NSE Moment: Buyouts, Vultures, Divestments

A look at recent deals at the Nairobi Securities Exchange (NSE) and other privatization and equity bids since the last update. 

Divestments

Essar released a bombshell from India that they would be abandoning their investment in the old Kenya Pipeline Refineries and sell their stake back to the Kenya Government for $5 million.

At the same time a Receiver Manager put up (the closed) Pan African Paper Mills up for sale, but that is likely to be complicated by links the company had with vulture funds who purchased Panpaper’s debts in the international secondary debt market.

These faceless entities — basically different mutations of one group (going by the names like Noon Day Asset Management Asia and Farallon Capital Institutional Partners) — and 11 such firms  own 37% of the company’s debt.

The Essar fallout prompted Parliament  to also look into the mystery of Orange Kenya which keeps asking for more government support even as the government loses equity in the company.

Since then, the government announced that a new office will advise the government on  state investments: Attorney-General Githu Muigai said the Government Transaction Advisory Services Office will guide state deals with the aim of sealing opportunities where the latter has been losing its shareholding in parastatals without monetary gain.

  
EDIT: Another divestment is Kenya Wine Agencies Limited (KWAL) finally exiting Uchumi after disposing off all its shares. It had 18% in 2004 and 4% in 2012. - via @NSEKenya 

Done Deals

Recent M&A deals approved by the Kenya Competition Authority include:

Agri-Business:  The  acquisition of Juhudi Kilimo (turnover of Kshs 30 million) by Soros Economic Development Fund.

Aviation: The acquisition of Lady Lori Kenya by Ian Mbuthia Mimano, Adi Vinner and Peter Nthiga Njagi.

Education: The  purchase of 60% of Safer World Investments by School Operators Limited (owners of Peponi School) (The two will have a combined turnover of Kshs 672 million or ~$8 million)

Finance & Banking: The acquisition of Francis Thuo & Partners by Equity Investment Bank.

Food: The acquisition of 66% of Coca-Cola Juices Kenya by the Coca-Cola Export Corporation.

The  acquisition of Lonrho PLC by FS Africa  (as part of a $280 million deal in South Africa).

The acquisition of Ma Cuisine by Harper Holdings.

Health: The acquisition of Jampharm Chemist by Viva Afya (the two have a combined turnover of Kshs. 19.5 million).

  

The acquisition of Ascribe Group (which has a turnover of Kshs 70 million) by Emis Group.

Deals Bubbling

Brookside Dairies have taken over Buzeki, the makers of Molo Milk, in a Kshs 1.1 billion ($13 million) deal that increases Brookside’s share of the dairy market to 44%. 

EDIT GAZETTE NOTICE No.  15068 - THE TRANSFER OF BUSINESSES ACT


NOTICE is given that the furniture, fittings, fixtures and the assets and the stock being the business of manufacturing and selling of milk and milk products owned by Buzeki Dairy Limited (the “Transferor”) on the premises situated at Ganjoni, Mombasa have been sold and transferred by the Transferor to Brookside Dairy Limited who will carry on the said business of manufacturing and selling of manufacture of milk and milk products at the premises of Brookside Dairy Limited under the name and style of Brookside Dairy Limited (the “Transferee”) with effect from 1st November, 2013 (the “Completion Date”).


The address of the Transferor is Post Office Box Number P. O. Box 85532-80100, Mombasa, Kenya.
The address of the Transferee is Post Office Box Number P.O. Box 236–00232 Ruiru, Kenya.

The Transferee is not assuming nor does it intend to assume any creditors or debtors of the Transferor incurred in connection with the purchase and business of the assets of the Transferor up to and including the Completion Date and the same shall be paid and discharged by the Transferor and likewise all debts and liabilities owing and due to the Transferor up to and including the Completion Date shall be received by the Transferor.

Dated the 5th November, 2013.

KIPKENDA & COMPANY ADVOCATES,

Advocates for the Transferor.

COULSON HARNEY ADVOCATES

Centum shareholders approved new investments in Liberty Beverages, Mvuke Power, Two Rivers Lifestyle Centre, Centum Share Services, Centum Asset Managers (who are buying Genesis Kenya)  and the acquisition of 79% of Kilele holdings.

Africa Media Venture (AMVF)  a Dutch-based venture capital firm has raised its stake in a Kenyan restaurant guide website, EatOut, from 25% to 32% for  Kshs17 million ($200,000) in a transaction that values the online portal at Kshs. 220 million.  

Lonrho is selling it's entire stake (11%) in African airline Fastjet. 

