Buried deep in the Kenya Pipeline Company (KPC) IPO prospectus is a clause providing for a “success fee” payable to transaction advisers. The clause stipulates that advisers will earn a success fee of one per cent of the gross proceeds of the transaction. That is very big money, because the KPC IPO is a Sh100 billion deal.
This raises a fundamental question: how do we structure large capital-market transactions in this country?
The question is not academic. Under international best practice, success fees are primarily paid to underwriters—typically investment banks. The justification is straightforward and compelling. An underwriter commits its balance sheet. If investors do not show up, the underwriter must step in and buy the shares. That risk—real, quantifiable, and potentially costly—is what earns the underwriting or success fee. Remove the risk, and the logic collapses.
Which brings us to the central puzzle. Why are we paying out billions of shillings from the proceeds of the KPC IPO in success fees when there is no underwriter?
Like previous public offers in Kenya, the KPC IPO is not underwritten. In market jargon, it is a best-efforts issue. The advisers are under no obligation to take up any unsold shares. If demand disappoints, the downside rests squarely with the government. Yet the fee structure mimics that of an underwritten deal. Advisers are being paid as if they are absorbing market risk—when they are not.
To be clear, this is not an argument against transaction advisers. Professional expertise has value, and complex transactions require compensation. Advisory fees exist to pay for specialist work: structuring the transaction, preparing disclosures, navigating regulation, and coordinating investors. But in practice—especially in State-led divestitures—advisory fees are where rent extraction is quietly engineered.
There is, of course, context. Kenya’s local investment banks do not have balance sheets capable of underwriting transactions exceeding Sh100 billion. Equally, allowing a foreign bank to underwrite the sale of a strategic State asset is politically untenable. Those constraints are real.
This practice also has historical roots. Kenya’s privatisation framework was designed in the 1990s and early 2000s, when capital markets were shallow and transactions were sporadic. Success fees were introduced to motivate advisers in difficult, State-driven sales. Over time, those templates hardened into convention. What began as an expedient exception has quietly become standard practice.
Public debate around the KPC IPO has followed a familiar path. Criticism of large public divestitures in Kenya usually focuses on the obvious pressure points: undervaluation of assets, political allocation of shares, or outright theft of proceeds.
Yet in modern capital-market transactions, the most efficient—and least visible—leakage point is not pricing or allocation. It is transaction advisory fees. This is the loophole greedy elites prefer, precisely because it is legal, technical, opaque, and easily defended as “market practice”.
Unlike asset pricing, which attracts public scrutiny, or share allocation, which can be politically explosive, advisory fees sit buried in prospectuses and appendices. They are framed in percentages, benchmarks, and jargon that discourage interrogation. Few citizens—and often few legislators—can easily tell whether a one per cent fee is reasonable or excessive. That opacity makes advisory fees the perfect vehicle for corruption that does not look like corruption. No money is stolen directly from IPO proceeds. Instead, it is siphoned off before the public ever sees the net result—through fees that are technically legitimate but economically unjustified.
This is why advisory fees, rather than outright embezzlement, dominate debate in capital-market transactions. They leave clean paper trails. They attract respectable intermediaries. They rarely trigger prosecutions. And they can be defended endlessly as “standard practice”, even when they clearly are not.
The policy implication is uncomfortable but unavoidable. If the government is serious about clean divestitures, reform must begin not with slogans about transparency, but with fee architecture.
Advisory compensation in IPOs and divestitures should be predominantly fixed, tightly benchmarked internationally, capped in absolute terms, and explicitly linked to risk actually borne. Where there is no underwriting, there should be no underwriting-style fees. Where advisers do not put capital at risk, they should not be paid as if they do.
My parting shot comes from an academic paper I came across recently on the subject: Corruption in large divestiture projects in Africa: “In the modern political economy of IPOs, corruption does not always wear a mask. Sometimes it wears a suit, invoices neatly, and calls itself an advisory fee.”
