5 ways to protect your NSE shares from irregular sales

We all hope the days of collapsing stockbrokers at the Nairobi Stock Exchange (NSE) are now a thing at the past. However new share offering such as Britak, Family Bank and Bank of Kigali, and other personal finance initiatives such as the I’m a Cooperator movement are likely to convert some people into first time share buyers. So how does one ensure that their funds are not misused by an errant stockbroker or their employees? Read on

A guest post by Shiroh
While it takes a lot of sweat to save for investments, many investors have found themselves in a tricky situation when unscrupulous dealers engage in irregular sale of their shares. While this practice cannot be tolerated for all involved, it is important that one takes proactive steps to avoid losing your investments. These can include;

1. Subscribing to the Central Depository System Alert Service: The mobile phone has truly revolutionized many industries in Kenya. For a nominal amount of Kshs. 10, one can receive alerts to their mobile phone anytime a transaction is made from their CDSC account. For more details, check the CDSC Kenya website.

2. Freezing activity on CDS Account: Since getting mobile phone may not be possible for people residing abroad, freezing any activity on a CDSC account can be done. These instructions are communicated to the CDSC and activity can only resume at the request of the account holder.

3. Constantly monitoring your activity of your account at your preferred Stockbroker. Many people don’t bother to check the activity of their accounts once they make the investments only to get a shock of their lives when they want to liquidate them. A broker is under obligation to provide investors with a statement of account through which they can monitor the movement of their investments.

4. Developing a personal relationship with a dealer or broker. While some personal relationships work to the detriment of the investor, sometimes having a specific person who can address any enquiries that you have can be a great plus.

5. Finally, you should report any fraudulent sale of shares to the Complaint Handling Unit of the NSE.

Award Season

Capital Market Awards: These took place late in January 2011 and were organized by Think Business who also organize awards for the banking and insurance industry. The awards gained notoriety when they started a few years ago when the regulator capital markets authority (CMA Kenya) complained about their implied association /endorsement as a result of the name.

Some of the winners this year included;
Custodian of the year: KCB
Bond deal of the year: Housing Finance
Stockbroker of the year: Genghis Capital
Fund manager of the year: Genesis Kenya
Legal transaction advisors: Hamilton Harrison & Matthews
Unit trust: British American (which was launched 5 years ago)
Research team: Kestrel capital
Lead transaction advisor: Dyer & Blair
Investment bank of the year: Dyer & Blair

D & B director Jimnah Mbaru mentioned that they had used Hamilton Harris & Matthew in most of their deals, and had been represented in several deals including NIC (Uganda), Bralirwa (Rwanda), CRDB (Tanzania) and the largest was KPLC in Kenya which was a complex deal. He added that its not just technical know-how that wins them deals (everyone had talented transaction employees) but it's a more about relationship management and understanding people, politics, social economic (and that many runners up had recruited staff from D&B). But he also spent 5 minutes telling what looked like it was going to be a very funny accounting or golf joke, only that it turned out to be one everyone knows as it ends with a lawyer answering 'how much do you want 2 + 2 to add up to?'

The CMA awards were mostly deserved, but there are a few glitches that were evident:

- The organizers insisting on presenting awards (best performing NSE company won by British American Tobacco) that were not voted or verified by the auditors (who stated this before the award was given)
- Some categories listed had no entries (IPO of year, Chairman of year, PR transaction advisor), or two winners in same category (CEO of the year shared by Nasim Devji and Martin Oduor Otieno) and some prizes winners not showing up.

Other Awards up for grabs
- Poptech: Nominate a Poptech Social Innovation Fellow
- Property Awards: Organized by Property Expo Kenya, these take place on February 24 at Sarit centre and will award property developer of the year, real estate agency of the year, mortgage company of the year and real estate journalist of the year

Other Media Awards include
- Diageo Africa Business Reporting Awards
- East African media awards by East Africa Business Council

Online Share Trading in Kenya

Tonight CFC Stanbic Financial Services launched online share trading which they say is the first online share trading platform in the country. The actual ceremony was conducted by Information Permanent Secretary Bitange Ndemo (a Mumias shareholder through CSFS) who noted that while Diaspora Kenyans remitted $2 billion per year, they hand no true seamless mechanism to buy shares – until now.

It’s a light-weight system accessible to CSFS customers to make trade orders – buy, sell, cancel, monitor volumes, settlements, & trade live at the Nairobi Stock Exchange in real time as well as get statements & portfolio valuations.

Disclaimer: I’ve been a long-term investor through CSFS primarily through e-mailing trades, and this has been quite satisfactory. Enabling online share trading is a service which several brokers have promoted, but delivery has been spotty. The CSFS system is available even on Smartphones,and while SMS and mobile money are not highlighted, these will be features to push for and the service is one to try out and see.

Kenya Stockbrokers 2009 Financial Summary

Like at the end of august when they started providing their interim unaudited results Kenya’s stockbrokers and investment banks have continued with this now, and thanks to the CMA/regulator they have largely gone ahead and published their full year audited accounts for 2009 by the March 31 deadline.

Investments Banks: Best were Kestrel Capital (income of 148m and profit of 24m), Standard IB (income 121m, profit 40m) and Afrika IB (income 40m, profit 20m). Shock was CFC Stanbic Financial Services (CSFS) with a basket of income form brokerage, advisory, fund management and interest totaling 137m but still lost 108m after paying salaries of 123m highest in the industry. The same was seen at Renaissance (Income of 113m, lost -147m after paying 106m salaries) Equity IB looks like a mi-step for Equity Bank (high profile staff hires have since departed) and it had virtually no income (6.7m unrealized investments), and lost -57m in 2009. The disclosure separating client cash from bank cash are illuminating, and one can see that IB’s all have high debtors and creditors, resulting in some like Dyer & Blair carrying overdraft positions and the 44m paid in financial costs contributed to the -88m loss. Best off directors are Kestrel, Renaissance, Genesis and overall of the 19, ½ lost money

Stockbrokers Best was Genghis with income of 31 million and broke even with a ½ million profit while, Reliance, and newcomers NIC Capital, Kingdom and ABC Capital all lost money. Ngenye Kariuki did not file as it was placed under statutory management. Most of the five remaining stockbrokers have 251 million in intangible assets to prop up their balance sheets (which range from about 300 to 450 million) and significant amounts of receivables.

