Kenya Companies Act 2015

This morning, a session was held by the law firm of  Anjarwalla & Khanna in Nairobi to advise stakeholders abount the new Companies Act and Insolvency Act that are now law. 

The Cabinet Secretary for Industrialisation, Adan Mohamed, said that the day when President Uhuru Kenyatta signed 4 bills into law - the companies act, insolvency act, special economic zones act and business registration act - was his proudest day in two years in the Cabinet.

Partners at the law firm explained various sections of the new companies act including: 

• It makes businesses easy to register and operate - and one person can form a company. 
• Memo (can be one page long) & articles are simpler 
• Role of the company secretary has been clarified. Corporate governance has been clarified with penalties for directors and management including for conflict of interest.
• 30% local shareholding in a foreign company. Adan said this was a mistake that the government would rectify. The team from Anjarwalla & Khanna said that while the 30% rule  is probably constitutional it's impractical, and the AG & government agree. They also explained that it is for new branches only - and does not apply to existing branches, or to any subsidiaries of foreign companies
• It gives minority shareholders court powers if main shareholder/management are prejudicial or make bad decisions / transactions on behalf of the company
• New company is able to do anything including borrow unless if it restricted
• PE Investor oversight: Investors can attend board meetings as observers  and  without being directors or  legally bound by decisions
• A company must have at least one natural person as a director (all companies have 6 months to rectify this)
• Companies can buy back shares from other shareholders
• Kshs. 6.75 million (~$67,500) is the minimum paid-up share capital for a public company (this will affect some land owning companies and large property developers)
• Public companies need to know who beneficially owns their shares (the true owners behind proxies)
• Companies are required to have websites and to publish financial statements online
• Share buy backs are now allowed. 
• All shareholders have rights to preemption when companies create new shares - (and this can only be from profits, not new money)
• MBO and LBO:'s banks could not finance acquisitions, but now they can. e.g. Management can to a  bank and use the assets of the company secure financing to buy it or pay off foreign outgoing shareholders - (this opens another exit opportunity for investors)

Adan also said that the insolvency law, which previously was aimed on recoveries for secured creditors, is now focused on bringing insolvent companies back to life.

Nairobi Securities Exchange IPO

The Nairobi Securities Exchange (NSE) launched its IPO on July 23. It runs up to August 12, 2014 and they are selling 66 million shares at Kshs 9.50 per share (with a minimum investment of 500 shares costing Kshs 4,750) and the NSE plans to raise Kshs. 627 million (~$7.3 million).

Excerpts from the prospectus and other sources. 

• The NSE borrowed Kshs 300 million from Kenya Commercial Bank to part finance the purchase of the Westlands building that now houses the exchange. (The interest rate is minus 2 the bank’s base rate). Part of the funds raised from the IPO will be used to repay the Exchange's mortgage debt.
• The Dar es Salaam Securities Exchange has completely divested from the NSE and CDSC.
• The NSE has about Kshs 1 billion assets and an EPS of 10.70. They had earnings of 622 million and a profit of Kshs 262 million in 2013. The NSE owns Kshs 20 million worth of  Safaricom bonds and Kshs 15 million of Housing Finance ones
• The IPO is budgeted to cost Kshs 40.8M
• Ahead of the IPO in which 194 million (M) shares are being listed, the Kenya Government and the Investor Compensation Fund each own 6.56 million shares and 22 stockbrokers each own 4.08M shares - for a total of 128.6M shares. 2.5 million shares are reserved for employees of the exchange (The NSE  has 38 employees and 5 senior managers). 
• KRA assessed and charged them Kshs 19m for 4 years of back taxes, of which Kshs 15m has been paid
• One of the options the Exchange is contemplating is to establish regional exchanges in Somalia, the Democratic Republic of Congo (DRC), South Sudan and Burundi 
• The NSE expects to introduce the REITs and ETFs, and there are also plans to introduce the a Derivatives Market this year. The NSE also plans to upgrade of the Automated Trading System (ATS) and the Bonds Trade Reporting System with some of the proceeds from the IPO.

Turning Round the Lunatic Express

A few weeks ago, Rift Valley Railways (RVR) and Citadel Capital had a small media briefing to highlight the state of their investment in a consortium to run the Kenya Uganda-Railway. It was meant to signal an escalation in the marketing the achievements of the consortium, but is also highlight the state of the railway that they invested in about three years ago.