Crystal Ventures (owned by the Rwanda Patriotic Front) plan to sell their 20% stake in MTN Rwanda, in an IPO which will make MTN Rwanda the third company listed on the Rwanda Stock Exchange after Bralirwa and Bank of Kigali.

Sameer Investments is buying out 41 million shares that Bridgestone owns in Sameer Africa – after which Sameer will own 159 million shares equivalent to 72% of the company.

Across the border, Tanzania's Precision Air is looking for a government investment, just a year after an IPO which raised $7 million and reduced the shareholding of Kenya Airways from 49% to 35%

Unga Group will acquire Ennsvalley Bakery for Kshs 125M ($1.5 million) and also dispose of shares in Bullpak.

EDIT: Kestrel Capital has arranged a $1.2 million private placementof convertible debentures in Stockport Exploration to local Kenyan qualified investors. Stockport is listed on the Toronto Stock Exchange and has mining interests in Nyanza Kenya where they are exploring along a prolific gold-hosting greenstone belt. Zeph Mbugua, the Chairman of TransCentury, became a director of Stockport in February this year. 

EDIT:  Swedfund, the Swedish state’s venture capital company, and The Africa Health fund through The Abraaj Group, a leading investor operating in global growth markets,  made a $6.5 million investment in The Nairobi Women’s Hospital, a leading private health care provider for women and their families (men and children) in East Africa.

Shareholder Restructurings

Businessman Christopher Kirubi is acquiring an additional 32 million shares in Centum Investments (for ~$8.6 million) which will raise the stake he controls to about 30%. and has received  an exemption from complying with the NSE requirement to make a take-over offer.

After listing at the NSE, I&M shareholders have done a swop to bring the company's investors numbers past the 1,000 shareholder mark.

  

The WPP Group (through Cavendish) is increasing its shareholding in Scangroup from 33% to 50%.  WPP is the largest  advertising group in the world is strengthen its control of Kenya and the East African market ahead of the merger of the Omnicom the No 2 firm, Omnicom (owners of TBWA) and No 3 – Publicis (of France) advertising firms – which when combined will be larger than WPP.

De-Listing's – Companies leaving the NSE 

Access Kenya Group after their buyout by Dimension Data was approved by the Government

CMC  at the conclusion of a  buyout offer from Dubai’s Al-Futtaim Group  who have offering Kshs 13  a share, or about $90m. 

The Dubai-based conglomerate, which holds lucrative distribution rights for Toyota and Honda in its home market, will help the struggling Nairobi-based automotive group expand its brands beyond its existing stable, which includes Volkswagen, Ford, Mazda and Suzuki.

R.E.A. Trading, which owns 56%  of Rea Vipingo Plantations has offered to buy out all other shareholders at a prices of Kshs 40 per share, representing a 43% premium. The shares that have since been suspended from trading and will be delisted from the NSE if the deal succeeds.

Stalled Deals

There was a Financial Times (FT)  article on queues forming to buy up East African retailers but deal opportunities at Nakumatt and Naivas have been hampered by some shareholders challenges of family and reputation.

Naushad Merali on Entrepreneurship

Kenyan businessman Naushad Merali known for his Sameer Group investments in banking, telecommunications, manufacturing, agriculture and other sectors, gave a talk at a new Entrepreneurs Club event on Thursday. He briefly spoke about his business life and then took part in a Q&A session.

Excerpts

He spoke about how he grew up in Mombasa, and would take a bus twice a month to sell Indian sweets in Moshi to pay for school fees. And when worked for a few years at Ryce Motors as an accountant, he was able to buy it out from the owner who was retiring and also convince Daihatsu that he could sell their short wheel base vehicles in Kenya, landing their franchise.

(Think) Big: when he signed the deal to buy first American bank in London he did not have the money, but by the time he flew back to Nairobi people had heard and were amazed and want to partner with him - so by the time it came to conclude the deal, he had a cheque to pay.

Same with Kencell - when MTN bought out Vivendi they were sure that they'd get their way and he's not be able to match their offer, but he chose to exercise his preemptive rights and spent 15 days flying around during which time he got funding from Celtel.

Exits:  Don't get emotional about owning a business, and know when to cash out. Selling out, and getting liquidity and value for all your hard work is the only way to grow. e.g. He took money from communications, and put it into the fibre cable business.

Give Back: Do this and you’ll get back more. He’s done this by listing his shareholdings, creation of the Jaffrey Sports Club on prime land that is free for all the public to use, and other philanthropic activities that his wife manages.

