Archive for the 'Kenya' Category
July 7th, 2010 by Tom Minney
A UK-based investment and advisory firm concentrating on African venture capital managers has announced its first investment. Jacana Venture Partnership (www.jacana.org) on 29 June announced that it will invest in InReturn Capital (www.inreturncapital.com), a Kenya-based firm investing in East African small and medium enterprises.
Jacana’s aim is that by promoting a thriving venture capital industry in Africa it will enable small- and medium-sized enterprises (SMEs) to grow and help millions out of poverty through economic development and job creation. Jacana’s unique offering of capital and expertise will enable InReturn to reach its goals more rapidly. Access to finance is a major obstacle to the growth of African businesses.
According to Jacana’s mission statement, SMEs are a crucial driver of economic development in Sub-Saharan Africa. Every $1 invested in an SME generates an additional $10 in the local community and $1 of SME finance creates 3 times more jobs than an equivalent investment in microfinance.
International investors are increasingly interested in Africa but find it hard to choose SME fund managers in the target country since they often lack track records. Jacana mitigates this risk for investors by selecting high-quality teams and providing intensive support to local fund managers through a network of expert mentors – highly experienced private equity and venture capital professionals who can provide hands-on support to local teams. Stephen Dawson, Jacana’s Chairman, has over 30 years’ experience in UK private equity and is already actively involved with InReturn’s deal team in Nairobi.
Jacana selected InReturn as its first local partner because of its strong team and deal pipeline, after an extensive market review. InReturn’s East Africa Fund (target size $20 million) invests in SMEs in East Africa. The capital invested in InReturn’s business will support the expansion of the team into Tanzania and Uganda.
InReturn contributes to the profitability, sustainability and growth of the companies that it invests in through the active participation of its local investment team of 5 Kenyan and European professionals. InReturn East Africa Fund maintains a network of investors in Western Europe and has extensive financial and management experience.
Anthony Gichini, Managing Partner for InReturn Capital in Nairobi, said “Jacana’s investment of capital and expertise will help us to accelerate our business, and deliver returns to our investors as well as development impact in East Africa. Tanzania and Uganda are important markets for InReturn and we see significant opportunities to expand our team into these countries as we build our business together with Jacana”.
Jacana’s expertise, provided through its network of private equity expert mentors, will help InReturn to execute high-quality transactions and raise additional capital from international investors, using Jacana’s extensive contacts in the industry. Together, Jacana and InReturn aim to deliver attractive financial returns to investors in the fund, grow the private equity industry in Africa and thereby support the sustainable development of SMEs, leading to significant job creation in Africa.
Simon Merchant, CEO and co-founder of Jacana, commented in a press release: “This is the first step in growing our network of African partners, supported by international private equity experts. We are delighted to be working in close partnership with InReturn and look forward to supporting this excellent team in making successful SME investments in East Africa.”
Jacana aims to select the capital managers with highest potential growth for inclusion in the partnership network and then to work closely with them to create an attractive investment opportunity for international investors. Jacana is talking to several candidates for its next investment.
June 26th, 2010 by Tom Minney
Kenya’s Government has successfully issued a 25-year bond, which sets a marker for the capital market, points the way for other African markets to follow, and is a major boost for investor confidence. It also helps the Government access cheaper and longer-dated debt, according to a report in The Nation newspaper (www.nation.co.ke), as stiff competition meant the bond was issued at a low interest rate.
The 25-year bond, priced at an indicative coupon of 11.25% and redeemable in 2035, raised KSh7.5 billion (US$91.7 million) at good interest rates as the average rate was 10.46%.
The Nation quotes Mr Duncan Kinuthia, head of fixed income at Bank of Africa: “The return is very low for a bond with such a tenor, which explains the excess liquidity in the market looking for investment opportunities but with not many options.”
Accordig to Bloomberg, the bond was 3 times oversubscribed, as the Central Bank of Kenya (www.centralbank.go.ke) received 586 bids totaling KSh 27.1 billion, citing Jackson Kitili, Monetary Operations and Debt Management Director at the bank: “The number of bids accepted was 248 worth KSh 7.5 billion and the weighted average rate of successful bids was 10.458%.”