Fund managers: best was Stanbic Investments with income of 398m and profit of 124m, and then Genesis with income of 126m and profit of 31m then Co-Op Trust with profit of 19m. Other higher income earners, but who lost cash in the year included AIG income of 192m (lost -46m), British American Asset Managers 122m (-38m), Old Mutual Investment Group 168m (-5m) and Old Mutual Assets Managers 150m (-35m). Overall of the 14 asset managers, 50% were profitable including Aureos, Co-Op Trust, ICEA Asset Managers, Investeq while Stanchart and Zimele just about broke even. Unit Trusts Old Mutual Investment Group 7.6 billion (5 funds), BAAM funds manger about 5.7 billion (5 funds) , African Alliance (IB) 1.4 billion (5 funds), ICEA 782 million (3 funds, Stanchart 303m (2 funds), and Zimele 390m (2 funds), Dyer & Blair IB 50m (2 funds), Standard IB 11m (3 funds) Fund managers recently formed their own fund managers association lobby group separating themselves from KASIB for stockbrokers and investment banks.

Investment advisors: only one left is Tsavo after Dry has converted into an investment bank and Jani have withdrawn their license. Tsavo had commission income of 13m and a profit of 6m

Conclusion: The pictures has not been pretty, but this painful period of disclosures will hopefully lead to an improvement of their governance and management to stop the pattern of having one stockbroker collapsing every year by highlighting issues of high receivables and payables, insider borrowing, directors pay etc.

With the improved activity at the stock market in 2010, the pattern should be better than what they reported. This is a good time for IPO's and for companies to raise funds 2010-2011 for reasons known elsewhere and this will benefit the stockbrokers who will perhaps have a better 2010 than 2009.

Tech Moment: Nairobi iHub for Innovation and more

iHub Nairobi: Our fabulous friends at Ushahidi are in the news for their recent technological endeavors which have been used in earthquakes rescue & relief in Haiti and Chile. But back here in Kenya, is something even more momentous, which is the unveiling & launch of the Nairobi iHub on March 3 2010.

It’s the culmination of many months of talks, visualizing the concept to plan, searching for appropriate buildings and finally the hard work of transforming an empty room to an innovation hub via teams of volunteers, advisers, and technicians while side-stepping others who were already hogging the free internet. Congratulations!

Other Tech Events in Nairobi this month:

The Pan Africa Media Conference from18-19 March 2010, a rather top heavy conference (lots of Current & Ex African presidents and leaders) but which has interesting speakers and panelists like Dr. Mo Ibrahim, H.H. the Aga Khan, Chris Kabwato (Highway Africa) Guy Berger (Rhodes University SA), Rose Kimotho (MD Kameme FM), Ory Okolloh (Ushahidi) Matthew Buckland (Media 24), Patrick Quarcoo (Radio Africa) and a talk on New Media - the possibilities, limits, and risks offered by blogs, SMS, MMS, social networks.

The Kenya ICT Board has
- A meeting for mobile developers (follow up from #MWEA10) on March 2
- BPO/ITES Centre of Excellence on March 4
- Tandaa Symposium on Local Digital Content on March 8

The ICANN Nairobi conference takes place from 7-12 March 2010.

The Nairobi 1% event takes place on March 12.

The Institute of Software Technologies launch their new brand, IT training center, and premises on March 11.

E-Fraud News: The Business Daily has a write up today about Kenyan banks combating fraud to protect their customers even as they roll out new technology channels for their customers to access more convenienct services from the banks.

In the blog world there have been some recent tales of e-fraud and bank fraud:

- Room Thinker received the latest 411 letter from Tim Geithner at the US Department of Treasury
- Wanjiku lost some money through old fashioned inter bank transfer
- Idd Salim warned of the dangers of SMS banking fraud as a ticking time bomb warning that SMS can be intercepted on its way from your phone to telecom, changed & edited, delayed, deflected & even deleted before it ever gets to bank.
- Gmeltdown writes about a recent mpesa fraud> and there’s even a related facebrook group but thankfully this is very rare occurrence among the millions of Mpesa customers.

You don’t know my name: Seems I spoke to soon in lamenting registrars mistreating retail investors in a bid to clean up their records, cut fraud, and authenticate investor information. My own stockbroker CFCStanbic (formerly CFCFS) wants the same of me, asking via an ominous warning letter, about Know Your Customer requirements, that (after about 5 years of trading through them) to confirm my identity as an individual. I’m as an individual supposed to provide copies my documents (CDS account opening form, my ID, 2 colour photos, PIN copy, utility bill, bank statement or pay/slip which will be certified by their panel of lawyers). There are also additional requirements for partnerships, informal groups, trust accounts, accounts for minors (birth certificate & parents ID’s) sole proprietors, foreign corporate, companies and Diaspora investors (certified passports, photos, utility bills, bank/c.card statement)

Compliance with the new KYC will enable me to continue transactions with them after March 31, but there’s’ no mention of what will happen if there’s no compliance by the March 26 2010 deadline.

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.

Rules for Kenya Internet Trading

Continuing with the pace of more regulations to strengthen the securities industry in Kenya, the capital markets authority (CMA) has availed at their website even more draft regulations for public discussion that cover internet trading, disciplinary actions, takeovers and licensing. In addition to those rules for public offers they have;

Internet trading
- Kenyan organizations or those which target Kenyan investors need CMA approval
- Source of platforms: they may own, gets from eth exchange (NSE) or use other platforms if CMA approves.
- Those who already have should re-apply – licenses are renewed annually, and are canceled automatically if one stops being stockbroker, network or exchange
- All platforms should Ensure confidentiality, safety of data (no manipulation, virus etc), back up plan, maintain audit trials Encryption and firewalls, Prevent duplication of orders
- Stockbrokers can sponsor chat rooms
- Traders to Report monthly on number of users, transaction averages, and system downtime

Disciplinary Processes
- Proposes creation of disciplinary committee that follows civil law e.g. sharing of evidence, call witnesses, cross-examination
- Committee can warn or censure firms or persons or can suspend or revoke licenses

Take-overs (intended to sort out carbacid-type deals)
- Board of company being targeted for take over must hire an independent financial adviser
- Offeror to make public announcement, if there’s unusual movement in target company share price
- No withdrawal of offers unless the CMA rejects it; also the target company has 3 weeks to decide
- If takeover fails, have to wait at least 12 months before making anther attempt - specifies format of takeover documents and reply documents to be filed with the authorities

Licensing (for securities exchanges, stockbrokers, investment advisors)
- Stockbrokers (share cap 50 million or~$670,000) to disclose their information technology, and comply with ration for overdrafts, borrowings
- Agents can only work with one stockbroker, and may not handle client funds
- Dealers (share cap 20 million or $267,000) to disclose their information technology, and comply with ratios for overdrafts, borrowings and investment portfolio liquidity
- Investment advisers (share cap 2.5 million or ~$33,000) their portfolio may not exceed Kshs 10 million ($133,000) otherwise may have to become fund manager to handle larger business
- Fund managers (share cap 10 million) and Investment banks (share cap 250 million) must also disclose their information technology, and comply with ration for overdrafts, borrowings

send comments to ceoffice@cma.or.ke

This Time Around

1. Sustaining Pastoralists: Three years ago, in January 2006, there was a government plan to assist pastoralists by encouraging farmers with abundant pasture and water to buy animals from pastoralists and keep the alive during the prolonged dry season.