The railways which moved 4.2 million tons in the early 1970s’ when it last got a public investment, but had been in steady decline since with increased competition from roads and pipelines. It was then passed on by the Governments of Kenya and Uganda through a concession to new owners who, as it became apparent later, were without money or management expertise - and were down to one working train, and about to pull the plug on the venture.

The new investors, led by  Citadel and Transcentury, fund raised through debt and equity and set about rebuilding hundreds of kilometres of rail tracks that were dangerous if trains moved at their regular speeds, refurbishing locomotives and wagons, automating line movements, creating storage facilities, and putting staff succession plans in place. This year they launched a graduate trainee program that will have a class of 20 this year who were selected from 3,400 applicants, and will soon install a train simulator for training.

Passenger services are 4% of Revenue

Their concession called for an investment of $40 million in 5 years but it's taken a budget of $300 million to get where they are today, including $11 million worth of levies paid to the governments every year. They hired a management team from Brazil  who engineered similar turnarounds, and there has been some progress in going from 22 days to move cargo from Mombasa to Kampala, to a current average of 8 days. The best performance is 4 days, and their internal goal is to make that period the average by by 2015. They are back to moving 1.5 million tons a year, meeting a consortium target with s plan to get to 4.5 million tons by 2016.

But even as they are breaking even, the governments' of Kenya and Uganda are restless.In recent weeks, the Deputy President complained about the creaking 90 year old relic known as the Lunatic Express that was built by the British Colonial government, while the Transport Cabinet Secretary believes that with 20 million tons passing through the Mombasa Port, there's need for five other railways.

There are designs to have a Chinese-built wide-gauge railway from Mombasa to Uganda (to be financed with a 1.5% tax on all imported goods) and another 1,500 kilometre track from a planned new Lamu port all the way to South Sudan.

Even with clients like Total, Hass, Maersk, Coca Cola, Shell, the World Food Program Bamburi, Athi River, and EA Portland cement companies, RVR still have a way to go with proving to other corporates that they are a viable reliable option to the hundreds of trucks that make that daily journey from to and from the Mombasa Port.

Hilton, Intercontinental, KWAL Privatizations

Privatizations to be concluded by the Kenya Government by June 2013 include: 

- The Industrial & Development Corporation (ICDC) will sell 26% of Kenya Wine Agencies Limited (KWAL to Distell of South Africa and 4% to employees.

- The Kenya Tourist Development Corporation (KTDC) will sell 40% of the 287-room Hilton Hotel, 34% of 389-room Intercontinental Hotel (both in Nairobi) and 39% of Mountain Lodge which is located in Nyeri and managed by TPS Serena  to fellow shareholders.

No IPO's will result, but the remaining shares in KWAL may be sold to the public within two to four years if their performance improves.  

Reading the Safaricom Tea Leaves

Post two of three: Safaricom has been one of the most progressive companies in terms of investor relation’s management, largely because of the cost of their large shareholder base. They spearheaded move to avail electronic instead of printed annual reports and payment of dividend by m-pesa, as opposed to cheques which were unviable for many shareholder who had the bare minimum of shares. Another benefit of electronic reports is that they are easier for potential investors to obtain (some companies print as few reports as legally possible and they don’t circulate widely)

Inside Safaricom's 2010 A/R

Shareholders: - Safaricom has 787,363 shareholders down from 828,912 in 2009
- The Government of Kenya has acquired more shares in the company despite a stated move of divestment. This year they have 22 million more shares, going up from 35% to a 35.06% stake
- Overall there are more foreign buyers of Safaricom shares, but NSSF Rwanda may have exited
- Director Esther Koimett bought 517,600 shares, and chairman Nicholas Nganga has 850,100. Outgoing CEO Michael Joseph and Finance Manager Les Baille each own 2.5 million shares, while their replacements, Bob Collymore and Chris Tiffin have none
- Last years’ AGM (the first since NSE listing and prominently advertised as having no handouts or frills) was attended by just 2,182 shareholders.
- 180,000 shareholders got their 2009 dividend by m-pesa (mobile phone payment)

Performance - Revenue breakdown of the 83 billion ($1 billion) in revenue voice accounted for 75% (2009: 83.4%), with SMS and other data at 9.7% (2009: 8.8%), Mpesa at 9.0% (2009: 4.2%) and equipment sales at 4.4% (2009: 3.3%). Revenue growth was 8% for voice, 32% for SMS/Data and 158% for Mpesa n all categories was positive with voice at 7.8%, SMS and other data at 32.4%, 58% for equipment sales and 158% for Mpesa
- North Eastern Kenya region is growing by over 200% owing to improved security

