M&A Moment: BritAm, Centum, other East Africa deals

Britam and Centum have had a busy few weeks.

BritAmEA (i) Had an oversubscribed bond at the NSE that saw them raise Kshs 6 billion (ii) Completed the acquisition of 99% Real Insurance - giving them access to Mozambique, Malawi and Tanzania (the Competition Authority approved this deal with a caveat that they retain at least 85 of the 105 employees of Real) (iii) Established an office in Rwanda (IV) Britam will also pay about Kshs 2 billion for Equity's 25% in Housing Finance.

Centum (i) Are proposing to acquire an additional 66% shares in K-Rep Bank (ii) Are seeking shareholder approval to create a Mauritius company, set up Kings Beverage, Bakki, Shefa subsidiaries, and also ratify the acquisition of 73% of Genesis & 30% of Broll (real estate) (iii) Ceded 42% of Two Rivers venture to investors at Kshs 6 billion, (iv) Are still in the running for Rea Vipingo offering Kshs 75 per share, over the Rea bid of Kshs 70 per share to other shareholders (v) Key Centum shareholder, Chris Kirubi said he wants to be a dollar billionaire. 

Other recent deals include

Airlines

• Kenya Airways to give Tanzania's Precision Air a $10 million bailout. 
• Waiting to see who will officially be FastJet’s partner will be for their renewed push to enter the Kenyan aviation market.
• Hong Kong listed Frontier Services Group completed acquisition of 49% of Phoenix Aviation for $14 million (Kshs.1.2 billion).

Autos

• Al Futtaim Auto to compulsorily acquire the remaining 8.4% of CMC shares from minority shareholders

Banking & Finance

• Actis to acquire Compuscan, the largest independent credit bureau in Africa & run it as Credit Service Holdings with Michael Jordaan as chair.
• Diamond Trust has an ongoing rights issue to raise Kshs 3.2B ($42 million) from shareholders at Kshs 165 per share.
• Ecobank got investment bank approval in Kenya following their buyout of Iroko buyout and will target oil & gas, infrastructure & commodity deals. 
• KCB is now holding company, and is said to be interested in buying an insurance entity
• (edit) Kenyan Women Holdings will sell 25% of the shareholding of Kenya Women's Finance Trust to their 600,000 members between September and October 2014. 
• NIC Bank to have a corporate bond and rights issue during 2014
• Atlas Mara to buy 77% of Development Bank of Rwanda 
• National Bank shareholders to vote on if money from their upcoming rights issue can go to pay off preference shareholders
• Western Kenya politicians have support the creation of a new Mulembe Investment MFI bank, that will be part-funded by counties to serve 5 million people. 

Building & Cement

• Holcim is set to acquire effective control of Kenya's Bamburi Cement as part of the planned merger between Holcim and Lafarge. "The parties do not wish to see any change to the status of Bamburi as one of Kenya's leading industrial companies listed on the NSE."

Food & Beverage 

• Danone bought 40%of Kenya’s dairy processing company Brookside which had revenue of Kshs15.4 billion (€130 million) i in 2013. It was previously 90% owned by the Kenyatta family with Abraaj owning 10%. Brookside collects milk from 140,000 farmers and has 3,000 employees.
• Distell of Stellenbosch South Africa got privatization approval from the Kenya government to acquire of 26% of KWA Holdings E.A. that was previously owned by ICDC  for Kshs 860 million (about $10 million)
• Kenya Wines will also their Kshs126 millionUchumi Supermarket stake.
• See Centum (above)
• South African food company, Tiger Brands has dropped plans to acquire Kenya firms Rafiki Millers for $25m.

Health & Beauty

• Procter & Gamble merged India, the Middle East and Africa into one IMEA region to improve execution 

Hotels & Tourism

• The Kenya Competition Authority approved the acquisition of 100% of Fairview Hotel by City Lodge Hotels.
• Kempinski Hotels, Europe's oldest luxury hotel group has officially taken over Hôtel Des Milles Collines in Rwanda.