In September 2009, Kenyan TV screens have had, images of dying cattle being rushed to the slaughter houses where they will be bought by the government from ranchers at a cost of almost $105 each. But with cattle dying before they can be properly certified for consumption, the government of Kenya through the agriculture finance corporation; now decided to revive the program (details here); the livestock- off-take program targets private ranch owners with surplus land capacity to purchase animals from 22 drought-hit districts.

2. Compensating Investors Nyaga Stockbrokers eventually collapsed in September 2008, despite an earlier bailout that was intended to keep the stockbroker alive when news of its troubled reach the front pages of local newspapers.

The last time a stockbroker collapsed, investors had been compensated from the sale of stockbrokers seat which yielded about $3.5 million. But in 2009, the value of a seat is not considered to be much, hence the need to dip into the investor compensation fund – and late in September 2009, we got the final tally from the capital markets authority - spelling that it would (and teh CMA has paid out 90%) to 27,829 investors a total of Kshs. 302 million shillings ($4 million) from the investor compensation fund (said t have 426 million)
- Payments below 50,000 shillings will be made to a total of 25,135 investors
- Payments of above 50,000 will be made to a total of 2,744 investors

3. Reviving Uchumi In June 2007, Uchumi Supermarkets set out to tap investors for funds through a shareholders debenture loan that was not too successful.
They are now back in 2009, asking for the same funds this time, with much improved performance and the prospects of the company getting out of receivership and being re-listed at the Nairobi stock exchange much better.

Salute to Kenyan Stockbrokers Part I

Salute to Kenyan stockbrokers, investment banks and fund managers, and the capital markets authority (CMA) for their moves to improve transparency at the NSE of late.

When the new rules were announced early this year, few doubted that licensees (especially stockbrokers would comply, but the early signs are good.
One of the milestones was for the publication of financial statements by Collective Investment Schemes, Stockbrokers, Dealers, Fund Managers and Investment Banks twice a year; and this they did, many baring their losses, some with dubious figures or cosmetic summations, and some omitted profit & loss, but which their auditors will hopefully be able to reconcile at the end of the year.

The compliance was notable in that the intermediaries were able to publish their June 2009 summarized financial accounts,

Investment Banks: 100% (missing was Juanco (now Equity IB?), while FCB Capital was only licensed in June 09)
- Stock Brokers: 100% (missing was Discount (collapsed), Bob matthew (is now KingdomSecurities), while African Alliance is now an investment bank)
- Authorized Security Depositories: 100% (all 12 are commercial banks)
- Collective Investment Schemes: 100% (all are fund managers)
- Fund Managers: 94% (missing was Aueros, while African Alliance reported as an investment bank, and amazingly CIC who were licensed in June 09 already complied)
- Investment advisories 10% they are not required by the law to report, but Dry Associates and Tsavo Securities did

The results were harsh (more on that later) as the downturn at the Nairobi Stock Exchange has had a shocking effect on these companies. But they have recognized that and started taking measure in the form of mergers, re-capitalization staff reductions. When the NSE improves, they will reap the dividends. The signs are good for frontier markets and African markets, but the Kenyan political scene is still a cause for concern for the recover of the NSE and its brokers.

Shaking up the Nairobi Investment Scene

Knocking Off Rogue Brokers

The Kenya Capital Markets Authority (CMA) has published new regulations that could knock off customer confidence in any small stockbroker still standing at the Nairobi Stock Exchange (NSE) as they have now become law.

Changes include:
- Sets minimum share capital for stockbrokers at Kshs. 50 million (~$650,000) and investment banks at 250 million (~$3.25 million) some stockbroker are investment banks in name only name
- Agents may work for one stockbroker only and may not handles client cash
- They must use International Financial Reporting Standards (IFRS)for reporting
- They must publish audited accounts and ½ year un-audited accounts in newspapers and also dispaly the same in their branches so by August 09 we should get a clearer picture of who's up or down
- They must obtain indemnity insurance
- They are to notify the CMA before appointment of executives, directors, and auditors as well as prior to branch openings/closing

Some of the proposal also affects investment funds, fund managers, and pension schemes. They were first proposed two months ago for public review and borrow a bit form existing central banks laws and are much harsher than when first formulated.

Other losers retail investors who lost their money in collapsed brokers (Nyaga, Discount, Francis Thuo etc.), it limits their potential compensation to just 50,000 shillings ($~650)

Winners - newspapers who will see an increase in quarterly advertisements from stockbrokers, investment banks, investment funds, fund managers, and pensions schemes.
- insurance companies (Stockbrokers and investment banks are to obtain professional indemnity insurance worth 5 times their daily average turnover)

NIC Bank 2009 AGM

The 2009 annual general meeting (AGM) of NIC Bank took place on Wednesday April 29 at the Kenyatta International Conference Centre Nairobi. (more on the background and recent performance of NIC)

The Chairman JPM Ndegwa (Chairman) led the meeting which began after the Company Secretary making some housekeeping announcements – mentioning lunch would be served afterwards but members should not litter the building as they eat, asked shareholders to switch off their mobile phone (a few still rang during the meeting) and that the bank had a marketing desk where their products would be on display for shareholders to ask questions and could open share accounts

Chairman Performs: The Chairman introduced the board and the management and representatives of S&F Bank of Tanzania who were seated at the side of the dais. He spoke throughout the day in a mix of English and fluent Kiswahili. He began by commenting that the 2008 AGM held at Safari Park Hotel had been quite crowded hence the move to a larger venue (bank has almost 25,000 shareholders)
Most important was how he controlled the tempo of the meeting, by stating upfront that only relevant questions should be asked and only as related to what was being discussed or voted on at each time. The result was one of the most constructive Q&A segments I have seen, with no frivolous questions asked during the session and the meeting progressing quite rapidly

Financial accounts 2008: the bank ended the year with a profit of Kshs. 1.48 pre-tax billion (~$18.5 million) and significant growth in assets deposit and loans. After the audit partner (Mr. Ndonye from Deloitte & Touche) read out their opinion, there were no questions and the accounts were approved!