Other Numbers - Earned Kshs 7.6 billion ($95 million) from m-pesa (up from 2.9 billion in 2009)
- Has Kshs 10 billion ($125 million) in cash and short-term deposits, up from 4 billion the year before. Safaricom earned interest income of Kshs 350 million in the year
- Borrowings comprise 6.28 billion from a consortium of banks, 2.3 billion from one bank, and 7.5 billion in corporate bonds
- Have 2,000 dealers and 200,000 retailers
- Pay income tax at 27%, compared to 30% before they listed at the NSE

Staff - Launch ESOP in 2009 with 101 million shares and which will be issued in 2013. 2165 staff (88% of total) have joined the scheme
- Key management were paid 522 million (up from 438m)
- Of their 2,470 staff the company has an almost equal ratio of male and female employees

Fibre/Data Investments: - are investing 890 million into Seacom: they paid 316 million and balance of 573 million is to be paid over the next 5 years
- Paid 2 million to TEAMS for a 22.5% stake (other shareholders are GoK and Telkom both with 20%)
- Paid KPLC Kshs 116 million as part of 290 million for use their power network for fibre distribution over the next 20 years
- Bought packet stream data networks, for wimax,for Kshs 373 million shillings, and has lent Kshs 600 million to One communication (in which they own 51%)

Customers - their internal customer delight index had a measure of 7.38 last year against a target of 7.76
- Its true that premium customers get better customer service - there is a platinum line at call centre to service platinum (high end) customers on a prioritized basis (i.e. even by calling regular customer service free help line, ‘100’ they get through and served faster
- Safaricom business has over 2,000 customers including airlines, media houses, banks
- Mobile data is responsible for 90% of data revenue
- customer growth (their measure) Safaricom took up 65% of new phone lines in last year
- website: Safaricom the most progressive companies in online investor relations in terms of results and investor briefing posted on the web site and now dividend payments by mobile phone. It now uses twitter & facebook accounts, to promote its services and also try and (slowly) responsd to numerous customer service and product queries posted online

Rival disclosures: Safaricom’s main rival is Zain Kenya - and while it is not a listed company, the former Zain parent was listed on the Kuwait Exchange, and used to produce some extensive reports on their African operations - ranking individual countries by revenue, profit, subscribers - which was information that the local Zain office did not typically share. Similar information can also be gleaned from Orange of France about their Telkom Kenya operation.

Zain Africa sold to Bharti Airtel of India and while a financial quarter is yet to pass since the takeover, it appears they may follow the trend, as they are also a listed company with segmented reporting requirements. For Kenya in July 2010, they note that:

- Airtel Kenya has been given additional frequencies that enable it to offer 3G services
- All operators will have the right to borrow funds from the universal service fund (a fund that will comprise 1% of mobile operators annual turnover) and to use to set up infrastructure in the identified rural areas.
- Kenya companies are Bharti Airtel Kenya B.V. (name changed from Celtel Kenya BV), and Bharti Airtel Kenya Holdings B.V. (name changed from Celtel Kenya Holdings BV)

Orange Kenya Outlook

Ever since the East African broke the story about France Telecom asking the Kenya Government (GoK) to reimburse it for more than the amount it paid to invest in the privatization of Telkom Kenya in 2008, its been an interesting tale - (summarized well here at Ratio Magazine) - and also confusing that a company invested in the mobile business – a component of one of Kenya’s fastest growing sectors (communications) until recently, could be struggling. Orange is also the exclusive partner apple for the i-phone in Kenya which is the world leading smart phone.

Market leader Safaricom is part of the problem as Orange, Zain and Yu have been unable to shake its dominance of the market whether voice, data, dealerships, money transfer.

That Orange expects more support from GoK as a shareholder is evident since they still own a majority (51%) of Telkom Kenya, compared to the 35% GoK owns in Safaricom. E.g. Orange, Zain and Yu have been lobbying hard for the lowering of the cost of a 3G license from the current $25 million which only Safaricom has paid (Kahenya wants proof that 3G was paid).

