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.

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.

Chama Management 101

Chama to Conglomerate (Reinventing your Investment Group) is a book by Tony Wainaina, an investment banker, who was also the C.E.O of the Transcentury Group. 

In it, he highlights key pointers and pitfalls that Chamas (informal investment groups) may encounter  in meeting their (initially) ambitious growth plans, such as dealing with members with different expectations & commitment to the group, the importance of hiring professionals, avoiding mediocre management, getting all members to bring the best investment ideas to the Chama, the problem of meeting in social places, importance of strategic planning, time-keeping, & record-keeping - and some common sense lessons - such as if everyone is talking about a particular investment, it's already too late Safaricom IPO)

He also gives examples of other Chamas of people who turned informal meeting sessions into investment groups that invested, some with success and others with difficulties such as with members who have different expectations and level of commitment, land purchases, dealing with KRA (taxation).

There is also a brief mention of what is arguably Kenya's most famous Chama which began at a goat eating party in Athi River in 1997.which was not the most optimistic time for Kenya. It became the Transcentury Group which roped in 29 members who put up Kshs. 24 million that was invested into local NSE shares, Castle Brewery, East African Cables, Aureos, Rift Valley Railways, Helios, and which all led to their own eventual listing at the Nairobi Stock Exchange in 2011.

The book is a short, nice, easy read that you'll want to have with you, and refer to as your Chama grows, or  gets stuck like some of the examples highlighted. It also includes sample documents and guides  like 'Letters of Intent,' 'Investment Term Sheets,' 'Non Disclosure Agreements,' and steps to concluding a Kenyan land deal.

The Book is sold at Text Book Centre, Bookpoint- Moi Avenue and is also available on Amazon for the e-reader investor types.

NSE Moment: Britak, Transcentury, Kigali Bank, Stima SACC0

This week we were reminded that there's been no IPO at the Nairobi Stock Exchange (NSE) since 2008 (Co-Op Bank) and the events in the last few days were the fulfillment of initiatives that companies like Britak and Transcentury had initiated earlier in the year.

Britak: The British American Investments Company Kenya kicked off their IPO this week. The group had Kshs 9 billion in income, and pre-tax profit of Kshs 2.8 billion in 2010. With group assets of Kshs 25 billion, it is second only to the ICEA at 27 billion.

They are being sold at Kshs 9 with an allocation criteria of 30% East Africa retail, 30% foreign, 37% institutions, 3% employees, agents, and individual policy holders and can be obtained at British American branches, Equity bank , Standard Chartered (and partner Postbank), NIC, CBA banks and stockbrokers.

The minimum for retail investors is 2,000 shares (Kshs 18,000 while for institutions it’s 10,000 shares (Kshs 90,000 or ~$1,000). The IPO is budgeted to cost Kshs 320m ($3.5M) with estimated payments to transaction advisor 24M, sponsoring broker 6M, legal costs 9M, selling commission 87M, CMA 9M, NSE 1.5M, PR 67M, and advertising 90M.

Insurance Opportunities

Of the Kshs 5.9 billion to be raised, 1 billion will be for regional expansion (Tanzania, South Sudan, Rwanda), 1.2 billion will be for Kenyan operations (set up a frontier investment fund, new branches), 2.5 billion for the housing & mortgage sector aimed at affordable housing models, and 750 million will go to pay off a loan at CBA bank that was used to purchase shares in Equity Bank (Britak own 11% of equity and 16% of housing finance banks).

The Britak IPO runs from 12 July to 5 August and they have also reached out to bloggers, with forums and their own blog posts such as this tale of their CEO's initial investment.

However, there are some concerns that with their 45-year history and strong brand name (-pay Kshs 18 million a year to British American), this is a retail magnet IPO and the sale of 650 million shares (30% of the company) is likely to be over-subscribed, and the dividend paid (Kshs 200m in 2010) is likely to be safaricom-ish (small)

The company has also called for the Government to extend current tax incentive for newly listed operating companies to also include holding companies (like Britak)

Transcentury: The investment group which has had a spectacular climb and string of investments, most notably with East African Cables listed their shares at the NSE on July 14.

Their shares had been trading at an OTC exchange and were listed at the NSE at Kshs 50, which worked out to a P/E ratio of 38

RVR Coach

The Group also has a Mauritius convertible bond issued to finance the restructuring of Rift Valley Railways and investment in geothermal and other energy projects, but which also has the potential of diluting investors shareholding by over 1/3. (150 million shares available to bond holders over the next 5 years prices between 40 and 50)

Still, Transcentury has been am inspiration to other investment groups, albeit not as well connected to initiate projects with more risk such as energy real estate, and offshore. The introduction is budgeted at Kshs 20 million (220,000 - CMA 5M, NSE 1M, advisor 8M, stockbroker 4M) and the PDF prospectus is 'protected' so you can't copy sections of it.

Family Bank: Their long dalliance with the NSE is about to be fulfilled as their shareholders will next month approve a listing at the exchange. They will also vote on an ESOP for managers and 1 % transfer of shares of the company to the new CEO. It has since emerged that he is purchasing the shares at a discount as part of his employment package.