Dividend: a final dividend of Kshs 0.25 for a total for the year of Kshs 0.5 was approved by shareholders. The voter elicited a couple of the shareolder to as usual ask for a higher dividend to be paid than the board had recommended. Another shareholder asked that, since the dividend was meager, could they be paid a bonus share?he clearly had not read or listened to the agenda

Directors fees – while you can’t compare the level of disclosure to shareholders at Stanbic (Uganda), the Chairman stated that the total sum paid to non-executive directors was Kshs 5.2 million ($65,000) – in sitting allowance for board & committee meetings. This was actually lower than the 5.36 million paid the year before last yearn and the results were plain to see. Vote was approved

Auditor Re-elections: the directors recommended that Deloitte continue in the accounting roles and asked shareholders to approve that; one shareholder asked if Deloitte was the only firm considered and if so why the Central Bank (CBK is bank regulator) also had to approve the appointment of the auditors – was there a problem with Deloitte? The chairman answered that they used other audit firms, and that there were provisions that firms could not consult and audit at one company and they were quire satisfied with the work Deloitte has done. He added that Central Bank , in looking out for depositors interest, also vetted audit firms employed by banks to see that they were competent (an aside is that the recent ‘enhanced rules’ for stockbrokers don’t specify their quality of their auditors or indicate that the CMA will even vet them)

Director Re-Elections: Isabella Ocholla Wilson and George Maina were re-elected as directors; so was lawyer Michael Somen who required was an extra vote since he is over the age of 70 years He’s the Chairman of Access Kenya, but it seems NIC have a habit of de-emphasizing their directors board positions on other companies

Bonus share : The next motion, for NIC shareholder s to receive 1 new bonus share for each 9 they own produced the first unscripted moment of the day and the hot button issue was again - rogue stockbrokers - three different shareholders asked the same question - i.e. NIC was giving them a bonus share, which they would be forced to take to a stockbroker who may sell this shares without their knowledge, or collapse with their shares/funds. The Chairman replied NIC Bank now had their own stockbrokerage firm NIC capital Securities where their shares would be safe. The war by banks against stockbrokers is still being waged in public – and a few days ago it was Equity Bank shareholders who were being given the same message –that their shares were safer with the strong commercial banks that they know and own, rather than with some small stockbroker

Purchase of 51% of S&F Bank: NIC is purchasing 51% of Savings & Finance, a Tanzanian Bank for a total cost of Kshs. 580 million (~$7.25 million). Continuing part of expansion and diversification since their 2007 rights issue that has seen them open branches in Kenya, an now make a cross-border investment ; the vote brought out the most questions of the day;

Q. exchange rate change since deal was announced; why is some payment in Tanzania shillings and some in US$?
- mix of currencies is s how the Tanzanian owners requested it be paid. - the shillings is weaker and they are now paying about 2.1x book value compared to 1.9x earlier. Also some S&F shareholders live outside Tanzania
Q. The owners seem to be family/private individuals:
- True most companies start with individual shareholders only - and the institutional shareholder is the East African Development Bank. S&F was started in the 1990's and it origins were in hire purchase business are similar to NIC. The shareholders with 49% are also going to be re-investing the NIC money in the banking, not taking it out.
Q. why is the bank attractive? Is it a leading bank in Tanzania – where does it rank?
- Tanzania has 28 banks and S&F would be between no 15 and 20. NIC felt they would get best value by acquiring a small bank and driving its growth. NIC directors did their due diligence, have observed S&F operations, got transaction advice and confidential banking reports from Tanzanian regulators confirming the bank was a good buy . It has 3 branches in Aruaha, Dar es Salaam and Mwanza which are all key trading points. MD added that - NIC was not the only suitor interested in S&F.
Q. How will it be run?
- S&F will have 7 board members – 4 nominated by NIC (including the MD’s post) and 3 by S&F (including the Chairman’s post - Abdulsultan Jamal). NIC have opted to retain the current Tanzanian MD – Suranjan Ghosh, Mark Bomani (former Tanzania attorney general) and Andrew Ndegwa (Kenyan NIC director) and James Macharia (Kenyan NIC managing director) as their four nominees.
Q. Other Kenyan banks have focused on Rwanda Uganda and Sudan- why Tanzanian (which has not been receptive to other Kenyan companies
-Chairman replied that Kenyans were the biggest investor in Tanzania (excluding the mining sector). Also in terms of diversification, the election violence of 2008 affected Kenya, Uganda and Rwanda equally - since countries were on same trade route! However Tanzania was a completely different market. A large untapped country with great agricultural and resource potential. Many NIC customers do business there already.
Q. Deal wrap up?
- Approval has been got from Central Banks of Kenya and Tanzania. After NIC shareholders voted to approve the deals, it is now expected to be wrapped up on Monday next week and S&F will become a subsidiary with their accounts consolidated in NIC’s from next month.

Goodies: a souvenir wall clock

- Smart NIC had a boxed lunch served to shareholders (much easier to manage than any buffet and needs fewer catering staff). each box had cold roast chicken piece, beef sandwich, juice, water bottle, cup cake, and an apple.

New Rules for Nairobi Stockbrokers

stockbrokers to remain hidden

The Kenya Capital Markets Authority (CMA) has published new rules at its website on how they propose to regulate stockbrokers. They have also published proposed rules for Kenya real estate investment trusts – a.k.a. REIT’s as they are called.

Unlike with other plublications like the Treasury Budget process or (new rules from) the Communications Commission of Kenya, the CMA is not inviting public comments or suggestions; these are finalized new rules.

What they include

The Capital Markets (Conduct of Business) (Market Intermediaries) Regulations, 2009
- Intermediaries (i.e. stockbrokers / investment banks) will be required to engage in know your customer (KYC) practices (to prevent money laundering)
- brokers will not recommend unsuitable transactions once they know profile of their customer
- No cold calling allowed (does that happen in Kenya? Banks and insurers sometimes do that)
- Brokers must have policies for customer confidentially, handling customer complaints,
- Brokers barred from front running and account churning
- Brokers must separate client funds and stockbroker funds
- Broker employees undertake not to use information gained from clients for personal gain

contentions clauses
- Will customers really have a right to be paid interest on their funds held?
- Will brokers prepare objective client agreements that will be signed between them and clients – and which call on them to disclose third party remuneration, conflicts of interest etc?