But lobbying to GoK against Safaricom is not always as easy since they are one of the country’s largest taxpayers and a vital cash cow that is a consistent source of revenue for GoK increasing expenditure. e.g In the two years prior to Orange arrival, Safaricom paid GoK direct and indirect taxes of 24.1 billion shillings ($320 million) and 18.4bn ($245 million) which is almost as much as the 25 billion that Orange paid for their investment.

Outlook: Looking at the Orange parent accounts (France Telecom) for 2009 year ended it appears that Orange Kenya has no value (invsted EUR 244m in 2007, wrote it all off in 2008) and is now also listed as an asset available for sale.

But Orange could look on the bright side and see that the market is changing while the rags to riches tale of safaricom success as told by CEO Michael Joseph may never be replicated, the market potential is there; whatever mistakes they have made in technology selection, product rollout, and marketing can be fixed. Joseph is himself expected to retire by the end of the year taking away an intangible brand impact from the company, and a compromise is likely to be reached with 3G license cost, EASSY fibre, inter-connection rates and number portability which will ease the environment for new investors Essar (Yu), Bharti Airtel (who are buying Zain Africa assets) and Orange.

Farewell RVR

So it’s now clear to all that the Rift Valley Railways era of managing the Kenya to Uganda RVR railway concession may end in the next few days.

And it’s now apparent to many that Roy Puffett, the RVR Managing Director, was a conman, who conned two governments (Kenya and Uganda), the International Finance Corporation (IFC) and PAC who brokered the deal. Running railways is not easy it seems and even Tanzania want to end a troubled rail concession granted to an Indian Company

Puffet has been silent, holed up in boardrooms trying to squeeze out more payments while the clock is ticking. Much has change in three years, when many thought he was another Michael Joseph (Safaricom) who would save the railway from collapse and transform it to unparalleled success thought private management

In 2007, he gave a public talk to members of the Institute of Economic Affairs (IEA talk) and the public that is republished below:

New start: RVR is a 25 year concession between a consortium of companies and the governments so Kenya and Uganda.

RVR got off to a start in November 2006 and suffered 61 derailments that month. They have since slowed down all their trains as a measure to contain such incidents. They now average 10 – 12 incidents a month - from a combination of equipment, railway and human failures (including sabotage)

Financial & Investment: So far the consortium has invested about $18 million. The shareholding is 70% foreign (Sheltam, and an Australian company) and 30% local (Transcentury – 20%, ICDCI – 10%) and some financing was sourced from the IFC.

Some attendees later asked why Kenyans were not given a chance to invest in the company (like the Kengen IPO) to which the MD replied that there were not a lot of investors rushing to build railways in Africa (only 2 groups bid for the concession) .

Equipment: RVR inherited 174 locomotives from Kenya (55 were working) and 44 from Uganda (25 operational) . Also 46% of the 7,000 wagons were usable.

They have focused on getting a working fleet going. This has entailed reducing the fleet to contain only trains in good condition and they also got back 5 locomotives from Magadi Soda. Fleet repair is slow as the company faces a lead time of 8 month for locomotive spares.

Their workshops were run down, with no tools or equipment, and many of the sheds had long been taken over by other businesses. The remaining sheds had leaking roofs, and when it rained they had to stop maintenance work for fear of electrocution.

Railway: Demand from china for steel has driven steel prices through the roof. There are few companies making railway parts (and African countries have a different railway size) so it takes about 8 months to deliver (they have to order 4,000 tons at a go) which is expensive. One engineer (from the UK) at the talk said that such a railway would be shut down with all the incidents if it was in Europe - the MD replied probably true but this was the state of things. He added that new rails were be laid on the Mombasa - Nairobi line after which the older ones will be taken out and used for other upcountry lines.

They will also close some stations (there are 50+ stations between Nairobi and Mombasa) and have installed communications and tracking systems on all trains and stations

Operations: RVR have done quite well since they took over in November 2006 and move about 200,000 tons per month. While this has not changed much in volume from before the concession, they are achieving this with two differences (i) they are using a smaller fleet (ii) and they are collecting more revenue (from increased efficiency & reduced corruption in revenue collection) – about $6m a month. Their volumes dipped in December and April following flooding from the rains. The MD mentioned that they now take between 4 – 7 days to move cargo from Mombasa to Kampala – from 20+ days before, though some members of the Kenya Shippers Association disputed that there.

Other Stakeholders
Employees those not retrenched by the company are all being retrained in safety and modern railway processes

Customers While there have been complaints about the slow movement from the Mombasa port (including by the Kenya Ports Authority), the MD said that 50% of the 14,000 containers at the Mombasa port don't have proper documentation.