Growth: Diversify, but don’t take money from one business to put it in another one. Grow each one with its own capital, and if one fails, it goes alone.

Opportunities (Take advantage of): On a flight he sat next to a man who he conversed with and found that was trying to sell his company called Sasini. He had no idea about tea and coffee, but shook hands and had a deal.  Same with his IT investments did not know much

Also when President Museveni told him that farmers were pouring milk because there was a shortage of milk processing, he set one up and expanded the capacity of the country to process milk many times over.

Partnerships: Choose the right partners - business partnerships are harder to break than marriages and you need partners who align with your vision for the next few years . He found that his new South African had a different style than him so he cut back his internet interests. 

People:  Kenya’s greatest resource is its people – hardworking resourceful staff. He mentioned how he motivated his salesmen at Ryce Motors, by giving their wives cheques to hold, that would only be signed if their husbands sold enough car volumes.

Also he is very protective about creating and retaining jobs for workers (the Sameer group now has 24,000 staff). He said when Firestone chose to stop manufacturing their brand in Kenya (and shut production), he bought them out and created a new brand - Yana.

Succession:  On business succession - life is finite, and many businesses here won't last more than one generation because of secretive management styles, unlike those in developed countries that last hundreds of years. He advises that you bring your kids into the business open your books share your secrets, but don't hire relatives as they are very hard to fire, and can cause domestic stress and lawsuits.

TEA: His motto for business and finding new partnerships is TEA T - trustworthy, E efficient A – attitude (i.e. work with people with positive attitudes).

Technology industry (The problem with the ..) is that companies require continuous investment year after year. so tech entrepreneurs should know when to take on new partners and funding, perhaps giving up a little equity to like minded partners, if they are to grow.

Final advice: Invest in agro processing & food value addition as that’s the future.

Real Estate Moment

The 13th edition of the Kenya Homes expo is going on at KICC Nairobi this weekend. Here’s recap of that and other real estate on-goings. It seems larger than last year with more properties on display, along with energy, interior finishing, communication, insurance and media companies as well as several mortgage banks. Also some properties advertised last year were still on sale.

Expo: Some notable property developments included;
- Trident Park in Langata (behind Splash/Carnivore) 4 bedroom (4br) , all en-suite homes that cost Kshs 15.5 million [Kshs 15.5M or $193,000] (Trident Estates)
- Diamond Park in South C which are 4br maisonettes that cost Kshs 12M (Diamond Park)
- Tamarind Meadows are 3br maisonettes located in Mlolongo/Athi River with prices ranging from Kshs .6.5m – 9M (Tamarind Properties)
- The 3rd phase of Greenspan Housing estate of 3br maisonettes in Donholm/Umoja that cost Kshs 8.5M (brochure says that some houses sod in phase 1 have achieve rental of Kshs 45,000 [$560] per month) (Greenspan Housing)
- Residential plots sold by Ndatani Enterprises in Kitengela can range from Kshs 500,000 - 900,000 ($11,000)
- Le Mac is a planned 24 story tower complex with apartments, malls, shops, offices, bank, restaurant, gym on Waiyaki Way, Westlands that was launched by the vice president a few weeks ago. Offices and showroom will cost 15,500 per square foot , while apartments that will include studios, 1, 2, 3 and 4 bedrooms will cost 16,500 per square foot – translating to Kshs 12.6M for 1br to Kshs 56M ($700,000) for a 4br duplex. (Mark Properties)

Financiers: at the Expo were the usual banks present including Housing Finance, Barclays, KCB, and Standard Chartered.
- Barclays loans start at 12% up to 20 years and 90% of home cost, or 70% of construction costs and they buy mortgages finance by other banks. A Kshs 10M loan taken over 10 years has repayment of Kshs 143,413, and over 20 years has monthly repayments of 110,039
EDITCBA: Mortgages are payable over 25 years, and (they say) you can accelerate and pay off an entire home loan without being penalized.
- KCB has mortgages up to 25 years and rates are 13.75% and finance 90% of mortgages for salaries people homes in urban areas, 70% for plots, and 85% for estate development. A Kshs 10M loan taken over 10 years has monthly repayments of 152,274, and over 20 years attracts a monthly payment of 120, 737
- Housing Finance had their Makao Homes which are pre-designed homes they can build for anyone with a piece of land and range from a 2br bungalow that costs 1 million ($12,500)(ideal for 1/16 acre) to 4br maisonettes ideal for ¼ or ½ acre that cost 13.3 million ($166,000). A Kshs 10M loan attracts repayments of 155,266 over 20 year and 124,352 over 20 years.