The Capital Markets (Corporate Governance) (Market Intermediaries) Regulations, 2009
- Each stockbroker must have board of directors, who are not children (i.e. under 25 years), and one must not be related to any other director; also the CMA will have to approve any board changes
- new rules vest management of the broker in the board of directors on matters such as audit, risk assessment, key employee hiring & duties
- broker to hire a compliance officer
- broker to hire an internal auditor
- employees to disclose securities they or their close associates own

REIT rules

The Capital Markets (Real Estate Investment Trusts) Regulations, 2009
- REIT/schemes will distribute at least 90% of after tax income as dividends like in other countries
- Scheme may borrow for investments, but these will not exceed 1/5 of total assets
- REIT must have an independent Principal valuer to value the scheme assets. He/she must be changed every three years
- Trust founders may not own more than 50% , and publicly listed ones may have a minimum of 100 members

Summary: The CMA to be notified in advance of key events at stockbrokers; e.g. new key managers, likely changes in ownership, material pending lawsuits, auditor changes. Also, the new compliance rules make it more expensive for small stockbrokers to comply; this may force them to merge or seek new shareholders.

Stockbrokers will however remain hidden as their disclosure requirements remain only to the CMA even on the basic issue of sharing financial returns with the public; stockbrokers are required to prepare only annual balance sheets and profit & loss statements using IFRS; but these they will only be shared with the CMA – not published for the public. Contrastingly , the rules are lenient for stockbrokers and harsher for REIT’s who will publish its (quarterly) un-audited financial results in at least two national daily newspapers of national circulation. REIT’s are also required to employ auditors recognized by the institute of certified public accountants of Kenya (ICPAK), but that does not apply to stockbrokers whose auditor qualifications are not spelt out. why not?

Ugandan Envy

this is NOT about Migingo Island

Google Earth image courtesy of afromusing

A year ago wrote this on the information availed to Ugandan investors by their companies; this year the envy is even more, it makes me sad; that by being the leading country in the region, we may not notice we are being passed in some aspects of investor awareness & rights.

Use of E-Mail: The Stanbic Uganda invitation/AGM notice again arrived by e-mail; now many Kenyan companies have passed by-laws allowing them to send out e-mail notices and annual reports to shareholders, but none has done so far. Maybe, with the eventual passage of the much maligned/controversial communications bill the legal framework is now there to back enable this – but we’ll see; While not every shareholder will have an e-mail account, if 1/4 of 1/3 of some company’s shareholders (Kengen, Co-Op, Safaricom) do, then these companies could potentially saves millions of shillings in postage costs.

Investor Disclosures:
(i) For Stanbic UG, rules of voting are clearly stated – shareholders are to endorse new directors and that 1/3 of directors will retire at each meeting.
(ii) for directors who are up for election, their mini-CV’s are printed out for all to peruse i.e. their ages, year of appointment, educational qualifications, directorships in other companies, and committee seats they. In Kenya, Company Chairmen just mumble through, if at all, fully expecting elections to be a foregone conclusion. Refreshingly here, the directors up for election at Stanbic Uganda (Hannington Karuhanga, Kitili Mbathi, and Samuel Sejjakka) are all younger than 50 years. In Kenya, opportunities for younger leaders & directors are the exception rather than the rule. But at Stanbic Uganda - the Chairman and Deputy Chairman have their tenure is capped at two terms of 5 years only.
(iii) Remuneration of directors is declared. Again in Kenya money amounts paid to directors are rarely mentioned, but in Uganda they are spelt out for shareholders to approve – here the Company (non executive) Chairman gets an annual retainer of US$7,500 while a director gets US$5,500

Language used; several companies (most recently) KCB have amended their company article to allow for electronic communication with clients; but they merely replace one of gibberish with another one, without bothering to explain what the jargon means. Here; Stanbic explain allows video-conferencing or tele-conferencing to be used at board meetings

Proxy detail proxy forms contain a lot more details including the items to be voted for with shareholder able to vote for or abstain on votes. They also call for shareholders to provide contact details (name, e-mail – what an easy way for a company registrar to build up a working database to manage is subsequent years)

Shareholders or their proxies (who can be more than one)are entitles to attend, speak, and vote, and the endorsement /presence of a proxy does not disqualify a shareholder from attending; this enables a shareholder to bring his wife/wives or children for them to learn about the process!

==

Investor guides: There are many things to learn from other countries in the region on investor rights and information despite Kenya being the leader. We are innovative, Uganda is about to unveil a CDSC system that Kenyan investors have had for three years, but which rogue stockbroker have besmirched. It would not be surprising if the Ugandan version may be sorted out ahead of time, closing loopholes that will be used to protect shareholders, and by educating them on how the system works.

All the regional exchanges – Kenya, Tanzania, Uganda, and soon Rwanda (where KCB, Kenya’s largest bank in Kenya will be the first company to have its shares to be (cross) listed & trading) all have the same information; but my NSE seems stale, like all the regulations were put up years ago and forgotten. Usualy we just check for the latest share trades, bond trades and quarterly financial announcements.

e.g. Faced with a budget deficit, Kenya has lowered the minimum amounts to invest in bonds to Kshs. 50,000 ($625). The Central Bank of Kenya which issues these bonds has put up some investor information basics, but nothing from the NSE who trade in these bonds. In Uganda, there is an advisory page for investor guides for bonds and shares, for any new investor to read, download for free.

Also in Kenya , tribe is the unacknowledged elephant in the room; one we pretend to not be influenced by, but which governs many aspects of our lives. Kenyans are required to communicate official in English (almost all government documents), and to a lesser extent in Kiswahili. But there are rural folk who may not understand the national or official language, but may wish to learn about shares and bond Uganda has investor awareness booklets in vernacular languages – including a Luo investor guide (PDF)(for the Northern Region) available from the Uganda Securities Exchange. And that, properly disseminated, may be worth much more than a small island.

NIC Soars

The NIC bank AGM will be held of April 29. The company has 24,000 shareholders up from 20,000, and while the top 10 shareholders remain unchanged, they are in for the long haul in the bank which is diversifying its business strategy as a re-branded NIC that aims to be a regional giant.



