Wednesday, February 17, 2010

This time around: Kenya Stockbroker collapse, Report leaks, Credit Reference Live

Time for another this time around post which looks at stories that recur in the business environment

Mars Group Kenya: The an anti-corruption watchdog group is the wikileaks for Kenya, re-publishing hitherto top-secret government reports at their website.

Mars Group research and produce their own reports, but their archives contain a growing list of reports of corruption in Kenya that is worth checking out. This week they have reports done by PricewaterhouseCoopers for the government of Kenya on the collapse of Triton Oil Company and on the misuse of funds for Maize famine relief in 2008. Last month they also released the report on the sale of the Grand Regency hotel. The Triton report shows that:
- At Kenya pipeline company (KPC) the oil collateral agreement was poorly drafted and ambiguous. Also managers had great discretion, procedures were lax /there was inter-departmental conflict (oil was released without verification) and documentation was poor (since documents would get lost at KPC, financers would exchange documents then present them all to KPC at once)
- Triton was aggressive with financing and would arrange for shipment before they got financing. They were stuck at some point and KCB entered into a finance agreement for goods when the ship was already in Kenya
- Bad banking Ecobank have no claim against KPC, while the Fortis claim against Triton is suspect. Also Glencore had stopped financing Triton in June 2008 as they were suspicious about KPC fuel stock claims
- KCB and other financiers did not cooperate with the PWC investigators
- The debt owed to KCB may be substantially lower than KCB claims and they have provided little information to assist in verification of the Triton debt.
- Kenya anti-corruption commission should investigate further staff named in the report

GoK Bond The Government of Kenya is going to raise Kshs 14.5 billion for infrastructure via a third infrastructure bond. How does that compare to a similar bond a year ago?
2009: Kshs 18 billion ($240 million), interest rate 12.5%, minimum bid Kshs 100,000 (~$1,250), maturity 8 years, principal repaid in 2015, 2017, 2021. Funds used for road, geothermal, water projects
2010: Kshs 14.5 billion ($188 million), interest rate 9.75% tax exempt, minimum Kshs 100,000, maturity 8 years, principal repaid in 2016, 2018. Funds used for water, sewer, irrigation, road, and geothermal projects

The 2009 bond was over-subscribed and the only notable difference in 2010 is the lower interest rate offered. The CBK has decided the high cost of loans offered by commercial banks and perhaps by offering the same banks a lower return on government bonds; they will offer more competitive borrowing rates to the public

Credit Reference: February has also seen the licensing of Kenya’s first credit reference bureau – CRB Africa by the bank regulator, the Central Bank of Kenya. Following this, commercial banks have apparently commenced sharing information with the agency. Some of the rules governing sharing of data were highlighted when the credit reference rules were gazetted almost two years ago. These include
- Bureaus may share info only with a customers’ permission (which happens when you sign for a loan)
- They may only share information for business decision making (evaluate credit prospects) and must keep track of all information they share
- Customers are entitled to one free report a year, and within 30 days of a negative referral.
- If a customer complains, and bureau not able to complete an investigation of disputed information within a month, information will be deleted as request by customer
So what information will they compile?
- For individuals: Name Citizenship ID / PIN Postal/ Telephone Credit history (as reported) Court judgments (as reported) Referees
- For companies: Company registration details postal/physical/telephone Credit history (as reported), Court judgments (as reported), Guarantees
Shareholdings/directorships


Stockbroker collapse: This month saw the placing of another stockbroker under statutory management – this time its Ngenye Kariuki Stockbrokers [Last year in March it was Discount stockbrokers that was placed under statutory management]

Despite strong defense from the Kenya Association of Stockbrokers & Investments Banks - KASIB who say the brokers problems were manageable and did not warrant the intervention of the authorities the broker was in a weak financial position.
A summary by Faida Investment Bank, based on the published un-audited results of Ngenye Kariuki showed this
Half year June 2008 versus 2009
June 08 income 35m, expenses, 21 million, pre-tax profit of 10 million
June 09 income 3 million, expenses 10, pre-tax loss of 11 million

Share capital of 50 million, capital reserves of 251 million (which many brokers draw from the sale price in 2006 of Francis Thuo stockbrokers) [and the same amount appears as an intangible asset) at June 2009, the broker had an overdraft position of 63 million and receivable of 127 million which KASIB is laying at the feet of Citibank for withholding funds from the 2008 Safaricom IPO that are owed to several stockbrokers.

6 comments:

Baraka Manani said...

Martian determination is minimum force needed to tackle Kenyan corruption. Great post as always.

kachwanya said...

I still don't understand why Citibank is withholding the funds owed to stock brokers. even the financially stable companies would not allowed their funds to be held by someone or company for almost two years and if they do, probably they would not function smoothly. Does anybody has an idea why citibank is doing this? Coz we might be blaming brokers while the problem lies else where

Mercy Kakoro said...

Dear Bankelele,

The Africa Centre for Open Governance (AfriCOG) is an independent, non-profit making organisation with a mandate to provide cutting edge research on governance and public ethics issues and, monitor governance fundamentals in both the government and the private sector. AfriCOG's governance and anti-corruption reform initiative are aimed at addressing the structural causes of Kenya's governance crisis by a knowledgeable citizenry.

Please find below links to reports that are part of AfriCOG’s responsive research program examining topical issues of public interest in a bid to provide insight into structural causes of corruption and bad governance. Digital copies of these publications are available on our website www.africog.org.

Review of securities regulation
http://www.africog.org/reports/africog%20comments%20on%20the%20capital%20markets%20authority%20regulations.pdf

The maize scandal
http://www.africog.org/reports/maize%20report.pdf

Five years on: How effective is the KACC in Kenya’s fight against corruption?
http://www.africog.org/reports/kacc.pdf

Analysis of the fiscal management bill, 2008
http://www.africog.org/reports/analysis%20of%20the%20fiscal%20management%20bill.pdf

Ndung’u faults state’s resolve on land reforms
http://www.africog.org/reports/ndung_u%20faults%20state.pdf

Ringera: House urged to deny KACC funds
http://www.africog.org/reports/press%20release%20on%20ringera.pdf

Analysis of the triton oil scandal
http://www.africog.org/reports/africog%20newsletter-triton.pdf

?mission impossible? Implementing the Ndung'u report http://www.africog.org/reports/mission%20impossible%20incomplete.pdf

Implementing the Ndung’u report - short version
http://www.africog.org/reports/africog%20(july%20issue).pdf

"Free for all? Misuse of funds at the electoral commission of Kenya" - short version
http://www.africog.org/reports/eck%20summary%20report%20final.pdf

"Free for all?" Misuse of funds at the electoral commission of Kenya - full report
http://www.africog.org/reports/eck%20report%20(plus%20annexes).pdf

Annual report 2007-2008
http://www.africog.org/reports/africog_07-08_annual_report.pdf

Commissions of inquiry report
http://www.africog.org/reports/commissions%20of%20inquiry%20full%20report.pdf

An audit of kibaki's government anti-corruption drive
http://www.africog.org/reports/narc%20audit.pdf

I trust you will find the analysis a useful resource. We look forward to receiving your feedback.

daniel john said...

Wonderful article, very well explained. i glad to see this blog, such an informative article, Thanks for share this.

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Very well explained. I would like to say that it is very interesting to read your blog.

Research Papers said...

This time around Kenya Stockbroker collapse, Report leaks, Credit Reference Live, This is really very bad to listen I thing Kenya needs to do some thing to get them out from this trouble.

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