Insurance 

• See Britam above
• CIC had dropped plans for a rights issue in favour of a corporate bond
• Liberty Kenya proposed to pay a Kshs 1/= scrip dividend, but shareholders can opt for cash.  
• UAP had an oversubscribed bond that raised Kshs 3.1 billion against a target of 2B. 
• Africa Report magazine listed insurance companies as the top performers at the NSE in 2014 (see table).

Legal

• Kenyan firms Hamilton Harrison & Matthews (HHM) and Oraro & Company have announced they are to merge pending regulatory approvals.

Media & Communications

#RIPCareyEaton

• The $35 billion Publicis-Omnicom merger fell apart. The deal to combine the world’s largest advertising company was foiled by myriad difficulties, including who would run the new firm. The collapse of the deal is a win for WPP CEO Martin Sorrell, who campaigned aggressively against the merger of two of his biggest rivals.
• A few months after his big deal with One Africa Media consolidating operations in Kenya, Uganda and South Africa, co-founder, Carey Eaton, was killed in Nairobi. See some tributes to Carey Eaton. The Economist also ranked the largest internet companies in Africa and One Africa Media topped this at $80 million, followed by Mobile Planet ($15 million) and Kopo Kopo ($10 million) 
• passed away - some tributes 
• Scangroup agreed to acquire a majority stake in a pan-African firm - the Experiential Marketing Group (EXP) 
• The  Safaricom and Airtel buy out of (and split of) Yu appears to have stalled. 

Oil & Mining

• In the last year, Tullow Oil and Base Resources have paid the Kenya government $22 million and $16 million respectively . 
• Tullow received a  judgment in its favour over capital gains tax payments that Tullow had made onHeritage’s behalf to the Uganda Revenue Authority. In August 2013, Tullow received $345.8 million from Heritage in satisfaction of this High Court judgment.
• Swala Oil & Gas completed their Tanzania IPO which was oversubscribed and will now proceed to list on the Dar es Salaam Stock Exchange (“DSE”). The placement of 13.3 million shares with 1,869 new and existing shareholders also allowed Swala to keep excess funds from Dar IPO.

Transportation & Utilities

• Transcentury sold their 34% in Rift Valley Railways to Citadel Capital for $43.7M recovering their cash, but below fair value..they cited the delayed turnaround of the railway consortium as reason for the sale
• Actis confirmed sale of its stake in Umeme for $85.5 million to 20 institutional investors including Investec and Uganda’s NSSF
• Kone Kenya acquired the business of Marryat & Scott, an elevator installation company.

Other Peoples Money

• The Australian Navy seized heroin worth $296 million from a wooden boat off  the Kenyan coast.
• The Karen Blixen house was put up for sale for $9.5 million 
• Kenya's NSSF had $600 million (Kshs 51 billion) in quoted securities as at June 2013 topped by Bamburi EABL and KCB.
• The Competition Authority fined Tusker Mattresses (Tuskys) and Ukwala supermarkets Kshs 5.3 million while allowing them to continue pursuing a supermarket consolidation deal.

BritAm and Swala Investments

Last week saw the announcement of two new regional investment opportunities – one a new bond offer in Kenya and the other – an IPO in Tanzania – that both close on July 4.

BritAm Bond: Kenyan financial group Britam announced a Kshs 6 billion ($69 million) bond  which will be two tranches starting with an initial target of Kshs 3 billion.

Some excerpts from the bond prospectus 

• There is green shoe option of Kshs 1 billion in the first tranche.
• Funds raised will be utilized in private equity, ICT development and local and regional expansion projects.
• The minimum investment is Kshs 100,000 (~$1,150) with multiples after of Kshs 50,000.
• The 5 year bond (maturing in July 2019) pays 13% a year (6.5% every six months). So if you invest Kshs 100,000, you will get an interest  payment of ($) Kshs. 6,500 twice a year.
• The bonds will be listed at the NSE for easy trading.
• At the end of 2013 BritAm had Kshs 47 billion of assets, revenue of Kshs 15 billion and pre tax profit of Kshs 3.1b. They had Kshs 3.7 billion in investment property and Kshs 6.1 billion in listed companies. They own 21% of Housing Finance, 10% of Equity Bank and 25% of Acorn group. They are acquiring Real Insurance for Kshs 1.3 billion (825m cash and shares  for the balance).
• The bond issuance will cost Kshs 57m shillings - and Dyer & Blair get about Kshs 36M of this as the arranger gets (27M) and for the Placement (9M).