The bond was listed at the Nairobi Stock Exchange (www.nse.co.ke) for secondary trading and the price climbed quickly, dropping the yield to 9.9%, says the report, citing the forecast of Fred Mweni, managing director of Tsavo Securities and chairman of Bond Traders Association of Kenya: “I see it settling at the rate of 9.5%.”
The Treasury bond was oversubscribed by over 260% with bids for a total KSh27.1 billion, showing the interest in Kenya fixed income investments. The Government has been seeking ways to lengthen the maturity of its debts. In the past 3 years it has offered 20-, 15-, 12- and 10-year bonds, boosting its debt maturity from 3.8 to 5.5 years. By going long-term the government has also lowered the refinancing risk by reducing the proportion of domestic debt to be refinanced within 12 months from 40% as in December 2008 to 28% at the end of June 2010.
“It is also an opportunity for the government to move in and retire the expensive debt that it is holding,” Mr Mweni says.
The Central Bank website records that annual inflation was 3.88% by May 2010 and the last 6-month Treasury Bill auction went at a yield of 2.45%. The Nation says that pressure is eased for servicing Government debt, which is projected to hit KSh1.1 trillion, equally shared between the domestic and external borrowing.
June 16th, 2010 by Tom Minney
Finance compatible with Islamic investment principles is taking further root in Kenya. There has been take up of sukuk portions of infrastructure bonds launched by the Government, the Central Bank of Kenya (CBK – www.centralbank.go.ke) has announced that it is working on plans to launch sharia-compliant treasury bills in the money market and it is reported in local media that a sharia-compliant unit trust is applying for registration.
According to the bank, including sukuk bonds and bills (structured in compliance with sharia law), is likely to increase the amount of cash flowing into Kenya from the Gulf region. CBK Governor Prof Njuguna Ndungu said the 2 sharia-compliant banks in Kenya – First Community Bank (www.firstcommunitybank.co.ke) and Gulf African Bank (GAB www.gulfafricanbank.com) – have contributed to the development agenda by participating in the sukuk component of infrastructure bonds issued by the central bank on behalf of the Kenyan government. GAB invested KSh500 million (US$6.2 million) in the sukuk portion of a government infrastructure bond issue last year and received a 13.5% rate of return, according to CBK figures.
In Ndungu’s reported speech during the opening ceremony of the Second Gulf African Bank Annual East and Central Africa Islamic conference in Nairobi, the entry of Islamic banking institutions in the country meant CBK was developing new regulations: “Islamic banking prohibits interests and allows profit sharing; however, our prudential returns and disclosure report formats were tailored for institutions which have an element of interest in their financials. We have therefore tailored our returns and disclosure formats to cater for the new market niche,” Ndungu said.
He said the CBK grants exemptions to Islamic banking institutions upon request in transactions that involve wholesale trading and holding land and buildings, since the Banking Act prohibits these activities. He also commended the 2 full sharia-compliant banks in Kenya, both founded within the last 2 years, for enabling formerly unbanked Kenyans, specifically those in the Muslim community and rural areas, to access financial services. The 2 banks have 1,570 loan accounts and 58,548 deposit accounts and control 0.8% of the banking sector’s net assets, according to the report. Islamic banks still require research and innovation to grow and be competitive.
“We are still waiting for ’structured sukuk’ to cover the bonds and T-bills market,” Ndungu said.
According to a report in Business Daily (www.businessdailyafrica.com), ApexAfrica Capital Ltd, recently rebranded from Apex Africa Investment Bank Ltd (the website, www.apexafrica.com does not reflect this) is the issuer and is undergoing approval as required by the Capital Markets Authority. The product is a collective investment vehicle in the form of a unit trust that will require a minimum of KSh25,000 ($311) to start.
Bank Managing Director Kassim Bharadia (listed as Chief Executive on the website) reportedly said the product is in response to investor demand.
According to Islamic finance principles it would avoid interest and gain profits from capital gains and dividends paid by companies whose shares that the unit trust has invested in. It would also target companies that companies that fit within the interpretation of Shariah. Thus it should avoid companies that deal in, for example, alcohol but shares such as plantations will be compliant.
