Friday, December 15, 2006

Eveready Mea Culpa

Mea culpa Eveready
I was wrong in estimating diminished interest in the Eveready IPO. 200,000 Kenyans applied for shares in the company and will each receive about 20% of the shares they applied for.

“Corporates” will only receive, at best, 17% of the shares they applied for, but are assured of much better allocation in the about-to-end Mumias offer which closes on Monday.

Bad loans for shares
I was also wrong that no banks will advance loans for Eveready shares.

This still happens, but with less fanfare/advertising than was seen with the Kengen IPO in March. IPO loans are not that attractive to banks since most offers are over-subscribed leaving borrowers with much fewer shares than they applied for – about 20% allocation on average. Also since Kengen has stuck at about 3X its IPO price and Scangroup (2X IPO price), banks are taking on some risk in undertaking such lending. E.g. Say I took out an unsecured personal loan of 120,000 shillings to buy Kengen shares (for 36 months at 19% interest). After the IPO I’d get 2,000 shares whose value of the past few months has been between 60,000 and 72,000 shillings. Meanwhile I have to pay back 150,000 shillings to the bank over the next three years.

Banks need hawkers
This week my bank ATM confiscated my card since it did not recognize my PIN number. I have not forgotten my PIN but the bank has a new IT system that for some reason only recognizes the original PIN, and not the PIN I had changed to as soon as I got the card months ago.

Anyway, I had to do something I dread doing today – visit/queue in the banking hall. It was a time wasting hour, 10 minutes of which I spent in the wrong line. Some banks have empty halls while others have crowded halls of customers who line up to deposit over the counter money. I got to thinking that maybe the bank should allow hawkers in to do some business and share the profits with the bank. They could sell newspapers, fruit, and airtime. Better yet, banks should stop their ridiculous no mobile calls rule for banking halls. If I have to spend a 1/5 of a working day in the bank, I should be able to do some other business over the phone.

Anyway I will be back in two weeks to collect a copy of my original PIN and resume using the ATM for normal banking

Where can you trade shares?
A rough estimate of the access to stockbroking services reveals that Nairobi (and other urban centers) have an undue advantage over rural folk in terms of stockbroking services. While IPO shares are sold at banks throughout the country e.g. KCB, for normal share trading one has to issue a stockbroker.

Like with urban bank customers (who are net borrowers) compared to rural customers (who are net savers) the rural shareholders are at a disadvantage in their access to stockbroking services. On the other hand, they trade much less (earn less commissions) than urban shareholders – preferring to buy and hold shares for dividends, bonuses and AGM goodies.

All brokers have office in Nairobi (including 3 for CFC and 2 for Suntra) while the rest of the country has brokers spread out as follows: Mombasa (Apex Africa, CFC, Dyer & Blair), Naivasha (CFC), Nakuru (Apex Africa,
CFC, Nyaga), Eldoret (CFC), Kirieni (Apex Africa), Kisumu (CFC), Nyeri (Nyaga), Thika (Nyaga), Machakos (Nyaga).

Recent trend Over the last month, Discount stockbrokers have opened offices in Kisumu, Mumias and Bungoma to facilitate the Mumias share offer.

Wishful thinking about oil
Reading this NY Times story about oil smuggling from Venezuela where oil costs $0.17 a gallon to Brazil where it cost $5 a gallon makes me wish that when if Kenya strikes oil, the price of petrol will drop from the current $5 a gallon (Kshs. 77/litre) to $0.17 (Kshs. 3/litre)



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Anonymous said...

Banks: The Eveready IPO sold for two reasons; price and ipo hype.
Folks in Kenya know if its an IPO, then profits are here with us.

Wait until results for the Stanbic Uganda IPO are released and we get news that Kenyans oversubscribed the issue by a few billions.
At Kshs: 3.00 atmost; majority of people dont look at the fundamentals, just price and volumes, which is the reason that Mumias is likely to be oversubscribed by Corporates and not individuals.

Brokers Vs Agents: The rural folks are not benefiting from brokers branch network but Agencies of these brokerage firms are filling this gap and openning up faster than you can imagine. Agents are acting as the go between especially in places where it does not make economic sense for brokers to open branches.
Do not forget that agents get anywhere between 25% and 50% of the commission earned by brokers and this is really good money.

Anonymous said...

Kenyans apply for shares at the last minute thus the initial numbers were poor...

Plus the Institutions also wait to better gauge the demand...

Well, all in all, all misjudged the demand!

I wonder what Eveready will open at. Also most buyers were "speculative" thus who will buy when they come onto the market?

Anonymous said...

The Gasoline/Petrol situation is why I am against subsidies as well as excessive taxes.

Banks - You never answered my earlier question. Are taxes on petrol considered sin taxes?

E.g. the idiots in the Kenya govt charge 35/- in TAXES per litre then blame Oil Marketers for the high cost of petrol!

Venezuela (oil producer) subsidises petrol while Brazil "overtaxes" it to support the ethanol industry.

What sweet times for the smuggler!
Would you expect any different?

Ssembonge said...

I hate the way the system works in Kenya. You fork out the money upfront for an IPO, instead of after allocations.