He added that business people were contributors to this i.e. as a result of the past railway inefficiency, companies had taken to using railway train wagons at Mombasa as extra storage facilities. But when the railway movement improved, and cargo was now moved upcountry, the same businessmen took their time to offload goods, creating more congestion.

They have tried to contain prices and their charges ($0.05 per ton per km) compare well with, truck companies (that taken advantage of rail inefficiency to jack up prices)

Passengers & Commuters: they will run commuter train services (in Nairobi) for 5 years, but this is one thing none of the bidders for the concession wanted to continue running – as it is a loss maker.

Kenya Railways : The corporation still exists and will oversee the concession on behalf of the government of Kenya, while also maintaining a register of railway assets. The corporation still has a great burden from the past – illustrated by Kshs 31 billion of debts (about $600 million). Including a 12 billion pension deficit. They hope to use land sales to pay off their employee (and perhaps supplier) obligations while also talking with the governments to waive some debt. They have also received 1 billion shillings form the world bank to resettle some residents in Kibera who live/work too close to the railway line (but this plan/financing is already 1/ ½ years behind schedule)

Summary: The MD mentioned that there was a lot of expectations about the now concessioned railways – some of which were not close to being realistic. He also added that they had fewer customers as a result of the slow uptake by the concession, but added that RVR had no regrets and that the governments of Kenya and Uganda were very supportive.

So, a rough but promising start by the company who now say they have enough locomotives working to achieve their 5 year targets. Will they be a celebrated success like Safaricom? We'll know in a few years.

Co-Op IPO Aftermath

A formal statement is out today after Monday's press conference where the bank’s management revealed that through their 2008 IPO, Co-op Bank had raised Kshs. 5.4 billion (~$77 million) but short of a revised target of Kshs 6.7 billion as 66,576 shareholders bought 546 million shares. The Business Dailyreports the shares will be allocated 60% to individual investors (340.5 million shares) , 30% to institutions (171 m shares ) and staff will get 9% (52.6 m shares)

Capital raising: the offer was not underwritten (by D&B winner - best lead transaction advisor and best investment bank), but despite the shortfall, what was raised should be enough for a few years. Co-op’s capital adequacy goes from 9% to about 18%, which is not bad [10 billion would have taken to this to 22%]

Other banks that have been reported to have engaged in recent private capital raising include K-Rep and Southern Credit while others who may need to tap shareholders next year could Chase, CBA, CFC Stanbic and even KCB (for the third time in five years?)

Glass Half Full: Though Co-op had initially set out to raise Kshs 10 billion, their listing came at a tough time and was not received as enthusiastically as past IPO’s. Still it had some positives but came in a tough market before the target was revised down, but has some positives

- For the bank: 66,000 shareholders is a manageable register , and since they did a lot of the placement and receiving work in house, the IPO was not as costly as others (budgeted at Kshs. 248 million)
- For new shareholders: no refunds to queue for, and for once a 100% allocation
- For other serious investors, a brief return to sanity as the IPO speculators with their borrowed funds kept away – Co-op was the fall guy that injected some reality back into IPO process and share investments.

2009 IPO’s: Next year could see the entry of Nakumatt supermarkets, bread maker a DPL and others from the private sector.

From the public sector (Government side) comes a series of planned privatizations a few of which could be IPO candidates to assist the Government in fund-raising:

Top of my my wish list is Kenya Pipeline, whose much improved governance saw a consortium of banks line up this month to offer the company funds for expansion (a few years ago KPC was using dubious financial intermediaries) and Kenya Wine Agencies. In addition, more shares of Kengen East African Portland Cement Company and National Bank will be sold to the public.

Other non-IPO candidates will be targeted at strategic partners [for Kenya Ports Authority- and TEAMS (submarine cable)] while private investors may be sought to invest in the sugar companies [Chemelil, Sony, Nzoia, Miwani, Muhoroni] hotels of Kenya Tourism Development Corporation, banks [Consolidated Bank, Development Bank of Kenya] and food processors [Kenya Meat Commission, New Kenya Co-operative Creameries]