The report says Hamilton, Harrison and Mathews is guiding the issuer in the legal process of issuing the unit trust.
Unit trusts are popular in Kenya, despite a few frauds in the past, according to the news report.
June 15th, 2010 by Tom Minney
Liquidity is up, while the number of days for settlement and cases of fraud are down in bond trading as fixed-income traders and investors flock to the Automated Trading System (ATS) of the Nairobi Stock Exchange (NSE – www.nse.co.ke).
According to report in Kenya’s Business Daily (www.businessdailyafrica.com), citing data provided by NSE, the value of bonds traded by the end of May was KSh 177.5 billion ($2.2 billion), up 60% on the KSh 110.6 billion traded in the same period in 2009.
The report says that 90% of bonds traded are transacted by banks and institutions, such as fund managers. High-net-worth individuals are also active.
James Mutuku, Head of Asset Liability Management at Standard Chartered Bank, reportedly attributes the increased liquidity to the ATS – “At the moment the system is working very well” – and because banks are establishing dedicated bond trading desks. Reportedly some trades settle the day after the trade, because of the ATS efficiency, compared to a week previously.
Ronald Olembo, a fixed income analyst at CFC Stanbic Bank, is quoted saying that there is a better match between inflation and bond yields. According to the Central Bank of Kenya (www.centralbank.go.ke), annual inflation was 3.9% in May, compared to 26.6% in 2008 and 12.4% per cent in 2009. Last October the Kenya National Bureau of Statistics started using the geometric mean method to calculate inflation, which gives lower figures than the arithmetic mean method used previously. In April KNBS adjusted the basket of goods and services used to calculate the consumer price index. The central bank says it reflects changed consumer tastes and makes the inflation rate comparable with that in other countries.
Olembo reportedly compared present and past said that before.. “..We had 20-year bonds yielding approximately 12%, yet inflation was 26%. Investors are now seeing a positive real return on their investments.”
Cases of fraud have also reduced, increasing investor confidence.
May 31st, 2010 by Tom Minney
Interest in African sovereign debt has been climbing again in recent months. Angola has stil not issued a $1 billion – $2 billion benchmark bond due in May. However, Kenya, Nigeria and Mauritius and many other countries have flourishing debt markets and international interest is good in high-yielding hard-currency bonds such as those issued by the Republic of Congo and Cote d’Ivoire.
In April top bond broker Exotix (www.exotix.co.uk) gave a “buy” recommendation on the REPCON 2.5% bond, redeemable in 2029. Then it was trading at 57.0 and offered a yield of 10.8% and was the highest-performing African sovereign bond.
Trading in $2.4 billion of Cote d’Ivoire debt in US dollars trading under New York law (2.5%, redeemable in 2032) began in mid-April, after the country exchanged it for Brady bonds it had defaulted on nearly a decade ago. Exotix only rates it a “hold” at 64.2 in mid-April, when it yielded 9.6%. The bond was expected to make up 0.75% of the $400bn Emerging Market Bond Index (EMBI), according to a recent article in The Banker, and many were expected to buy it for this reason. Exotix commentary on the bond included detailed assessment of politics and economic developments including current account surpluses and International Monetary Fund assessments.
Governments in some countries are seeking to create longer-term yield curves for domestic investors, in order to provide a framework for longer-term finance and investment. For instance Barclays Kenya is offering 20-year mortgages, compared to a few years ago when the limit was 5 years. Bonds are also being moved into electronic trading and being handled by central depositories.
According to a report on 19 May on Bloomberg, Angola was awarded credit ratings of B+ by Standard &Poors and Fitch, 4 levels below investment grade, and Moody’s assigned an equivalent ranking of B1, putting Angola on par with Nigeria, Lebanon, Belarus and Ghana. The country plans to issue $1billion – $2 billion in bonds this year.
Other high-yield bonds, including in local currencies, can be found in Tanzania, Zambia, Ghana and Kenya. Economic commentators are encouraged, as debt can be a more cost effective way to fuel long-term economic growth than equity.
