Drip Friday

This started out as a post on DRIP’s – but went on to become a ramble about other drips (leaking taps) where small/retail shareholders and their companies lose hundreds of shillings individually and collectively lose millions of shillings from the investment fund pools in a vicious circle:

(a) DRIP’s are automatic dividend reinvestment programs. They are available in advanced financial markets and enable dividend cheques to be automatically re-applied to buy shares in the company - this would be very useful for the nearly 100,000 shareholders of Eveready who got 60 shilling ($0.93) dividend cheques this year that may cost more to clear than they are worth (the amount is so small, KRA can’t get their 5% withholding tax) local alternatives/solutions - small dividend cheques can be (i) processed through DRIP’s or (ii) Companies like Scangroup now have an arrangement where dividend cheques under 10,000 shillings can be cashed over the counter at no charge to investors at any Equity Bank branch. Shame that KCB branches doesn’t allow the same for their own dividend cheques (iii) More NSE companies should push for DRIP clauses for their owners (shareholders) as vigilantly as they do on corporate issues for their own employees (ESOP’s) and the Government (unclaimed dividends).

(b) Post-Safaricom Drip
big leaks
(i) There are investors who got no shares in the IPO because their stockbrokers did not place their orders, misplaced them, or for some other unthinkable (and perhaps sinister) reason. They are now chasing refunds of idle funds that have missed many opportunities over the last three months
(ii) There are investors who got 21% allocation, but because they took bank loans for the IPO, now owe the banks more than their shares are worth (and whose price is sliding). In addition to being charged interest, they have to pay for loan statements, transfers, and other fees for many months - and most can’t sell their shares until they pay off the loans.
(iii) The banking sector whose rules on Safaricom IPO refunds seem to change every other day – from forcing people without bank accounts to open accounts to receive their money (there was no obligation going into the IPO, so why should there be coming out? to not allowing encashment of IPO cheques (a DRIP formula would have been handy here) , to specifying which banks people could encash their cheques. solution M-Pesa the cash to investors - which was a clause in the initial IPO prospectus and would have boosted Safaricom’s 2009 revenue and profits
(iv) The Capital Markets Authority has imposed a Kshs. 1,000 charge ($15) for every transfer/consolidation of shares. This fee will be borne by thousands of Safaricom investors when they eventually pay off their bank loans

(c) Companies Laws & Registrars:
(i) Stale dividends: Thanks to vague laws that don’t specify how long companies can take between the time they announce dividends and eventually pay them. It’s so long that some companies may not be able to afford the dividends they announced months ago as they are still recovering from post-election events.
(ii) Company Registrars: NSE companies complain about having too many shareholders and the cost of mailing them accounts each year. The KCB rights issue is on now and I have received five copies in the mail in the last week. So how many of KCB’s 150,000 shareholders are genuinely different? Many times the problem is borne out of IPO’s where people apply in multiple names and accounts in the hype hope of getting higher allocations. But once the euphoria dies down, and after chasing numerous refund cheques, they forget or make no effort to consolidate their accounts. This leads to them getting five smaller dividend cheques and five sets of accounts - which are very expensive for the company to mail out to every shareholder. There are also another class of (reluctant) shareholders - who sold some of their shares, but because of the minimum trade lot order amounts (100 shares minimum per trade) are now left with a balance of shares that they can’t sell, get meagre dividends for, but still get the same reports mailed out to them.
local solution/alternatives (i) Allow people to consolidate their accounts with the company registrar (but see b (iv) - the CMA has imposed an additional charge [after the Safaricom IPO] for account consolidation (ii) The NSE/a broker/or agent should set up an odd lots board where investors can sell their small lots of shares – 3, 10, or 50 shares, provided that they are liquidating the entire holding ( I hear one stock agent does this, but would like to hear from more and confirm that they do offer this service) (iii) Proactive share registrars: - who should realize they are sending out 5 bulky letters to the same address, and perhaps initiate a consolidation process with investors (iv) e-mailing of accounts & reports to shareholders: Several companies have amended their laws to allow for e-mail of information - but so far, the only one I have ever received by e-mail was from across the border (Stanbic Uganda).

So there’s a long rambling post; not meant to blame or criticize, but to inspire other ideas and debate. What are your suggestions on other ways to cut costs of serving the small investors?

Other corporates

Safaricom day 14 and 15: After just three weeks of dominating (actually killing) trade at the NSE, the company has been given a waiver to be admitted to the NSE index, punting Serena Hotels (TPSEA)

Friday: Deals 4,858 Turnover Kshs. 564 million ($8.81 million) Average 7.26 High 7.40 Low 7.20 Last 7.30 Volume 77.8 million - Strong session. Very constructive. We based out at 7.05 yesterday [v. positive on the charts because the post listing low was 6.65 and whenever got near there]. We are still witnessing some de-leveraging and therefore, sellers did scatter until half way through yesterday’s session. However, given the turnover since its listing, we must be nearer the end than the beginning of that process.

Thursday: Deals 5,342 Turnover Kshs. 410 million Average 7.29 Closing 7.25 High 7.50 Low 7.05 Last 7.20 Volume 56.2 million - Intra day low was 7.05, but we appear to be basing out. Sellers tipped their hands and chased the market down over the last three sessions. Near term, we have seen the bottom. [Commentary and data provided by Rich.co.ke - Nairobi Stock Exchange Authorized Data Vendor]

Housing drip: the Housing Finance rights issue closed today. I hope they realize their target, but they tried to time it to coincide with Safaricom refunds, with its delays in refunds and clearing cheques, then they got caught up by the KCB rights issue.

No purr? What’s up at Marshals? They have almost 100 vehicles (Kia and Peugeot - whose franchise has ended) vehicles currently at Mombasa Port that the Customs Department wants to auction. At least their former flagship branch in the city (& rumored new PM’s office) on Harambee Avenue has now become a Stanbic Branch.