Kenya Bank Rankings: June 08 Briefs

ABC; assets up 16%, deposits 17 and loan 7%, income is up 12% but expenses up 17% with no growth in 2008. Too early to tell about kisima at this indigenous bank>
Bank of Africa : deposits up 20% and loan 34%, income 51% with expenses up 41% but NPA also up 59%. French bank, quiet style, but making more marketing efforts to shore up size.
Barclays: assets up 22%, profit 21%, deposits 22% and loans up 30%. Income is up 35% from a year ago but expenses up 45%. In 2008, deposits are up 18% but loans up 1% - change of direction? Did not actively participate in Safaricom, and this big bank everyone (unfairly) watches to see how they react to Equity Bank
Baroda: profit up 31% deposits 9%, and loans up (staggering for them) 57%, in 2008, both income and expenses are up 29%, and though deposits are flat, loans are up 25% - no longer playing safe
Chase: asset up 76% deposits 58% and loan 88%. Income is up 48% but expenses up 75% and NPA 86%. in 08 loans up 29% and deposits up 51% at this fast growing local bank which has now ventured into stockbrokerage as Gencap
Citibank: assets up 65% and profit up 74%. 2008 looking even better as income is up 49% compared to just 7% in expenses, and remains immune (and insignificant) to parent turmoil
City Finance: assets up 2% , deposits up 12% strategy shifting with shifting bank with loans down 59% government securities and placements up by higher margin from a year ago. Just 8 million in staff costs in six months?
Commercial Bank of Africa: (CBA) assets and profit up 21% loans up 52%, and income up 23% compared to expenses 26%. Increased lending in 08 with 36% loan growth since December. Blue chip bank adjusting to the times, quietly did Safaricom IPO and dabbles in insurance
Consolidated: assets up 6% deposits 24% and loans 36% - with income and exp up 10%. Up for sale, can't list so likely to be sold privately, and hopefully without controversy
Cooperative (Co-op) : asset up 23% profit 51% loan 44%, and NPA down 54% but insider lending up 40% from a year ago. IPO set for October 20 this year – but has it cleaned up enough legacy bad debt?
Credit: asset up 23% profit up 36% deposits up 25% and loans 44%
Development bank of Kenya (DBK) - assets up 33% deposits up 41% and loans 53%. The
Development financier is up for sale by the Government (ICDC)
Diamond Trust: asset up 40% deposits 37% loan 34%, income up 45% but expense up 64% as bank continues its expansion in Kenya, Uganda Tanzania and Burundi (every other bank says Rwanda)
Dubai Bank asset up 5% deposits 8% income 18% expenses up 13%, somehow translating to profit rise of 85%
Ecobank (formerly EABS) assets and deposits up 4%. Income up 34% and expenses up 10%. The parent Ecobank is currently raising $2.5 billion, (equivalent to Barclays Kenya assets) – showing how far Kenyans banks have to go in the big leagues
Equatorial: assets up 26% deposits 29% , income 21% but expenses up 31%, with no growth in 08
Equity 100% growth in assets loans and profits, and 78% in loans. Income up 140%, with expenses up 106% from a year ago. How long can this exponential growth go on?
Family bank : assets up 39% deposits 23% loan 52%, but income has tripled as have expenses at ‘Equity Blue’
Fidelity: asset up 29% deposits 36% loans 40%
Fina: Assets up 13%, deposits 14% and loan 32%. Income up 26% but expenses up 47% leading to a 24% lower profit. Many banks encroaching on the turf they created in Rwanda
Giro: assets up 1%, , deposits flat but loans up 10% , income up 26% with expenses up 10% - also leading to a surprising 86% profit surge
Guardian: assets and deposits up 11%. Income up 37% with expenses up just 26% leading to a profit surge of 76%
Habib AG Zurich: assets up 10% profit 22% deposits 13% and loans 31%
Habib Bank: assets up 4% from year ago, but no growth in 2008
Housing finance: asset up 34% deposits up 15% and loans up 27%. But profit down 20% (income up 1% while expense up 5%). in 08 deposits are up 5% and loans up 15%. Raised new funds from shareholders and will expect a boost from Equity Bank as anchor shareholder
Imperial; assets up 16%, deposits and loans up 22%. One bank reputed to have the fewest customers, but massive profits from them
(Bank of) India: asset and loans up 15%, with profit up 35%
I&M: asset and loans up 33%, income up 25% as expenses up 16%. Shareholders funds up 60% from new investors and the bank is opening new urban branches
KCB: assets up 66%, and deposits up 20%. Profits are up 77% (income up 50% with expenses up 38%) from a year ago. New funds raised, going regional in eastern Africa and will be cross-listed as well.
K-Rep: assets up 13%, deposits 15 % loans 10%. Income up 12% but expenses up 33% leading to a sharp drop in profit
Middle East: income up 15% and expenses up 33%
National Bank of Kenya assets up 3%, deposits and loans virtually unchanged, but income up 16% as expenses up just 4% leading to a surge in profit of 46% . government shareholding is up for sale
NIC: asset up 37% deposits 31% and loans 39%. Profits are up 38%, as income is up 26% with expenses up 17%. Expanding their stockbrokerage operation, and also opening new branches,
Oriental: assts up 12% deposits up 32% and loans 16%
Paramount Universal: assets up 13% with deposits and loans up 17% at one of the smallest banks
Prime Bank: super growth, with asset up 59%, deposits 57%, loans 66%. Income up 56% with expenses up 30% leading to a surge in profit up 98%
Southern Credit; assets up 9%, deposits and loans up 10% - but income is up 14% with expenses up 31%
Standard Chartered; sleeping giant - assets up 2% profit 1% deposits down 2%, but loan up 15%. Income up 6% but expenses up 10% from a year ago
Transnational: assets up 19% profits 16% deposits 23% and loans 19%
Victoria: flat, assets down 2%. Deposits are down 34% as loan up 18% - and income is up 18% but expenses are up 58%