Better economic management and good investor interest in government debt has paved the way for more corporate bonds, including for power and telecommunications infrastructure. This site has already reported how Kengen and Nampower have issued bonds to fund urgently needed power expansion. Telecommunications giant Safaricom has also been successful.
The successes are tribute to the increasing quality of economic and fiscal management by African governments.
May 30th, 2010 by Tom Minney
Standard Chartered Bank in Kenya (www.standardchartered.com/ke/en/) is to issue KSh 2.5 billion ($30.2 million) in new shares in order to buy the custody business of Barclays Bank of Kenya, according to a Reuters report. Chief Executive Officer Richard Etemesi said the total cost of the transaction was KSh 1.9 billion ($22.7 million) and other proceeds will go into expanding the bank’s ordinary business. The new shares will raise Standard Chartered’s authorised share capital to KSh 1.78 billion from 1.365 billion.
On 27 April the bank announced that it had agreed to acquire the African custody business from Barclays Bank PLC. The acquisition is subject to certain regulatory and other approvals, and is expected to be completed this year. The African custody business forms a key part of Standard Chartered’s widening network of of international custodian services, alongside existing capability in Asia and the Middle East. The Africa-wide acquisition adds direct custody capabilities in 8 African markets (Botswana, Ghana, Kenya, Mauritius, Tanzania, Uganda, Zambia and Zimbabwe) and indirect capabilities in a further 8 markets (Egypt, Cote d’Ivoire, Malawi, Morocco, Namibia, Nigeria, Tunisia and South Africa) through a network of third-party sub-custodians via an operations hub in Mauritius.
Commenting on the deal Karen Fawcett, Group Head of Transaction Banking at Standard Chartered, said: “We are very pleased to have secured the acquisition of Barclays’ African Custody business. This deal will enable Standard Chartered to rapidly develop our custody capabilities in our core markets across Africa. We are already seeing ongoing demand for regional and international investment services across this region. Standard Chartered remains committed to providing clients with an integrated set of solutions that promote ongoing growth of this industry. With this acquisition, we will enhance our custody offering and continue to gain a strong foothold as core bank to our clients in Africa.”
The new business will strengthen Standard Chartered’s regional product offering for both international and regional businesses, strengthening client relationships, whilst providing an additional source of liquidity to the Group.
The Reuters report cites Etemesi as saying the deal will be particularly important for Asian investors looking for returns in the African market: “One rationale behind the acquisition of the custody business is to give our Asian customers opportunity to invest in African capital markets.” He said revenue from the business should be about KSh 1 billion ($12.5 million) by the end of 2012, from about KSh 600 million currently.
According to the bank’s website, it is the oldest foreign bank in Kenya (established 1911) and has over 1,000 employees, 32 branches and 27% market share. In March the bank announced that it had increased pre-tax profits for the year ending December 2009 by 43% to KSh 6.7 billion. Revenues grew by 22% to KSh 12.4 billion while expenses grew by only 3%; loans and advances to customers grew by 31% to KSh 56.7 bln while customer deposits grew 13% to KSh 86.8 bln. In 2009, the bank invested heavily in technology anticipating that it would be the main driver for business growth in the banking sector in future, including in systems infrastructure and technology-based products and services as well as standardising technology platforms to become more nimble and able to anticipate and respond to the changing business environment.
The rights issue and the acquisition are subject to regulatory approval.
April 5th, 2010 by Tom Minney
Kenya’s Government says it will float the first 25-year bond since the 1960s, as part an initiative to help financial institutions offer long-term debt products such as mortgages and project finance. Previously Nairobi City Council offered a municipal bond, which was redeemed in the 1980s. Since then, the longest bond floated has been 20 years, according to the Business Daily (www.businessdailyafrica.com) newspaper.
The first 20-year bond in 2007 was largely ignored but the second one was taken up and even reopened in 2009. Currently 20 years is the longest home loan on offer. Lengthening the maturity of government debt can also be beneficial.