Swala Energy: Swala Oil & Gas (Tanzania) aim to raise between TZS 1.6 billion ($969,000) if they sells 3.2 billion shares and TZS4.8b ($4.8 million) if they sell 9.6 billion shares at TZS 500 each. The Offer is conditional on the Company achieving a minimum subscription of 3,200,000 Shares under this Prospectus, to raise TZS 1,600,000,000 (before expenses of the Offer). The Company may decide not to allot any shares and repay all application monies or seek a no objection to proceed with the allotment, in case the minimum subscription is not attained.

• The minimum subscription is TZS 50,000 ($30) for 100 Shares. You can apply online, but a physical application form must be received at the brokers by 4^th July.
• Swala has total assets of $1.8 million in 2013 (up from $75,000 in 2012) . revenue in 2013 was $285,000 (up from $62k)  and loss was $5.5 million for the year (down from $1.26m the year before).

• They are fundraising as they plan to spend $3.5M next year and $6M the year after.
• A London broker values the company at $52.3 million based on 50% interest in Pangani (an area of 8578 sq. km worth $25.1m) and 50% in Kilosa Kilombero (an area of 8838 sq. km worth $36.3m). Otto Energy is a 50% partner in both of these ventures. 
• The Costs of filing will be between TZS 210M and TZS 248M ($150,000) with printing costing 32M, accountants 40m (~25,000 to BDO), technical specialist (Risc Pty) 40M legal (Asyla) 16m, nominated advisors 27M (~$16,000 to Arch Financial if $3m is raised) and the Dar es Salaam Exchange gets 27M.
• The Swala Energy prospectus gives insights on Kenya oil deals that are rarely public and which are used as a basis for valuation of these shares and for comparison as they are all in the East Africa Rift System E.g. Recent Kenya transactions (EARS ) include Marathon Oil bought aBlock 12A license from Africa Oil for $78.5M and a Block 9 license, Africa Oil bought a  Block 12A license from Tullow for $3.86M ($1,265 per sq. KM and Adamantine sold a Block 11B license to Bowleven for $10M ($1,429 per sq. KM).
• In Tanzania, profits from oil are shared out as 45% government and 55% to the contractor when production is less than 12,500 barrels per day and when barrels are over 100,000 per day, the government gets 70% and the contractor 30%.
• Swala has applied for approval to list on the Enterprise growth Market section of the Dar es Salaam stock exchange (they need 100 shareholders so list).
• Swala will go from holding 74% to 61%  and new shareholders all have 10% with convertible note holders with 7%.
• Tanzanian Applicants will be allocated Offer Shares in priority to all other Applicants. Any Offer Shares remaining thereafter will be allocated to East African Applicants. Offer Shares will only be allocated to Foreign Applicants if they have not all been acquired by Tanzanian Applicants and East African Applicants.

Shares Portfolio August 2012

Comparing to last quarter  and a  year ago.   

The StableBarclays ↑
Bralirwa (Rwanda) ↑
Diamond Trust Bank ↓
East African Breweries (EABL) ↑
Equity Bank ↔
Kenya Airways ↓
Kenya Commercial Bank (KCB) ↑
Kenya Oil Company (Kenol) ↑
Safaricom ↑
Scangroup ↑
Stanbic (Uganda) ↓
 

Review 

The portfolio, excluding new shares, is up 11% since May 2012 while the Nairobi Shares Exchange main index is up 6% over the same period.