Bank for sale

The Government intends to sell a portion of Development Bank of Kenya (DBK) to a strategic investor.

The goverment, through ICDC owns 90% of the Bank which was almost merged with Housing Finance in 2005.

DBK is Kenya's 34th largest bank with assets of Kshs. 3.9 billion ($55 million)

10 shilling shares

The recent surge of share splits was unjustified based on the overall trading history of the companies. So it’s only a matter of time before some of these shares dip to their pre-split / hype prices. Any share that was trading for less than 100 shillings in the last 18 months is a candidate for correction – to the below 10 shillings mark and that includes CMC, ICDCI, and Sasini.

IPO’s
Now that a few IPO’s have passed, but not their euphoria, it is apparent that investment advisors of future IPO's will have to rework their calculations to satisfy institutional and seasoned retail investors. While government divestment offers will be geared to the mwananchi, smaller private companies will have to ask themselves if by offering IPO shares at about 10/= each, they want to be like Eveready or Scangroup and end up with up with 100,000 shareholders who own 100 – 200 shares each.

Rising shareholder costs
- Kengen told us their 2006 annaul general meeting (AGM) - after the IPO would 80 million shillings and another post IPO company Firestone will have their AGM in Nakuru on March 22 (where fewer shareholders can attend).
- With over 175,000 new shareholders, the cost to Eveready of even inviting all their new owners to the AGM is quite prohibitive - mailing out accounts & AGM notices would cost about 4 million shillings ($63,500) [i.e. 175,000 letters X 25 shillings postage per letter]. So Firestone shareholders will also be asked to approve a change in company articles to allow such notices to be sent by e-mail or fax.
- The same postage costs will apply when Eveready mail out their dividend cheques. Since most shareholders have the minimum 100 shares, they will receive payment cheques of Kshs 60. which is hardly justified when you factor in bank & postage charges
- Also to cut costs, the company has sent out slimmed down accounts that are about the size of the president's speech on Jamhuri day.
- On a positive note, Kengen have made an arrangement with (their bankers) KCB so that shareholders can cash their Kengen dividend cheques at any KCB branch at no cost.

Alternative investments
KTN had a story on Friday about the Central Bank (CBK) crackdown on pyramid schemes - and it was followed by a poll on whether they should be banned. The result was 16% YES, 84% NO (i.e. they should not be banned.) Though unscientific, you sense from the poll that these schemes have become lifelines/shortcuts to riches for a diverse variety of Kenyans.

In fact many of these schemes have been shut down at the urging of commercial banks – who have had to deal with swelling crowds in their banking halls – either depositing or receiving cash in the merry go rounds. Some of these investors blame jealousy from banks (who want to hold their money and give out as loans) and the Nairobi stock exchange for putting pressure on the CBK to act (since they have been selling shares to re-invest in these quick cash back avenues with guaranteed returns.

This Week

The Blues
It’s that time of the month again.

Stanchart Top Bank
Market Intelligence published their eighth annual banking survey this week, and ranked Standard Chartered as the top bank in Kenya, followed by Barclays and surprisingly coming third was Equity Bank no. Other rankings are Citibank 9th, KCB 25, National Bank 26, and Co-operative Bank at number 30.