- Other finance from Houising Finance, includes plot purchase (70%), for investment groups (70%), for commercial office space/shops development (65%), as well as finance for incomplete or stalled projects.

They were joined by newcomers including;

- National Bank of Kenya
- CFC Stanbic who last week launched a 100% mortgage facility.
- I&M Bank – pay lesser amounts in initial years and higher amount in later years as your income grows (you think?), all loans have free credit card and free fire insurance. Loans are at 12, 14 and 16% and range from Kshs 2M -30M to finance up to 80% of property price with a maximum of 15 years. The brochure also indicates all the typical home closing costs – e.g. a Kshs 10M mortgage will attract valuation fee if 10,000, 1% on disbursement (100,000), processing of 0.5% (50,000), legal fee of 1% (100,000) for a total of about 3% (home buyers are advised to budget 5%)

Other: - The Sameer Business Park has started leasing this week; it initially looked like white elephant its now available through property agents Knight Frank .

Via @azthedance - This article by Brendan Barron titled Arrest this Development? points to some disparities in the sector such as;

- The country’s average wage is somewhere around $4,500 a year, but the average mortgage was more than 12 times that, at $56,000.
- Nairobi currently has no urban plan
- There’s also no real Building Code to which technicians can refer to ensure new homes meet standards. There are, simply, no enforced standards.

Edit: Here's a nice series of articles in the Business Daily by analyst and columnist Carol Musyoka, first on Kenyans obsession with owning property and a follow up on the
investment risk of owning property, which has this paragraph.

Given where today’s interest rates are at say 15 per cent, an average middle income house costing Sh10 million, will require a monthly mortgage payment of approximately Kshs126,000 after the buyer puts down a deposit of Sh1 million or 10 per cent on the 15 year mortgage. This is not an amount that is easily payable by the average Kenyan worker and requires a great amount of sacrifice on the part of the buyer, especially where the rent for a similar house would be about Sh40,000 or a third of the mortgage payment.

The fact is that buying your own home is really not supposed to be an investment, rather it is a method of providing future security for yourself by having home ownership at the end of the mortgage period.

Unplanned Nairobi Infrastructure & Buildings

The spat this week between the Kenya Government and various businesses about demolition of buildings along Mombasa road is not a surprise for anyone who was at the 2010 TEDxNairobi where Architectural Engineer Eric Kigada of Planning Systems Services spoke of the lack of a valid master plan for the City of Nairobi and the resultant chaos for building owners and his fellow professionals.

He said Nairobi had master plans drawn in 1948 and 1973, but this last one expired in 2000 and it was a city that would expand toward Thika side of town. Currently, the government, planners, and landowners operate in a vacuum with different departments and ministries having different maps and plans for road expansion and it’s not clear what routes they will follow or how large actual roads will be constructed. Government officers who won't commit approval in writing and there are unclear plans such as one extending the growth of Nairobi up to Namanga.

He advocates for digital maps (which exist) to be availed and used, transparency in the planning process, and most important a master plan that will be shared within the industry. He also spoke about his company’s other work such as revitalizing green spaces along the three Nairobi rivers and a proposal to utilize existing abandoned quarries to supply enough water for the Eastern half of Nairobi, but which the government authorities are yet to commit to.

Will the buildings, include the new Sameer Business Park and new Standard Newspapers Headquarters be brought down to expand the road? The Kenya Property Developers Association (KPDA) in a statement today called for urgent development and implementation of comprehensive master plan and a defined compensation plan for land and building owners if the Government goes ahead with demolitions to make way for necessary infrastructure improvements.

Net blamed for stock speculation

The internet (be it forums or blogs) is being blamed for rumours that drove up the price of Sameer Africa shares to 40 shillings before it again dropped to half it's take off price.

But Sameer never confirmed, denied or commented on the rumors until now.

But would you buy shares because a stranger wrote something to a blog, or chat room? And it seems far fetched that the readers of Kenyan blogs and chat rooms have enough weight & financial muscle to drive up a share price so drastically. I'm inclined to place blame with others, perhaps brokers, who simply used the 'internet' as an extra forum to play around with the share price of Sameer Africa (and who probably cashed out at 40 shillings).

Bridgestone Exit?

One theory for the massive volumes of Sanmeer Africa (formerly Firestone) shares traded at the is that Bridgestone is finally disposing of its 14.9% (41 million shares) it still holds in company almost two years after the partnership break-up.

