whole exercise, through ridding its books of 15.9 billion in debt and getting another 7-10 billion shillings in the cash call, said Kabaki Wamwea, chief executive of transaction adviser Dyer and Blair Investment Bank.
"The actual money that will come will be 7-10 billion. In reality, it is actually a debt that will get out of the books," he told Reuters.
Shareholders will meet on Nov. 10 to approve the restructuring, when management will also announce the share price for the cash call. The rights issue will be launched on Nov. 22, Njoroge said.
The government's pay off after the capital restructuring process will be through holding a bigger stake in the company and selling off its rights during the cash call.
"The government will raise money, just as with any other ordinary shareholder who does not want to take up his rights, by giving up its rights and selling them in the market," Wamwea said. (Editing by Michael Shields)