- NIC is now into banc assurance – through NIC insurance agents which partners with two leading insurance companies and had a modest profit in 2008
- NIC acquired 58% of Solid Stockbrokers and has now upped its stake to 88.3% through new capital and buying out other shareholders. The cost so far is about Kshs. 423 million and it made a 2008 profit of Kshs. 5.2 million. The brokerage and investment firms are capitalized at 349 million and 219 million well above the 30 million and 50 million minimums set by the capital markets authority (CMA). Also, legal claims brought by customers of Solid and which NIC inherited in the deal are pegged at Kshs 84 million.
- NIC also plans to complete a deal to acquire 51% of a Tanzanian Bank - Savings & Finance Commercial Bank by 30 April 2009 at a cost of Kshs. 322 million. S&F has in 2007 the equivalent of of Kshs 2.37 billion in assets,with deposits of Kshs 2 billion and loans of Kshs 1.3 billion and pre-tax profit of Kshs. 77 million.

Equity Bank 2009 AGM

Equity Bank 2009 AGM (it’s 5th) was held at the Kenyatta International Conference Centre on Thursday March 26. This capped another year of spectacular performance by the bank during an otherwise difficult 2008 US$1 = Kshs 80



Start on time? Last Equity forum was 45 min late: this one was scheduled to start at 10 a.m. and was late by about the same delay. Last time we were entertained by an entire Boney M album, this time it was a series of advertisements for the bank, with a patriotic them recalling images of tourist splendor (majestic Mara), agricultural potential and athletic achievements (Kipchoge Keino, safari rally, safari sevens rugby) all ending with the line we are proud to be Kenyan

The main speakers of the day were Peter Munga (Chairman – Chair), James Mwangi CEO and Mary Wamae (Company Secretary)

The Chairman took up a long time by reading his entire written speech – almost 20 minutes. He handed over to the CEO who also ran down a series of financial highlights for the year including;

- Market capitalization rose in 2008 from 54 billion to 66 billion (only NSE company whose shares appreciated in 2008 - by 3%)
- Earning per share up from 6.9 to 10.6 - and dividend per share also up 50% from 2 to 3
- Cost to income ratio unchanged at 60%, and down from almost 80 four years ago
- Helios investment (sale of 25% for 11 billion) was the smartest thing the board did – gave the bank the capital & muscle to grow. With their 19 billion capital and subordinated debt of 6 billion gave the bank 27 billion of capital (most cap bank)
- Opened 35% branches, installed 150 ATM’s

Speech also took about 20 min as he added:
- All the awards the bank won in 2008 (Euro money, Africa Investor) which were on display for good measure
- The bank is a case study at Columbia, Harvard, Stanford, IESE and Lagos

The company’s secretary also read out the report of the directors never seen that happen

Fun stuff at AGM's is always the Q&A with shareholders:

Bad blood in banking sector one shareholder commended the bank for the fight-back in his area (Machakos) where a rumors led to a run at the branch, and a team (with cash) visited to reassure residents that the bank was strong. The bad blood was attributed to competitors who are jealous of Equity’s bank success - CEO mentioned a proverb of a tress that grows taller than the forest canopy and then gets buffeted by winds from all directions. He said they can withstands such challenges because of (i) capital of almost 27 billion (ii) liquidity of almost 66% and (iii) good asset quality

Why borrow foreign funds? one shareholder asked why the bank borrowed. The lines provide long-term funds for long term lending 3-5 years). E.g. a German loan was to support investment in irrigation schemes, of which there are now 3. CEO assured the shareholders that the loans from (Dutch, French, and German institutions) were all denominated and would be repaid in Kenya shillings, cushioning the bank from exchange losses

Most generous company in Kenya one shareholder asked why the company did not publicly participate in corporate social responsibility (CSR) programs? CEO said that Equity, unlike other companies, which gave a little money with a lot of publicity, was actually the biggest corporate spender in Kenya – bigger even than the Telco’s (Safaricom?, Zain?) and gave some examples
– when they opened 4 branches in Nyanza in 2008, they donated 20,000 beehives to women’s group’s as well as 10,000 avocado seedlings –avocado’s and honey were the most promising products of the region (i.e. beehive can generate 36,000 to 48,000 annually) .
– in Eastern province, they donated sorghum seeds to the residents of Ukambani – and will partner with east African breweries (EABL) to ensure that harvest from the residents will be bough by the beer giant.
– In the education sector they sponsored 186 top performing high school student by paying their university fees at a cost of 112 million shillings
– Fanikisha loans (to women groups) has become their flagship product with over 187,000 loans, and in agriculture disbursed 70,000 new loans in 2008
This kind of CSR that Equity engages in, is not publicity, but it is actually sustainable and transform lives by giving individuals the power to generate incomes

Regional diversification Uganda was a takeover, Sudan is a green field and they will watch the growth to see which strategy is better for expansion to other African countries.
- Uganda starts operations at end of March with 30 branches (the biggest branch network in Uganda), and open another 20 this year – he said they had already increased profit by 100 in the second half of 2008 since they took over, even while doing a re-brand operation. CEO said Uganda had better growth prospects than Kenya which had a lot of negative politics
- Sudan starts in April
slip of the tongue? CEO at one point said … “...when we open in South Africa” while also mentioning looking at Rwanda and Tanzania as being next

Buy other Banks? one shareholder asked that they buy up more shares in housing finance, while another suggested they also buy up National Bank of Kenya in which the government is offloading more shares. CEO said they would do their due diligence on NBK and if they were announced as being in the running, shareholders would know soon, but if not, then there was something they did not like after their analysis of NBK (as far back as 2005, Equity have been interested in NBK). CEO mentioned that RBS of Scotland took over a bank before the economic crisis, and choked on that toxic investment that has reduced its value to a mere fraction (from $119 billion to $3 billion)

Enough bad loan provisions? these increased from 600 million to 1 billion, but was that enough one shareholder asked, considering that some of these were for Safaricom shares? CEO said they lent individual 80% for Safaricom shares with investor paying 20%, then the over-subscribed IPO allocated just 21% (which the investor paid or), and so the 1% loan was repaid in the first week

Poor bank netwoek systems one shareholder complained about the downtime of the bank’s IT systems – at branches or at ATM’s which perhaps led to people saying the bank was shaky. CEO said they have been upgrading the platform over the last few weeks and it has caused some hiccups but they would be over. Equity is now branchless, you can bank in Kenya, Uganda, and Sudan seamlessly. Also look for new branches as queues and crowds will no longer be an issue

Kenya immune from global crisis? CEO said in year 2000, Kenya economy shrunk by 2% while equity grew by 100%
- stock market dipped in 2008 as foreign investors (who constitute 70% of trading) left the NSE, but they are now coming back
- said Kenyans were being scared. there are no toxic loans in the sector. If Kenyan economy get by 2.8 in 2008 and is expected to grow by 3.6% in 2009 , and even though tourist number and export will be affected, overall we should not unnecessarily panic about... except in the capital markets

Argument against being a stock-broker one shareholder asked why they did not buy a stockbroker like NIC (bought Solid stockbrokers) and yesterday Coop bank (bought into Bob Matthews stockbroker)? CEO said that not going to happen as stockbrokers have such bad reputations and toxic assets. Equity already has a custodial license, they already employ 8 stockbrokers, and get 70% of the transactional income – so why the need to become a broker? They get the profit now, without the hassle
- said as custodian, they are the largest custodial account holder with over 50% of all CDS accounts in Kenya
- he exhorted all shareholders to transfer their shares from their stockbrokers to Equity Bank.