• Best Performer: Kenol (up 23% in 3 months), Bralirwa 14%)
•  Worst Performer: Diamond Trust (down 8% in 3 months), Kenya Airways (after the rights issue that yielded
• In: Equity Bank - read a recent  Equity Bank analysis report.
• Out: Britak, Uchumi
• Increase: Took up all of the Diamond Trust Bank rights
• Decrease: none
• Unexpected gains/losses: Kenol suspension was listed, Bonus share of Stanbic Uganda bonus was issued (4 new for every existing share)
• Looking Forward to more listings like the one announced today from Umeme - a monopoly electricity distributor from Uganda that is 100% owned by Actis,  and which plans to have an IPO in Uganda and Kenya later this year.

Shares Portfolio November 2011

Comparing changes to three months ago and a year ago, investor confidence has dipped further, and the Kenya shilling is even weaker, having fallen past the Kshs. 100/$ to the dollar before last week's drastic rate hike by the Central Bank brought the rate back to to 95, but which also pushed most commercial banks loan rates to 25%

The Stable
Barclays Bank ↓
Bralirwa Breweries (Rwanda) ↑
British-American Investments (Britak) ↓
Diamond Trust Bank ↓
East African Breweries (EABL) ↓
Kenya Airways (KQ) ↓
Kenya Commercial Bank (KCB) ↓
Kenya Oil Company (Kenol) ↓
Scangroup ↓
Stanbic (Uganda) ↔
Uchumi Supermarkets ↓

Review: The Portfolio is down 2% in the last three months as is the NSE 20 Share Index, which is also down 2%.
- Best performer: Bralirwa 24% (only share that has appreciated in this Qquarter)
- Worst performer: Britak -38%, Kenya Airways -25%
- In: Britak
- Out: None
- Increase: KCB, KQ
- Decrease: None

Other
Splits: None
Bonus: None
Dividends: Interim from Kenol, and Barclays, and it was pleasant to be able to encash a Bralirwa Rwanda dividend cheque over the counter at KCB in Nairobi - unlike with Stanbic (UG) Uganda, that takes about a month clearing and the bank charges can take a huge chunk out.

Events:
- Safaricom shocked with a 47% drop in half year profits to September 2011.
- Kenya Airways got shareholder approval for a rights issue to finance fleet expansion in the next few months (Said to be at Kshs 21/= which is about where the share is now.
- Tanzania has the Precision Air IPO and Tanzania Breweries sale but the mixed signals - welcoming/shutting out East Africans, and not getting proper approval from Kenya’s capital markets means there's likely to be little cross-border participation once results are announced.

Data: The NSE now has a shares app for Android mobile phones and signed a partnership creating two new FTSE NSE indices.

Shares Portfolio August 2011

Comparing changes to three months ago and since then, investor confidence has dipped following rising food & fuel prices, power rationing and a sliding shilling.

The Stable

Barclays Bank ↓
Bralirwa Breweries (Rwanda) ↑
British-American Investments (Britak) ↔
Diamond Trust Bank ↓
East African Breweries (EABL) ↓
Kenya Airways ↓
Kenya Commercial Bank (KCB) ↓
Kenya Oil Company (Kenol) ↑
Scangroup ↓
Stanbic (Uganda) ↓
Uchumi Supermarkets ↓

Review: The Portfolio is down 5% in the last three months while the NSE 20 Share Index is down 12%
- Best performer: Bralirwa 33% (this Q), then Kenol 22%
- Worst performer: Uchumi -39%, Diamond Trust -26%
- In: Britak, Safaricom
- Out: None
- Increase: None
- Decrease: None

Other:
Splits: Barclays
Bonus: Diamond Trust , Scangroup, and Stanbic Uganda
Dividend: KCB, Diamond Trust, Bralirwa, Kenol Scangroup, Stanbic
Events:
- Uchumi re-listed after five years of suspension.
- Took on the new IPO from Britak IPO (results on August 23), but passed on other new listings from Transcentury and Bank of Kigali. Meanwhile there are no privatizations on the table from the Government of Kenya
- NSE companies are making efforts to clean up their shareholder registers, with a view to applying dividends that have been unclaimed for several years to their reserves, otherwise they will have to be surrendered to the Government

Data: The NSE has stopped sharing free price lists, which now makes it harder to access daily market data. Meanwhile the CDSC has stepped up with investor awareness, and you now get a SMS notification of trades (shares sold/bought)

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.