Interswitch in Kenya

Interswitch is a Nigeria-based, transaction switching and electronic payments processing company, with operations in several African countries. The company, founded in 2002, provides payment solutions for individuals and organizations, mainly around financial services to several private sector companies, as well as in the public sector (government revenue, health care etc.) 

Interswitch was majority acquired by Helios Investment Partners for $96 million in 2011. Helios are best known in Kenya for their large investments in Equity Bank, Wananchi Online, and soon, at  Telkom Kenya, where they are in the process of buying out France's Orange Telecom.

Interswitch itself entered Kenya by buying 85% of Paynet Holdings in 2014, which was best known for it's Pesa Point network of ATM's, which was launched in 2005,  and which grew to serve customers of over 100 institutions including several of the large and mid-size banks. At the time of the  Interswitch purchase in 2014, Paynet Services had 2013 revenue of Kshs. 320 million (~$3.7 million) and powered of 1,200 ATM's and 1,300 bank agent locations in Kenya. 

Interswitch also owns Verve International which is the largest card brand in Nigeria with almost 30 million customers. Interswitch launched the Verve card brand in Kenya last month, in a partnership with KCB, East Africa's largest bank.  

Equity Bank 3.0: Agency Banking & Equitel

A few days after Equity Bank released their Q3 results, the bank had another media briefing. CEO James Mwangi explained the stuff he had said earlier about the shareholding change, agency banking, superiority as a Telco and expansion plans for Africa.

Notes from the Live stream

Shareholding Change:

• Helios have exited from the bank ahead of the end of the seven year life of the fund. It was a closed fund.
• Equity listed in 2006 to discover  the price of the shares and on listing it was Kshs 50 per share  more than they had been offered
• They chose Helios over 5 other investors. Helios had patient investors (CDC, IFC, Soros)
•  -Helios is an example of what private equity can do and the bank transformed from Kshs 2 billion to 65 billion in shareholder funds without having to do a rights issues, or issue shares and went from 20 billion to 400 billion of assets
• Helios exit was not a buy back, but a sale to third parties including Norfund, Genesis, Investec, NSSF Kenya, NSSF Uganda and Blackrock - some of who paid a premium of 10% above the market in order to secure large blocks of shares
• The sale has allowed local shareholders to take up more shares in the bank and reduce the foreign ownership from 49% to 42%
• Helios netted about $500 million from the sale of there stake in Equity 
• Investors who missed out include China Construction Bank, China Development Bank, Temasek (singapore) and PIC (South Africa)

Agency Banking: 

is one of their most misunderstood and underrated products in which they outsource services /costs to third parties for a fee, and share prosperity with their customers (who become suppliers of Equity services)

• Top agents are doing 300-400 transactions per day (one in Kitale is doing 500) and top agents earn Kshs 750,000 to 1 million per month
• Going to add insurance, stockbroking - and transform 20,000 businesses. They want them to be profitable, so won't register a flood of new agents (e.g. 100,000 who will reduce the pie)
• In August, agents transacted Kshs 29 billion (2/3 is deposit, 1/3 is withdrawal) - agents have too much liquidity - that's why Equity/Equitel money transfer is free  as it sweeps up excess cash at the agents 
• Hope to use agents to bring down their cost income ratio down to 32%

Equitel / Phone Banking: 

• Equity is not a telco - it is a channel for banking service with value add for telco - so customers don't have to carry two phones
• Average sending amount is 2,000 - 3,000
• Mwangi asked Kenyans to furiously take up this product as it solves two problems - that of too much cash at the Equity agents and customers solve their problem of  exhobitant money transfer costs. Equitel did 8 million transactions in August double the numbers down by agents
• Using USSD, customers used to do 2 transactions per month. That is now to 19 transactions per month with Equitel, and they hope to go 120 per month when they add payments.
• Kshs 4 billion has been disburse via Equitel . 1 million people have got these loans and the average is 4,000 or 5,000. They are going to increase the loan duration to 3 months, then 6, and will do loans of 3-5 years eventually. 
• Used to process 3,500 loans a day, but that's now 12,000 loans per day via mobile. loans starts at 1 a.m. peak and are disburse by 5 a.m. before the branches open. 
• Credit applications takes 2 minutes to check with the credit reference, the national identity bureau and also come up with a score analysis. 
• You can send money to any telco, any bank account, any debit/credit card in the world
• Next is bill presentation; you give your bank a list of recurring payments, and they will  check the bill for you and ask you to confirm payment for electricity, water, dust etc.
• Cardless banking - no need to carry an ATM card. 
• Other products are virtualization of chamas (software that keeps meeting minutes, chama balances, contributions, reminders, and disburses member loans by phone ( requests done by secretary, approved by chairman, paid by treasurer etc. all by mobile phone) 
• Harambees (fund raisers are also virtualized:  You can see how much has been raised, who has donated a goat etc. 
• Everyone in Kenya can be an airtime reseller and earn a10% commission 
• Equity Life will have medial advice, agricultural advice (trying to map all soils in the country to better advise farmers on fertilizer), education (they have put curriculum from standard 4 to form 4 for kids to revise and do daily homework), financial literacy etc 
• It has free insurance for anyone who spends Kshs 250 per month

John Staley, the Director of Finance & Innovation, said Equitel was a free channel that enables them to do secure transactions that were not possible by USSD before and they will soon be rolling out a secure mobile app.