Shareholder votes
- first and final dividend for the year of Kshs. 3 per ordinary share of Kshs. 5
- Election of directors: Ernest nzovu was re-elected while Dr Ezekiel Alembi (of Kenyatta University) and Professor Shem migot- Adholla (former GoK dream team PS) were elected as new directors. The Chairman mentioned that Peter njeru Gachuba (Africap) and Linus Gitahi (CEO Nation media Group) had retired to make way for the new directors.

Share split
can’t be selfish when doing well
- Special Business was the share split that every ordinary share be sub-divided into ten shares
- CEO explained that shares had become too expensive at the Nairobi Stock Exchange, which made it difficult for shareholders to judge their true values. E.g. to buy minimum 100 shares of equity costs 12,700 while to buy KCB costs 1,700 and co-op just 610 shillings
- company has 10,000 shareholders and 3.5 million customers. The share split will enable more customers to become shareholders
CEO gave history of bonuses and splits
i Year 2000: share split- 1 share sub-divided into 4
ii 2004 bonus - 5 bonus shares for each one held
iii 2007 bonus - 3 bonus shares for one held
iv 2009 split - 1 share split into 10
- so if you had one share in 2000 worth 20 shillings, that share was now worth 7,500
- the register closed yesterday (march 25) and the new shares start trading on May 25
- CEO exhorted shareholders to hold on to their shares, as they could be expected to go from the current 13 (130) to 34 (340 was the previous high before the bear market)


Odd moments
- Managers and board were asked stand and bow to the shareholders
- CEO was at one time referred to as chief servant
- CEO seemed to delight in the woes of citi bank and the US banking sector
- Meeting started and closed with a positive prayer by Canon (priest) who obviously must be a shareholder too.

Goodies
Buffet snacks served outside by safari park catering staff tea/soda – with samosas, cake, fish fingers, croissants,

Summary
Nice AGM. Equity is now media savvy and the event was well attended and covered articulately by the press

Difficulties Changing Nairobi Stockbrokers

Stockbrokers are falling at the rate of almost two a year, and tales continue to abound.

The reality is that, sooner or later, you may need to change your broker and while I've had this post for over three years about how simples the process of transferring shares from one broker to another should be, the reality is very different!

Kenyan shareholders have had the option not having share certificates for a few years now. With a central depository system (CDS), you surrender your share certificates e.g 1,000 Kenya airways (KQ), and in exchange get an electronic account/statement which is updated each time you buy or sell, shares. You also get all your dividends and annual reports by mail.

Still to buy and sell shares you have to go through a stockbroker, who ideally should have the same tally as your CDS statement. Recently problems have been had with rogue brokers, who would sell share without informing clients – and clients would only find out when they got a CDS statement showing less shares than what the broker said they had. Later the frauds went even further when brokers would ensure that even CDS statements didn’t get up-to-date records of share sales.

I had to change broker for a company account this week and the reality was much more than. I had a team of people, the transfer was between two viable brokers and we were able to get all the (numerous) documents that were asked for. Yet it still involved almost a dozen trips to the office and took almost two weeks.

The steps taken included
(i)Open an new CDS account with new broker
(ii)Close old CDS account with old broker
(iii)Move shares from old to new CDS account

Documents that were asked for included
- 3 copies of Certificate of incorporation with – one stamped by old broker, one stamped by new broker, one for the CMA (all stamped by company seal)
- Memorandum & articles of association requested by new broker (was not required at old broker so copies had to be traced and photocopied)
- 3 copies of director ID or passports – stamped by old broker, stamped by new broker, one for to the CMA (all stamped by company seal)
-2 copies of form of shares being transferred one called CDS 4A and one called CDS 4B, signed by directors and stamped with company seal. One form must be stamped by old broker, one stamped by new broker
- 200 shillings ($2.50) transfer fee

Now imagine what it is like trying to reconcile accounts, reclaim investments or move from a collapsed stockbroker? Or a fraudulent one? Or one who doesn’t have motivated (paid) staff, or proper records?

Also until last year, IPO’ were considered sure winners – and people would open several accounts e.g. in the name of their mother, grandmother, cousin, maid, driver etc, all in a bid to get more shares after the fractional allocation that characterized Kengen and Safaricom IPO's, but before the price rocketed up on day one. Many CDS accounts were opened, many by new temporarily hired staff in a bid to get as many applicants in as possible during the limited (IPO’s usually 2 -3 weeks) and some rules were readily relaxed. I explained these to the new broker, but they said CMA can come and audit their files and they have to comply CMA have their hands full with collapsing or non-compliant stocbrokers!

So, finally, the new account is now open, after a very tiring two weeks, during which I confessed that it was maybe better to sell all the shares held at old stockbroker and open a new account at new stockbroker than to attempt to transfer the shares.

Kutwa Tuesday: Toxic Brokers

Toxic Brokers The US has toxic banks, Kenya has toxic stockbrokers

Discount stockbrokers was yesterday placed under statutory management. It has been technically insolvent since new managers were appointed six months ago, and given the cost and extent of their operations it’s unlikely to ever turn round.

Bob Mathews was also re-admitted at a stockbroker after injecting in new capital, but once labeled at a toxic broker no amount of rescue cash is enough to salvage an institution. Nyaga stockbrokers got a lifeline infusion of Kshs. 100 million rescue loan, which was largely paid to other brokers, but it was not enough and the firm went under too. smart investors should read the signs of a collapsing company

Capital Gains market turnaround

The Nairobi stock exchange had its best week in a long time, with a mini run led by Equity Bank up 31%, CMC up 25%, Kengen 22%, EA Cables 20%, National Bank 16%, EA Breweries 15% and Diamond Trust 12%. With no significant financial results, or economic & political news out last week, the rise remains a mystery; Was it in reaction to US markets having their best week, or realization that there was a new finance minister in charge or investors realizing that they had missed on the infrastructure bond (and the next one was not as lucrative), or was it stockbrokers making a last stand?