Stima SACCO: Away from NSE is Stima SACCO that is in the process of raising funds of about Kshs 500 million ($6 million) . They have advertised in newspapers (even on TV), which may land them in trouble with the CMA, for selling shares to the public without adequate information. At Kshs 100 per share, individuals can buy 200 shares at a minimum (Kshs 20,000).

Kenya Airways: Nothing yet from the airline who were expected to approach shareholders for new funds. The government has allocated funds to invest and defend their 26% stake an the airline which has since signed a deal for new Embraer aircraft to grow their African footprint.

Bank of Kigali: The Bank of Kigali is aiming to raise $62 million from new investors in an IPO that runs from 30 June to 29 July. The Bank control 25-30% of the banking sector in Rwanda; it had profit of 8.6 billion francs ($14 million) in 2010 on assets of 197 billion francs ($324 million) - equivalent to a smaller mid-size Kenyan bank

300 million shares are on offer, and the minimum is 200 shares per person at 125 francs per share ($0.075 or Kshs 18.65). They are open to cross-border investors and the allotment will be to 27% retail East Africans, 2.4% to employees & directors, 15% – East African institutions, 15% to Rwanda institutions and 40% to international investors.

The Rwanda government owns 66% of the bank, and the other 1/3 are owned by the social security fund of Rwanda. 16 billion francs ($27 million) will go to the Government for reduction of its shareholding and 20.8 billion francs ($34 million) will go to the bank to reduce its assets & liabilities maturity gap and grow its loan book and operations (from 33 to 60 branches). This will result in new shareholders owning 45% of the bank, the government 30% and the social security fund with 25%

Other: The IPO prospectus lists
- lawyers acting for the bank, number of cases they have and prospects of loan recoveries
- lawsuits filed against the bank by name (former employees, debtors opposing auction)
- list of subcontractors and related partners such as visa card providers, SMS partners, providers of credit reference and lines of credit etc.
list of properties owned and rented by the bank and rent amounts. Also Rwanda depreciate building over 5 years, after each revaluation

Risks & Exposure - one of the operational risks is scarcity of qualified personnel in Rwanda
- commerce restaurants & hotels account for 46% of the bank portfolio while construction was 29%. Also 11% of loans were to a single group and records of large are available for review to persons who sign non-disclosure agreements
- Kenya is the country's largest trading partner: Rwanda exports 33% to Kenya and imports 16% back.

Staff: - All staff are entitled to bonus and in 2010 this totaled 8% of profit, which that was shared by 441 staff (out of 454), and the average award was $3,200.
- The bank also runs an in-house dispensary and provides full medical cover to staff and 4 dependents
- The oldest director was born in 1960, the youngest in 1977. At senior management, the managing director is the oldest employee at 54, while the head of finance is the youngest at 31.

NSE Nairobi Investor Briefs

new corporate activities at the Nairobi Stock Exchange include

British American Investments - a.k.a. British American a 46 year old company in the country now planning an IPO at the NSE. They are also embarking on regional diversification as a group, which is best known for its British American insurance (Britak) – but has since added British American asset managers (formed in 2005) and Britam insurance in Uganda.

In 2010 they had gross revenue Kshs. 4.5 billion ($56 million) (up from 3.9 B in 09) largely due to Investment & other income of Kshs 5.1 billion (09 was only 400k) and their profit before tax was Kshs 2.8 billion, compared to a loss of Kshs. 334 million the year before. This also included underwriting income in Kenya of Kshs 152 million (up from 80M year before)

They are aiming for the IPO in 2011 to finance their diversification into micro-insurance and bancassurance as well expansion to Tanzania, Rwanda and south Sudan. They are yet to obtain shareholder and capital markets authority approval. Group Managing Director Benson Wairegi said they have alerted the CMA, but are yet to submit documents until their shareholders approve the process

Kenya's capital markets rules require 3 to 5 years profitability before a company can list, though @coldtusker disagrees with that saying smart investors should be allowed to decide a company's prospects regardless of their recent profitability.

Other: - Their balance sheet grew to Kshs 25.2 billion ($315 million) up from 16.3B. Assets under management by British American asset management (BAAM) grew from Kshs 8 to 17 billion
- Expenses were up 8% compared to 16% for revenue
- Paid a dividend of 200M (Kshs 6.67 per share) up from 120M last year (Kshs 4 per share)
- Bank portfolio: they own 11% of Equity bank and 15.9% of Housing finance

TransCentury: Also up for possible listing is TransCentury which was founded by a Group of prominent Kenyan investors who expand into the limelight when they acquired East African cables in 2004. Since then they have taken stakes in Development Bank of Kenya, Kenya Power & Lighting company as well as Rift Valley Railways

Their 2010 highlights and 2009 detailed accounts show;
- High finance costs eating into profits and need to pay down debt
- Strong shillings bad for there profit 170m impact,
- Kshs 1 billion invested in 2009, down to 50 million in 09

Portfolio - Seem to manage regional diversification better than Olympia did and which Centum is now trying to do
- Quoted shares in Metal Fabricators (Zambia) 20%
- Unquoted in Rift Valley railways (34%) and Development Bank of Kenya