James Mwangi confirmed that a move by Safaricom to hike up the costs of Equitel to bank transfers had been shot down and such regulatory approval decisions will be made by third parties of payment companies and banks (including Equity).  

  

Africa:

Finally Equity are about conclude their purchase of ProCredit Bank in DRC with most regulatory approvals received and others that they have applied for (agency, mobile) pending -  and one of their big take on's will be to process payroll of all civil servants in the DRC.  

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.

Mostly Equity – Suspensions & Housing Evictions

Equity suspended: Equity Bank was briefly suspended as a Central Depository Agent by the Central Depository & Settlement Corporation (CDSC). They have smartly escaped unscathed without answering any charges owing to:
- Playing one regulator against another the. The Capital Markets Authority (CMA) immediately reversed the ban, and reinstated Equity while terming the CDSC action as being against procedure
- By invoking the ‘small investor’ Equity said that they were in trouble because they had reached out to the small investor, lending them funds to buy Safaricom shares without collateral, and some people did not like that

Lost in the story is
- Equity split shares were supposed to start trading on April 14, but have been trading as split prices and have appreciated about 40% since the announcement
- The spat makes the CMA and CDSC look bad; by having a turf war (PDF) and fighting in public both claiming to fight for the integrity or interest of investors
- Why won’t Equity pay the minuscule amount or respond to the regulator (CDSC)?
- Comments made by the CEO at the bank AGM, bragging having the most investor accounts in the country coming back to haunt at a time when brokers are (i) broke (ii) resentful/envious
- More tales at the stockskenya forum

Equity moves in at Housing Finance: At Housing Finance, Equity is asserting its authority at the bank and Equity directors will now form 1/3 of the Housing Board of Directors, with Peter Munga (Equity chairman) Benson Wairegi (Equity vice chairman) and Babatunde Soyoye (Helios) all appointed in 2008 and who will all be ratified by Housing Finance shareholders this month.

During the 2008 rights issue at Housing Finance, Equity also increased their ownership stake from 20% to 24.9% while sister institution British American Investments (Britak) also increased from 4.9% to 7.5%. The rights issue also saw the National Social Security Fund reduce stake from 7.8% to 6.8% as the Government of Kenya which did not take up any new shares saw its stake reduce from 7.3% to 3.6%

Opportunities

Free Download Githongo Book - The most talked about book in Kenya - It's Our Turn to Eat - the Story of a Kenyan Whistle-Blower (John Githongo) by Michela Wrong will be available for download from April 10. yes you probably have a bootleg copy, but this is the real one from the publisher

- Invest in a Government of Kenya Bond to raise 10, billion shillings ($125 million), and earn a potential 10% bond return (PDF); minimum application amount is 50,000 ($625), and the offer closes 22 April. (better than Madoff?)

- Maker Faire Africa (MFA), a celebration of African ingenuity, innovation and invention, will take place August 13-15 at the Ghana-India Kofi Annan Centre of Excellence in ICT in Ghana's capital, Accra there are opportunities to sponsor the summit

- Jitihada is the Kenya National Business Plan Competition – (details) (PDF) that will be launched in mid-April.

Create a Logo for an international mobile banking conference and win $200. Details here, found at @whiteafrican

Jobs
- Old mutual: Broker distribution manager, Mass market manager. Apply to recruitment@oldmutualkenya.com by 17/4
- National social security fund managing trustee. apply through manpower associates by 26/4
- Capital Markets Authority: Assistant Manager (Legal Framework), Accountant, Assistant Manager (Investigations), Manager (ICT). D/L is 15 April

Bank Tales II

Maina T kind of started this thread with a review of the P/E correction of Nairobi Stock Exchange (NSE) shares.

NSE: ½ full or ½ empty? - to take it further, how are NSE shares today compared to last October? If you considered them fairly priced then, you are frowning today, but if you considered them over-valued, are you smiling today?
estimates
- Shares that have appreciated since October 2007: 4% - BAT Scangroup, 3% - Access 3%, 1% - Unga
- Shares that have depreciated since October 2007: (83%) – Mumias (74%) NIC (59%) Nation Media Group, CFC (55%) - Housing Finance, (53%) – Sasini (51%) – Kenya Airways (47%) - Sameer (45%) – Kengen, Centum (44%) - Eveready (43%) - Williamson (42%) – Express, Jubilee (41%) - KPLC, Kenol
- Banking sector: Best (4%) - NBK, worst (-74%) - NIC, sector average is -32%

Interesting that despite the world financial meltdown of late 2008, the Kenyan financial sector is faring no worse than other sectors (agricultural, industrial) which are all down approximately 1/3,and remains the sector most likely to produce super-profits again this year. Best performing sector is commercial services (excluding Safaricom only listed in June 2008) which is down 20% from a year ago

Cheap M&A The depressed NSE prices bring out good and bad banking opportunities.
- Good for anyone speculating on buying into a Kenyan bank. The Helios stake in Equity is priced as almost what it was when the deal was signed, while the CFC/Stanbic merger is worth ½ as much as it was a year ago.
- Bad for the Government who are hoping to raise funds from further sale of NBK and Development Bank of Kenya share. It also raises a question of how Co-op Bank IPO shares will be received i.e. if you enter a train going down hill and you want to go up hill, where will you end up?