Governor of the Central Bank of Kenya (www.centralbank.go.ke), Prof Njuguna Ndung’u, reportedly told journalists in Nairobi that the bond could be floated in the next fiscal year, starting in July. “The existence of exit options at the secondary market [the Nairobi Stock Exchange -www.nse.co.ke] after buying the bond at the primary market should make it more attractive,” said Prof Ndung’u while addressing the press on the 23 March Monetary Policy Committee decision which cut the Central Bank Rate by 25 basis points (0.25 percentage points) to 6.75%.
He said the bond helps influence expectations on inflation and making the yield curve more useful by removing discontinuities.
According to the newspaper, in an earlier interview in February, Bond Traders Association chairman Mr Fred Mweni said that the market was keen about having long-term bonds and it would be in order for the CBK to introduce such. He said the bond market was maturing and it was clear that the longer-dated bonds were attracting relatively higher yields.
Prof Ndung’u reportedly said that a vibrant treasury bond market would encourage corporates to also issue bonds noting that the yield curve could serve as a much better guide than was previously the case. Another source said corporate bonds could prove more popular than syndicated bank debt, because of pricing.
The paper says the yield (return) of the 20-year bond, for example, is down from over 14% in 2008 and early 2009 to about 11%. The most recent 15-year bond, for example, the offered interest rate was 10.25%, down 225 basis points on the previous similar bond. It reportedly achieved an average interest rate of about 9.9%. The CBK Governor said during the press conference that “fear of exclusion” is driving institutions not to quote unrealistic rates when they participate at the auction markets for government paper.
March 16th, 2010 by Tom Minney
Andre DeSimone, Kestrel Capital stockbroker, Nairobi
The Nairobi capital market has seen a lot of volatility and many local institutions pulled out. At one point, foreigners made up 80% of trading volume. Local retail investors were out and have not yet come back, the local institutions were out and only came back last month. It has been an emotional response, the cash flow on companies did not change.
The bond market has come to the Nairobi SE and trading has been growing. There have been some teething problems, it will take several months to get all smooth, but we already seen a 5-fold increase in trading. We expect this to grow, in last 3-4 months have seen lots of interest from London and SA investment banks into Kenyan bonds, also for the local currency debt markets.
In order to manage risk, foreign investors are looking for liquidity and only a few markets can provide the right size of deals.
March 16th, 2010 by Tom Minney
FROM SECURITIES AFRICA/CITIBANK 5TH ANNUAL AFRICAN INVESTMENT CONFERENCE, LONDON
Kenya’s biggest mobile telecommunications company says it will continue to lead the market through its revolutionary mobile payment system M-PESA – already the world’s most successful with 9 million users – and through moving fast into data. Safaricom (www.safaricom.co.ke) has 78% market share (83% by revenue) and 15.2 million customers, according to Les Baillie, Chief Investor Relations Officer, and it will be hard for its competitors to catch up.
M-PESA, which allows people to do cash transfers using their mobiles, was originally started as a customer loyalty tool, but has soared ahead in proving the value of the mobile phone in bringing financial services to Africans. Now 22% of Kenyans are signed up as users and use it for a range of functions including paying their water and electricity bills, receive their share dividends (Safaricom paid 150,000 shareholders their dividends this way) and even buy airtickets and make international transfers, all using the mobile handset. M-PESA has 17,500 agents.
Non-governmental organizations are using it for payments in remote areas and it is increasingly being used as a way for microfinance institutions to make and collect loans. Future developments could be to use M-PESA as a tool to link people with small savings to banks and savings institutions, providing new opportunities for the unbanked to gather assets and interest, and to offer micro-insurance, etc. International transfers are reaching remote parts of Kenya through tie-ups to Vodafone and Western Union. M-PESA employs 12,000 including agents, but the knock on effect in terms of small enterprises in remote areas could be many times more.
Mr Baillie told institutional investors at the conference, organized by stockbrokers Securities Africa and Citigroup, that the core of Safaricom’s competitive strategy is to keep the voice customers happy “by offering the best network, the best coverage, the best services and other offers to subscribers to make them stay with us, including the bongapoints and competitions.”