Here you settle after the trade. With my broker I have to give him the check within 3 days after he's made the purchase. Also moment I deposit money into my account it starts earning interest at money market rates. This interest is paid out monthly.

The Kenyan system is wasteful and inefficient.

bankelele said...

Riba Capital: Most brokers have set floors for Stanbic 5,000 and 10,000 - hopefully we will not flood the UG market.

Being an agent is a lucrative thing and true they are able to serve smaller towns

coldtusker: Like I said, bring on a Kenya Railways IPO at 3/= and see what happens.

Eveready opens on Monday, 15 maybe? Aslo another mea culpa - petrol is not worthy of a sin tax

Ssembonge: But it works and it is democratic. What you are proposing also takes place as "private placements". But if we did IPO's as you describe, brokers would allocate the shares to corporates, funds, and their select large clients only.

Anonymous said...

I think Kenyans will oversubscribe the Stanbic UG ipo

Anonymous said...

Eveready: IPOs now speculative. Expect the price to double and stabilize at 20/= to 25/=. Due to the speculation margin trading(going for loans) will continue. Investors have limited information and will learn through experience.

Stanbic: It seems the queues were for Stanbic rather than Mumias. This leaves Mumias for the corporates.

Banks: Service levels has always been my concern. Kenyans, particularly in the rural areas approach banks with trepidation despite the fact that they are going for their own money ! You might think the banks own the money.

Brokers/Agents: There is definitely a gap in the rural areas which agents should continue filling. I hope though they avoid fleecing their customers and giving below average service.

Stockbrokers have become an area of interest. I am doing a piece on them which I hope to post next week.

Ssembonge said...

I'm surprised that you are defending such out-dated practices that are meant to fleece money from hard working wananchi.

And are the rural brokers registered with the CMA or under any sort of regulation? I can see people losing their money.

It might be 'cheaper' for wananchi to travel to the nearest KCB branch rather than taking short-cuts.

Anonymous said...
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Anonymous said...

I'm shocked eveready debuted at 11,i expected lower.Nways i see it going below IPO price pretty soon.

Anonymous said...
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m said...

I hear you on the banks. If you have to go to the bank physically go around the 20th when everyone is broke and there is nothing in the bank TO transact with.

As for that ticket off -- if it were any other time of the year!!! Everyone and their uncle is going to Mombasa. Therefore there is absolutely no difference if you went there because Nairobi will have moved there!!!!

Anonymous said...

Eveready hit 28/- by Noon on Tuesday (trading day #2)...

BTW, the NSE in time-honoured fashion goofed up on Eveready's trading on Day 1.

bankelele said...

pesa tu: I hope it's not as over-subscribed as Eveready/or it takes a few months for our cash to be released from UG

roughalmasis: 2006 had opportunities for new investors to come in, but not enough lessons were learnt esp with IPO's. Govt wants a full subscription of Mumias to raise money so they have extended the window
- Agents do serve rural customers, but do they get the level of service they deserve? Perhaps agents should be certified by the CMA - but then again, stockbrokers are and no one checks their service/performance records

Ssembonge: We have to have democtaric IPO processes. Kengen, the 'shining star' of 2006 had initialy been marked for a book building process that would have locked out the 200,000 first time investors
- KCB only does share services at IPO time

Anonymous: I am a bystander on Eveready. CW says it should drop below IPO price, but that's already been proved wrong

M: mid month is best, but I had no ATM card - and it takes 2 WEEKS to get a new PIN. Sad that I won't see coast in 2006. Even though December is never the best month (too crowded) I was hoping to do a dash & splash at Coast

coldtusker: Am amazed, but I wonder where it will be in 6 months. NSE aplogized for the goof today

Unyc said...

Hawkers kwa Bank...Lol...I can just c the scenario...

A lady, Josefynne Miingi who is a Business Development Manager at ASI (Academy of Savvy Investors) has come up with a gd way of amateurs like I, who want 2 know about the Stock investment issues and how to go about it. It runs 4 2 months consisting of 5 modules at 15K.

What do u think of that?

Anonymous said...

I see hawking in banks its rather boring queueing doing nothing or staring at TV trying to read the lips add to that the watchie who oversees that you move accordingly and stay in line Bah!
2 weeks no ATM aki that is too long pole. Thing about Mombasa in xmas is hard to explain there is a pull to it.

jke said...

Two weeks? OMG!

I second you on that hawking issue. The other day I went to one of those banks downstairs in NHIF building and turned around after realizing the waiting lines actually went from the desk to the opposite wall and back to the desk, through the whole hall. Crazy.

Bankelele - thengiu muno for keeping us informed all the time and for taking time to share interesting job opportunities with your readers. This is a very nice service!

bankelele said...

Unyc: It's good to take the time to learn about share investments. so go for it. There's fundamentals and there's psycology in investment and it's importnant to know both.

Gishungwa: Yu know those banks, as crowded as a bus stop and teh askari walks round like a prefect at parade. they should let people do more things. Missing Mombasa this year, but will try for early '07

jke; two weeks yes, but at least its a secondary account.

you're welcome on the jobs & opportunities. I started them for Kenyans in the US but it seems a lot more people here read about them now


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