Family Bank a recent stockskenya discussion could indicate that a listing of shares could happen soon.

EADB: sad tales on the East African Development Bank.

Equity Bank EGM

Equity Bank held an Extraordinary general meeting on Friday December 21, 2007 in the KICC Amphitheatre. The meeting started 45 minutes late as shareholders were treated to almost a whole CD of the greatest hits Boney M. The hall never filled up, and it started at about 10:40 a.m.

The Bank Chairman Mr. Peter Munga, invited a Chaplain to say a prayer, after which he introduced members of the board of the Bank and legal and transaction advisors (Kaplan & Stratton, Pricewaterhousecoopers, Ernst&Young) in attendance. The Managing Director, Dr. James Mwangi then introduced several of the top managers of the Bank who were present.

The Company Secretary then confirmed that there was a quorum and proceeded to read the notice for the meeting. However after completing the first of three resolutions (took about two minutes), the Chairman interrupted her and asked if, in the interest of time, all shareholders had read and were aware of the resolutions. We confirmed - and the meeting proceeded on without a full reading.

The MD then gave a brief talk about the proposal to sell 25% of the Bank to Helios Partners. He said Equity had been growing at about 100% a year and now wished to expand into other countries in Africa. They had sought and now found the right partner to finance that growth and with networks & expertise to manage the new ventures. Helios would get two director seats, and may add more funds if the need arose.

The 11 billion capital injection from Helios would also ensure compliance with prudential ratios, increase lending capacity, and allow further necessary investment in IT .

sweetener for shareholders: the MD told shareholders, that though their individual stakes would be diluted by 25%, the net asset value of their shares would increase from 11.9 shilling per share to 39.4 shilling per share. And though shares were diluted, Helios would not take part in the 2007 dividend

Shareholders questions
There’s gentleman called Mr. Alois Chami who owns shares in just about every listed company in the country and is a fixture at all AGM’s – known to all company chairman. Normally he’s a bit of a windbag, but today he acquitted himself with his frank questions.


Chami at a previous AGM

Before answering him, the MD complemented Chami as one of the few shareholders who took up the company invitation to inspect the transaction documents at the headquarters

Chami asked;
- Who was exempt - all shareholders or Helios? – as the governor of the central bank and the minister of finance gave differing interpretations
MD answered - Only Helios is exempted. Helios is a partnership fund investing in the bank, while Kenyan law only recognizes individual or companies as investors. Also said that existing directors continued to be bound by their non-sale agreement till July 2008.
- What does exemption mean?
Kaplan lady lawyer confirmed that applied only to Helios partnership and would not venture further
- No other bank has that exemption, why?
others may look at the exemption and see a political angle, but it was just a business decision made by the central bank
-Does management have capacity to utilize capital?
- management had the competence, bank has been growing at 100%
Why invest in housing finance (Equity has bought 25%), a sinking ship? Why not Equity own mortgage company?
Equity saw housing finance as a turnaround opportunity, bought at 18, now at 40 shilling a share and performance will be better as together they will provide affordable housing finance solutions to Kenyans

Shareholders vote
Since Mr. Chami was the only shareholder with questions, the resolutions were put to the floor and were passed in quick succession, with the first two being straightforward to;

(1) Increase share capital
(2) Allot new shares to Helios
(3) But the third amended articles of association of the bank; in addition to the usual modernization resolutions e.g. allowing tele-conferencing, also had some unusual ones like if shareholder is non-responsive for six years, company may sell those shares and keep the proceeds, made it more difficult for directors to amend dividend policy, business plan or budget (all but one must approve any change)

Edit - One of the Helios managing directors, Mr Babatunde Soyoye, was invited to the podium and he briefly spoke about the new pan-African partnership that the Bank would venture into next.

The Chairman then invited director Dr. Julius Kipngetich (also head of Kenya Wildlife Services) to give a vote of thanks. He thanked the shareholders and assured them that "stick with Equity, and we will make you rich", customers (now heading towards 2 million customers by January) suppliers (for world class service) Board of directors (best in the country) management staff (ordinary people doing extraordinary things) transaction advisers, and media (for good coverage even as Equity remained misunderstood)

Finally the Chairman thanked shareholder saying they were now richer than when they came in.

Goodies: tea and snacks outside, while all shareholders got a toe bag with Bank brochures and souvenirs book