He says as they drive into rural areas, the revenues per customer are dropping. Kenyans like to buy in small denominations, partly due to cash shortages and Safaricom now offers top up cards in KSh 5 denomination (approximately US cents 6.5).
Safaricom’s second strategic drive is data, boosted by the undersea cables which reached Kenya and offer massive opportunities, According to Mr Baillie, Safaricom have invested KSh1 billion ($130 million) into upgrading networks, including the only licence for the fast 3g data network technology and extensive investments into Wi-max networks. Some 500 sites have been upgraded to 3g and 100 are active Wi-max sites.
He says they offer companies a full range of solutions, and one of the top areas of growth will be small and medium enterprises as well as major companies such as banks which are starting to move back into rural areas as they find ways to do sustainable business there. He says they have 2 million data users and are one of Kenya’s biggest sellers of laptop and notebook computers as they can sell at cost, since their revenues will come from data usage. However, currently 90% of internet users are still using their mobiles and rapidly moving into internet technologies such as social networking.
Safaricom still believes customer service is its core, with 1,000 agents working at its call centre, one of the biggest and best in East Africa. It is also seeing how its Internet portal can stimulate growth. Safaricom hopes to remain number one and it seems hard to see how its competitors (nearest is Zain with 3 million customers) can catch up.
March 13th, 2010 by Tom Minney
The Nairobi Stock Exchange (www.nse.co.ke) has set mid-2010 as the target to launch a commodities exchange. It will be a joint effort by the National Cereals Produce Board (www.ncpb.co.ke), the Kenya Agricultural Commodities Exchange (www.kacekenya.com), Eastern African Grain Council (www.eagc.org) and NSE.
The exchange aims to protect farmers against price turbulence, including seasonal variations in prices for farm produce that diminish earnings and cause tonnes of produce to go to waste. The trading platform will feature futures contracts on commodities, whether in stores or in the fields, so that a farmer can sell his produce ahead, locking in a specific price. Her or his responsibility is then to deliver the produce to the required quality and quantity on time. It also reduces the role of middlemen who buy commodities low during the market gluts often seen in harvest season.
According to a report in Business Daily newspaper (www.businessdailyafrica.com), Dr Adrian Mukhebi, the KACE chairman, says: “The plan is at an advanced stage and the market should open before June this year.” Deloitte & Touche is searching for two senior managers who will act as the link between NCPB and the commodities exchange. This is part of a restructuring proposal for NCPB that splits its commercial wing from the strategic reserve function as well as the establishment of the commodities exchange.
NCPB will use its silos and warehouses to store produce earmarked for trading at the commodities exchange.
“The market will initially trade major grains produced in East Africa, including maize, wheat, rice and beans but will ultimately trade other agricultural commodities, including inputs such as fertilizers and seeds,” said Dr Mukhebi.
The paper also quotes some sceptics, who say the policy framework is not ready and the project is being rushed after the great success of the nextdoor Ethiopian Commodity Exchange (www.ecx.com.et). It cites Mr Daniel Mbithi, the secretary of the Kenya Coffee Planters and Traders (KCPT) association which runs Nairobi Coffee Exchange: “We do not have the necessary legal framework for this market. The current sense of urgency is merely the product of recent reports that a similar market has been established in neighbouring Ethiopia,” he said.
Legal and regulatory frameworks could include a Commodities Exchange Act and a Warehouse Receipts Act, as well as investments in infrastructure such as roads and in NCPB facilities to fit them with modern equipment like sievers and driers to enable hold grains for longer periods.
Dr Mukhebi, however, said the commodities exchange would be regional in outlook and would benefit farmers from Kenya, Tanzania, Uganda, Rwanda and Burundi. “We have also partnered with the EAC Secretariat to catalyse the establishment of a harmonised legal and regulatory framework for the exchange in the region.”
In 2008, the Eastern Africa Grain Council, in partnership with NCPB and Lesiolo Grain Handlers set up a pilot maize receipt warehousing in Nakuru but the project funded by Equity Bank has performed below expectation due to prolonged drought and government price controls. However, Government reportedly increased the price it offered beyond the price offered at Lesiolo and the initiative died.