Corruption
The Economist took its bi-monthly look at Kenya and notes that the prosecution of anti-corruption cases will continue to fail as long as they are handled by the Attorney General’s office – and that Parliament should transfer these powers to the Anti-Corruption Commission.

Privatization
Both the Daily Nation and the East African Standard condemned the Privatisation Bill passed last week in Parliament, because it handed the entire privatisation process over to a "Gang of Eleven" - political appointees handpicked by the president and the Minister for Finance and who are not subject to approval of the Parliament . Earlier drafts of the Bill had provided for the involvement of bodies such as the Law Society of Kenya, the Institute of Certified Public Accountants of Kenya and the Federation of Kenya Employers in the privatisation process.

Elsewhere, India has abandoned plans to privatise a dozen profitable state-owned companies.

Airport Hotel booming
The new Panari Hotel is doing roaring business from airline passengers and crews. Because of its location on Mombasa Road, about halfway between Nairobi city and JKIA , hotel guests rarely have to worry about traffic jams on their way to the airport for their flights. It is also quite convenient for Wilson Airport passengers.

Debt forgiveness
The Kenya Planters Coffee Union (KPCU) has re-opened a debt moratorium window 1st September to December 31st 2005. This will extend debt relief to farmers by giving them a chance to repay principal amount (no interest will be charged) from 31st December 1991 to 31st December 2001 with all interest payments forgiven.. However, this is not likely to fly as coffee farmers are asking the government for complete, 100% debt forgiveness including principal.

Sports Weekend
Saturday 20 August
12:30 - 15:00 MNET/SS1 Tri-Nations:: Australia vs SA,
13:00 - 14:15 SS2 Formula One: Turkish Qualifying,
14:10 - 17:00 SS3 FA Premiership:: Man Utd vs Aston Villa,
14:15 - 16:30 SS2 Scottish:: Rangers vs Celtic,
17:00 - 19:15 SS3 FA Premiership:: Liverpool vs Sunderland,
17:00 - 19:15 SS6 FA Premiership:: Newcastle vs West Ham,
19:15 - 21:30 SS3/CSN FA Premiership:: Birmingham vs Man City,
22:45 - 01:00 SS7 Spanish Super Cup: Barcelona vs Real Betis,

Sunday 21 August
14:30 - 17:00 SS2 Formula One: Turkish Main Race,
15:00 - 17:45 SS3 FA Premiership:: Bolton vs Everton,
17:45 - 20:15 SS3 FA Premiership:: Chelsea vs Arsenal,
18:00 - 21:00 SS1 IAAF GP: GP - Sheffield,

Business Briefs

KISS FM firings
Another round of media musical chairs, this time at KISS FM. Most of them should land jobs at other media houses, further confusing listeners who tend to associate the personalities with particular stations. Last month it was Nation TV which poached several personalities from KTN.

Kenya Railways Privatization Plan
Seven bidders have been given till June 15 to submit their proposals to the government to manage KR, and the winner will be announced December 15th. The government has asked the bidders to consider the following in their proposals; (i) retain KR’s 9,000 worker until a WB retrenchment plan is adopted (ii) double the volume of cargo carried by KR within 5 years (iii) sign a performance management contract. The bidders have in turn agreed to increase KR’s capacity by 20% a year, and have all expressed no interest in continuing any passenger traffic on KR.

Nation Media Group
Turnover at the NMG increased from 4.5 billion in 2003 to 4.9 billion in 2004, and net profit increased from 602 to 641 million shillings (12 shillings EPS). They will pay a 100% divided (5 shillings per share?) and in addition shareholders will receive one bonus share for each three they hold as at May 2005.

Unilever Tea Kenya
Posted a 360m profit, up from 62 million in 2003, attributing it to better tea sales, improvements in production and favorable exchange rates. The profit comes to an earning per share (EPS)of 7.39 for the year, of which they will pay 6 shillings as a dividend. In 2003, they also paid 6 shilling divided, but on earnings per share 1.27 shillings only.

Uchumi
Uchumi lost 632 million in the last six months of 2004, compared to a loss of 217 million in the same period last year. Their turnover also reduced from 4.3 billion to 3 billion. They are renewing their inventory, and will dispose of land, buildings & non-core assets to raise 900 million shillings for debt and creditor repayments.