* Govt plans to sell stakes in 28 companies
* Fallout of ICC cases, succession politics may slow plans
* High debt in state-owned firms dilute valuation
By Kevin Mwanza
NAIROBI, April 12 (Reuters) - Kenya's plan to sell stakes in several state-owned companies to raise funds to plug a hole in the budget is likely to slow down as politics take centre stage in government ahead of next year's elections, analysts say.
Several state-owned companies, including 13 major hotels, five sugar millers and two commercial banks, are scheduled to be privatised this year, but the political scene in east Africa's biggest economy has been tense since the year started.
"The current political temperatures will be a big factor as government try to privatise these entities," said Johnson Nderi, an analyst at Suntra Investment Bank.
Kenya's privatisation plan consists of 28 enterprises including the sale of further shares in Consolidated Bank, National Bank of Kenya, KenGen, East African Portland Cement, five sugar factories, Kenya Ports Authority and other state assets.
Since the privatisation law was passed in 2005 over five state entities have been partly sold, including largest telecoms operator Safaricom, electricity generator KenGen and fixed line telecoms company Telkom Kenya.
"We could be raising over 100 billion shillings every year for the next 10 years to support our country's development," said Solomon Kitungu, head of Kenya's Privatization Commission.
The Treasury will be hard-pressed to plug a budget deficit projected at 152.6 billion shillings ($1.8 billion), or 5 percent of gross domestic product, in the 2011-2012 budget, as tax revenues continue to fall below target.
Finance Minister Uhuru Kenyatta has said the government plans to remove tax incentives in the 2011-12 (July-June) fiscal budget, and widen collection to rope in more small businesses.
WAR OF WORDS
Kenya's politicians have been involved in a war of words over violence that followed 2007 elections, and are jostling to succeed the country's president in a poll due next year, forcing the privatisations plans onto the back burner.
"Privatisation is always a political issue. It depends on where they put emphasis. If they put emphasis on campaigning, that pushes back privatisation," said Reuben Marambii, National Bank's managing director.
Kenya's coalition cabinet is split over the possible trial of individuals accused of perpetrating the violence following the 2007 elections by the International Criminal Court. President Mwai Kibaki and his allies want trials handled by a local tribunal, but Prime Minister Raila Odinga and his supporters want them to go ahead at The Hague.
Worsening the outlook is the fact that election years in Kenya are seen as a volatile period, and many investors have preferred to take a wait-and-see stance.
"We are starting to see a little bit of caution on the stock market. Companies seeking to list are likely to sell shares at a discount, something they would not have done last year," said Eric Musau, an analyst at African Alliance Securities.
"Government dragged its feet in the previous financial year when the market was still receptive."
Musau said that due to higher interest rates, the government would have to fork out more if it opts to borrow in the capital markets to seal the budget hole, should it fail to privatise.
Some of the companies on the block have huge debts that could make them less attractive, analysts said.
The privatisation body estimates rehabilitation and modernisation of the five sugar companies could require up to 40 billion shillings.
"Some companies like in the sugar industry have a lot of debt that could affect valuation and the government must find a way to get rid of it before they even sell," said Nderi.
For FACTBOX on Kenya privatisation plans, click on (Editing by George Obulutsa and Mark Potter)