Insurance Losses

Pan Africa Life a relatively large company with assets of Kshs. 6 billion ($75 million) returned a pre-tax loss for 2008 of Kshs. 175 million down from a profit of 51 million in 2007, which they attribute to the unrealized loses in capital markets. If a large insurance company is in this state, what about the smaller other Kenyan insurance companies? Already standard assurance has gone under and it was not the main company in public transport sector (matatu’s) whos' claims are being blamed for its collapse.

Opportunities & Events

TED Global applications have opened for the 2009 TED Global 2009 conference. Deadline is April 3 for fellowship applications

Tujuane Mixer will be held on March 20. More details at Tujuane site and here’s a re-cap of the last mixer I attended. The event will be facilitated by Nyokabi Njuguna, Founder - Entrepreneurship and Leadership Foundation, and with a special appearance by R&B vocalist and Guitarist Harry Kimani.

Nairobi Wine Festival Get stylish and drunk is how Rafiki Kenya describes the event on Friday and Saturday (20/21 March)

Nairobi Stock Exchange Fiddles

While investors burn or run

Fresh off the appointment of a new chairman of the Capital Markets Authority, the owners of the Nairobi Stock Exchange welcomed him with another pledge to:

-Cap broker ownership of the stock exchange (NSE) at 40%
- Reinforce compliance and supervision through implementation of a risk based supervisory approach yada yada yada.....
- Deal with the findings of the PWC Forensic Report on Nyaga Stockbrokers once the report is received from the CMA i.e. they officially haven’t seen it!

So they throw the ball back to the Government (to fast track the demutualization process - and what this entails) and the CMA (new Chairman to act on the report) while investors rush back and forth like headless chicken changing brokers in search of the one honest broker left in Nairobi, while also yearning to return to the good old days when share certificates were kept in bank vaults or under mattresses.

Kenya Infrastructure Bond

The government of Kenya infrastrucre bond closes on Wednesday and looks to be a successful fully subscribed offer that will raise Kshs. 18.5 billion (~$231 million).

It will have proved irresistible to funds and institutional investors who have been looking for investment outlets as the Nairobi Stock Exchange slump persists, and the sure 12.5% annual return from the Government of Kenya over the next 12 years is a sure bet. The 12.5% interest payments will be paid semi annually with principal repaid in 2015, 2017 and 2021. Bonds from Mabati and Barclays were fully subscribed in 2008

Through the minimum investment is just Kshs. 100,000 (~$1,250) it looks like there’s little interest from retail investors, with many smarting from the free falling NSE and more concerned with protecting their existing investments (read these great tips) from rogue stockbrokers to sign up for bond which, the fire-fighting Capital Markets Authority (CMA) has not gotten round to providing much investor education. The short window (about 3 weeks from Jan 28 to Feb. 18) may also not have favored retail investors.

The success of the bond which is earmarked for road, geothermal and water projects comes despite some reservations (little infrastructure spending identified, limited oversight, may affect Kenya’s credit rating). The bond was first set out in the 2008 budget by the Minister of Finance.

Read more bond perspectives from the Kenya Capital Investment Group blog

Opportunities

Start your own collection agency from Collection Africa

- Join embattled Suntra investment bank as a manager - investment banking & fund management or manager - stock broking

Profit Warning Friday

KQ Profit warning for Who?
Kenya Airways issued a profit warning a few days after media reports had painted a rather rosy picture of operations at the airline with increased capacity and utilization. (That’s what happens when you release operating results without any shillings or dollar attached.

The fuel price , PEV, and reduced tourism has been well known within the investment community and this did not appear to impact the price until the actual ad and media corrections were carried in the newspaper , perhaps spooking retail investors and the stock is down 22% this week. The operational figures already show that the airline is in turnaround mode and is being hammered when it has already hit the bottom. I need to attend more investor briefings. Nether announcement appeared at the Nairobi Stock Exchange (NSE) website where company quarterly announcements usually run

Profit warning at the NSE
On Thursday, the Capital Markets Authority (regulator) release a brief (copy here ) addressing issues perhaps that should have been said by the NSE. It noted that bear markets do happen (NSE declined 50% between 2000 and 2002), stockbrokers are in trouble (reduced activity, means low turnover and low commission), are restructuring (layoffs and branch closure s), and exposed (risks could arise from fraud. Nevertheless, shares are safe and better left to long-term investors!

We are not rogue this came a day after directors of Suntra Investment Bank, made a similarly candid admission of trouble ”business is so low at the moment that we are actually eating into our own funds” - one of the few times a financial institution has admitted being in difficulty, as they tried to contain damager (a single court case), but which left spooked customers flocking to transfer their shares

Executive on profit
Michael Joseph the CEO of Safaricom, Kenya’s most profitable company, launched an unusual rant against the government and business climate saying the first three things an investor needs in Kenya are (1) a generator (ii) a 4WD car (iii) a security firm – before they can even think about making any investment in Kenya. he said they spend 1.5 million euros on diesel and called the new universal service fund tax stupid as mobile sector is already over-taxed
- Man who sees no losses on the horizon is the CBK governor, an eternal optimist after launching an infrastructure bond. Kenya plans to raise Kshs. 18.5 billion (~$245 million for roads, electricity generation & distribution) from investors who will pay a minimum investment of Kshs. 100,000 or ~$1,250). 12.5% interest will be paid semi-annually with principal repaid 2015, 2017, 2021. He had earlier commented that global meltdown should not have much impact because Kenya is primarily a rural agro-based economy

What else happening?
- Kenyan knows Madoff: listed among the hundreds of fabulous fraudster Bernie Madoff’s clients is Sangare Ranch of P O Box 24 Mweiga Kenya Africa
- Barclays Uganda counters rumors of a collapse/closure
- Global credit rating of South Africa, previous rate triton high credit ratings of Kenyan companies with collapsed oil firm Triton downgraded to DD, Sasini’s ratings maintained at BBB+ (triple B plus) and A2 (single A two) for the long and short term respectively, and Eveready East Africa Limited downgraded to BBB+ (triple B plus) and A2 (single A two) for the long and short term respectively. Moody have downgraded Toyota today, so who’s safe?
- Fuel shortage was experienced in Nairobi – back and forth between Kenya pipeline company, ministry of energy, oil companies who all absolved themselves for any responsibility; Read more at Coldtusker
- Who’s the Total Man at the NSE?
- Mumias profit down 73% to 231 million at the half year half year on sales of 6.2 billion (down 8%)