March 1

Banking
After Barclays last week, three other Banks have jsut published their results and with 30 days to go in the month, daily newspapers will have at least one bank printing their 2005 results each day by the march 31 deadline.

Those who have done well will publish their results in two or more newspapers (at a cost of 300,000 per color page) while the few who have performed poorly can get away with publishing the results in the lower circulation Kenya Times or People newspapers.

Kenya Commercial Bank (Ranked No.3 in assets)
Barclays posted a 5% return on assets (ROA) and 47% on return on equity (ROE), while KCB had a 1.9 billion pre-tax profit, 3% ROA and 20% ROE in 2005. The Bank will pay a 1st and final dividend on 4 shillings per share to shareholders after their AGM to be held at KICC on June 16.

Even though customer deposits grew from 52b to 60billion shillings during the year, their loan portfolio remained at 33 billion. The Bank also had to restate their 2004 results as their other income was 477 million and not 785 million shillings.

National Industrial Credit Bank (NIC) (No. 8 in assets)
The Ndegwa controlled NIC Bank posted a 403 million profit before tax, 2% ROA and 16% ROE. The bank's assets stood at 20.6 billion with customer deposits of 16.6 billion and 14.1 billion in loans at the end of the year. Shareholders will be paid a final dividend of 1.8 shillings per share after their AGM on May 17.

Equatorial Bank (No. 29 in assets)
The Merali-controlled Equatorial Bank (109 million profit before tax, 3% ROA and 19% ROE) ended the year with 3.7b assets, 3b in deposits and 1.8b of loans.

Credit Bank (No 32 in assets)
The Nyachae controlled Credit Bank (90 million profit before tax, 3% ROA and 19% ROE) ended the year with 2.8b in assets, 2b of customer deposits and 1.7b worth of loans.

Bank Jobs
Kenya’s next bank is expected to be Family Finance which plans to convert from a building society into a Bank by June 2006. With assets of 3.2 billion in June 2005, they will rank as about Bank No. 30 in the country and hired Mr. S T Wainaina as their new general manager this week.
As such they are hiring;
- Branch managers
- Assistant branch manager
- Branch accountants / supervisors
- Credit officers
Apply by 16 March to the HR manager at info@familyfinance.co.ke. Applicants must be aged 26 – 35 with a business degree and 3 years relevant experience.

ATM Wars
Pesa Point has put up 80 ATM’s in 4 months, surpassing Kenswitch's 45 set up over almost 3 years.

Stanbic
Stanbic which plans to acquire some Kenyan banks, has mini-branches at several Uchumi outlets and now offers a finance plan for Uchumi customers to buy household items such as TV's, washing machines, cookers, fridges, and furniture.

Finance
Sameer
Turnover was flat – a slight increase from 3.27b to 3.36 billion shillings in a year in which the company broke away from the Bridgestone-Firestone company. The change, which entailed increased advertising revenue of the new brands, caused after tax profit to drop from 275m to 205 million. The company’s AGM will be held on March 31 at 11 and a dividend of 0.5 shillings per share has been declared.

Oddly enough, the register for payment of dividends will close on April 5 - after the AGM, not before/on the day of the AGM as is the trend at most companies here. Sameer has also announced that it will cross list its shares on Uganda stock exchange.

ICDCI
ICDCI's six month results showed that investment income increased from 133m to 278m shillings, largely as a result of their off-loading shares in Uchumi. The company also bought 4% of K-Rep Bank in a continuing diversification program.

Coffee industry
The Coffee Board of Kenya launched a new website on February 24. It has up to date results of weekly coffee auctions but some links not working though. Hopefully this will shine a light on an industry that is booming around the world, but collapsing in Kenya (to a point where farmers are uprooting their trees) where it is tightly controlled by an endless cartels of middlemen who shun new ideas (Tetu) and who suffocate and frustrate farmers and new investors.

Future of Giant Parastatals
The Daily Nation looks at the future prospects of Telkom Kenya and the
Kenya Power & Lighting Company

Jobs
The Standard is hiring business executives. Applicants must have business degrees, 1- 3 years work experience, and be aged under than 30. Apply to hrd@eastandard.net by March 8.

opportunities
- Transport/distribute sodas for Softa bottlers and collect empties nationwide. Email info@kuguru.com
- Manage catering facilities at the UN including quality value menu. E-mail by March 3 to cps.registration@unon.org
- Owing to great international demand, Farmers’ Choice is urgently seeking pigs and paying cash for each delivered for slaughter.