- In 2010, added Cableries du Congo (Congo Cables)
- Chai Bora Blended Tea (Tanzania) [Revenue of Kshs 714M, pre tax loss of 29M]
- Kewberg Cables & Braids [Revenue of Kshs 781m, pre tax profit of 44M]
- Tanelec (Tanzania) [Revenue of Kshs 772M, pre tax profit of 133M]
- Avery East Africa (Kenya scale) [Revenue of Kshs 226M, pre tax profit of 21M ]
- Participation in investment in funds include Kshs 200 million in Aureos (East Africa, South Asia, china), Helios (Kshs 350m) and Business Partners International (Kshs 43 million)

In anticipation of a NSE listing, they made moves such as:
- 10:1 share split in October 2008. Now has 263 million ordinary shares up from 20 million after bonus, split, and new issues
- Paid a dividend of Kshs 13 million in 2009 (DPS of Kshs 0.05). For 2008, it was 29 million, which was part paid in '09
- According to the East African in Feb '11, Transcentury shares were trade at an OTC market run by Dyer & Blair at Kshs 35 per share compared to Kshs 48 in 2010.
- Seem to manage regional diversification better than Olympia did and which Centum is now trying to do

Kenya Airways: Is likely to seek to raise capital from its shareholders this year on advice from their directors and CFC Stanbic who are their financial advisors.

Regional: In Tanzania, Kenya Airways is ceding a steak in Precision Air, which is seeking to raise almost $30 million, in an IPO, but indications are clear that Kenyans will be locked out as will other non-Tanzanians.

From Rwanda, we have the prospect of more share listings from two companies - Bank of Kigali and MTN Rwanda, and following in the footsteps of Bralirwa who's IPO was open to all East Africans.

Kutwa Tuesday: December 31 2008

1. Yes it’s Wednesday
2. this is the final post for 2008
3. Happy New Year
4. Welcome first time readers searching online for primary school exam (KCPE) results. This is a blog on finance and investment issues in Kenya mainly
5. stories you may have missed in December 2008

- National Oil Corporation NOCK will borrow $65 million from French Bank PNB Paribas
- Triton Petrol (now under receivership) has left several local and international banks exposed to bad loans. They were also partners of Reliance (India) in the second national Operator contract
- From January 2009 Kenyans can buy government bonds and bills for just Kshs. 100,000 (~$1,300) through the Central bank of Kenya. The next bill auctions are on 5th January for bills while bond are on 26th January. one must open a CDS account with the CBK (currently they hold 4,222 accounts that trade in GoK securities) more details here
- The CBK also released a report on commercial banks readiness and compliances with Basel II requirements
- New branches Banks opening new branches in December were National bank of Kenya (Kakamega, Eldoret airport, Embu, Ongata rongai), Bank of Baroda (Nakuru) and CFC Stanbic (Kisumu, Westlands – Westgate)
- Dyer & Blair Investment Bank will arrange a fund raising plan for TransCentury, one of Kenya’s leading Private Equity firms
- Standard Chartered expected to roll out a mobile banking platform in 2009 in Kenya for funds transfer, utility payments etc. (already operational in Uganda)
- Uchumi made a payment to debenture holders in December, can it re-list at the Nairobi stock exchange in 2009?
- Co-Op Bank shares began trading at the NSE – but mini bounce on day one was not sustainable

from the blogs
- Kshs. 2.5 billion worth of Equity shares trade hands in a surprisingtrade yesterday
- NIC Kenya’s leader in asset finance, but more retail and corporate has ventured into Tanzania acquiring 51% of S&F Bank - more here
- Want to buy goods online, but you don’t have a credit card – read up on Afripay - a local company that offers that service in Nairobi
- Why is it so hard for foreign (German) companies to invest in Tanzania?
- While Pirate terrorize the east African Coastline, what should be Kenya’s flagship navy vessel is rotting away in Europe.

Financial Friday

Earlier results showed that tax collection is not profitable, but neither is dealing with the strong shilling.

The Central Bank of Kenya year ended June 2007 shows the bank recorded a 386 million shillings loss down from a 4.5 billion profit in 2006. This was largely due to a forex loss of lost 9.8 billion shillings as the shilling remained strong against the US dollar, Euro and Sterling pound.

How much currency is circulating in Kenya? 90 billion shillings ($1.34 billion), in currency up from 76 billion in June 2006.

Bank in law
You don’t start a marriage by locking out the in-laws, but that’s what’s happening with CFC Stanbic as CFC stockbrokers have suspended trades in Stanbic Uganda shares to clear up a backlog of orders.

Shares vs. Holiday vs. Election expenses
The much anticipated Safaricom IPO edges into danger zone as the IPO could be pushed back to start on December 10th, not the 3rd.

Hedge funds to Africa
There was the Equity - Helios deal announced this week.

Another prime opportunity would be for a hedge fund to invest in Transcentury

PSD blog puts the new investment interest in Africa in a historical perspective with China and other Asian countries recognizing an opportunity to stake out the long term

Hedge Funds a year ago