Archive for the 'Kenya' Category
September 28th, 2010 by Tom Minney
Kenya’s Central Depository and Settlement Corporation (www.cdsckenya.com) continues to expand outside the borders of Kenya, buoyed from its 2008 triumph with the region’s biggest initial public offer, Safaricom. Recently, Business Daily newspaper (www.businessdailyafrica.com) reported that CDSC has submitted a bid to offer consultancy services for setting up an electronic share depository for the Zimbabwe stock market.
According to the report, the CDSC issued a statement on 21 September, that it had submitted a proposal to the Zimbabwe Securities and Exchange Commission “to provide advisory services” in the intended implementation of an electronic share registry similar to the one introduced in Kenya in 2004.
The statement read: “Such services have been previously provided by CDSC to the Uganda Securities Exchange, and discussions are ongoing for the provision of similar services to the capital market in Rwanda.” CDSC also recently won the tender to provide registrar services for the BRALIRWA Initial Public Offering (IPO) in what will be the first local listing and share offer for Rwanda’s over-the-counter securities market.
CDSC is privately owned by the Capital Markets Challenge Fund (50%), Nairobi Stock Exchange (20%), AKS Nominees (18%), Capital Markets Compensation Fund (7%), Uganda Securities Exchange and the Dar-es-Salaam Stock Exchange (2.5% each).
Chief executive officer Rose Mambo denied recent reports which said the CDSC was experiencing financial difficulties. She said it: “..made a profit in 2009 and maintained a strong financial position… 2008 was a good year boosted by high turnover as a result of the Safaricom IPO, so the reports of a slump are inaccurate.”.
CDSC receives a 0.06% commission on all trading done at the Nairobi Stock Exchange, where market turnover was KSh97.52 billion ($1.2 billion) in 2008 against trades of KSh88.17 billion in 2007, boosted mainly by the Safaricom IPO which pumped Sh50 billion worth of shares in to the market and attracted 750,000 individual applicants. Its revenues (turnover) declined after foreign investors reduce their trading at the NSE in the storm of the global economic crisis.
Ms Mambo was reported as saying CDSC’s income from trade commissions in 2009 was KSh38.1 million (US$473,535), a drop from the 2008 turnover of Sh63.6 million. The regional push is meant to increase its sources of revenues after a 2-year slow-down at the NSE reduced earnings from trading commissions, which is the core revenue source for the company.
The newspaper says the NSE had 1.4 million accounts in the Central Depository System (CDS). In addition, the CDSC also acts as a clearing house for market transactions. The system introduced 6 years ago made it possible to transfer and register securities in electronic format without the necessity of physical certificates. This had an immediate impact of increasing number of shares traded at the bourse from 380 million in 2003 to about 5.8 billion in 2008, according to CDSC data. The company also aims to cut operational costs by substituting paper-based statements for text and e-mail statements.
According to the report, Rwanda also has six more listings in the pipeline.
September 20th, 2010 by Tom Minney
Kenyan venture capital company East Africa Capital Partners Ltd (www.eacp.co.ke) is to begin raising its second fund next year, with a target size of USD250 million, after its success in fully investing $100 million of the first African Technology, Media and Telecommunications (ATMT) fund. The new fund is to focus on information technology, media and real estate.
In an email to African Capital Markets News, EACP chief executive officer Richard Bell says: “We’ve bet on our view that growth in mass market “home entertainment” in the next 10 years in Africa will be what mobile phones were to the last”.
On technology, the plan is to build massive data centres, generate clean energy to power them, and stimulate the creation of an outsourcing cluster in East Africa. We believe that East Africa is set to become Africa’s ICT Hub.
On real estate, Bell says “Africa is the fastest-urbanizing society in the world.
Africa’s emerging consumer class needs massive amounts of housing”. He says Kenya, for example, needs 250,000 homes a year and is only building 30,000. “Amongst other things our real estate strategy aims to make a dent in that supply-side bottleneck.”
Much of EACP’s Fund 1 investments were channelled through Wananchi Group Ltd. (www.wananchi.com), an Internet and cable television company. EACP has a 51% stake through its ATMT I Fund.
Last month (August 2010) Wananchi and Cisco announced a multi-year contract to roll out “triple play” (broadband, multichannel cable television and voice telephony) to 9 countries in East Africa: Kenya, Uganda, Tanzania, Rwanda, Burundi, Malawi, Ethiopia, Sudan and Zambia. According to the press release: “The contract will enable Wananchi to deploy Cisco’s integrated end-to-end network technology solutions, encompassing Cisco’s Borderless Networks, collaboration and data centre virtualization solutions, as their customer base expands and technology advances.”
According to a report on Bloomberg, Bell says: “We have invested in 10 new TV channels,” he said. The sports channel has started operating while the others will go live over the next month. “In Africa, what you have is satellite TV for the elite. What we are introducing is pay TV for the mass market.” The venture Zuku TV (www.zuku.co.ke) was introduced in October 2008.
The penetration of pay TV in developed economies is estimated at 70-80% compared with 20% in emerging markets, he said and expects this to grow fast over the next 5 to 10 years, if the market gets “the right product at the right price,” he said.
Private Investors, Export Development Canada and the US Government’s Overseas Private Investment Corp. (www.opic.gov) have invested a total of $90 million in Wananchi to date, while Emerging Capital Partners LLC (www.ecpinvestments.com), a Washington-based company that owns 49% of Wananchi, has invested $25 million, according to the report.
Bell told African Capital Markets news that ATMT Fund 1 was basically a TMT infrastructure fund. “Even though we have used Wananchi as the conduit for all of our investments from this fund the investments themselves are quite broad and include:
(1) SimbaNet – corporate voice and data business services
(2) Wananchi Telekom – through which we have invested in the undersea fibre-optic cable TEAMS, and a number of terrestrial cables dark fibre leases to create a international and long distance carrier of carriers business.
(3) iSat – a specialist VSAT and satellite business
(4) Zuku Cable – a mass market retail cable TV business that is deploying triple play across all the major towns in East Africa.
(5) Zuku Satellite – a Direct-To-Home (DTH) Satellite TV business
(6) Wananchi Programming – a media and content business that is building initially 10 new TV channels including a sports channel, a general entertainment channel focusing on African content, a documentary channel and 6 new movie channels.
September 18th, 2010 by Tom Minney
Kenya’s Government aims to float a KSh10 billion (USD124 million) university bond early in 2011 to help higher learning institutions raise funds to admit more students. The aim is to open new financing avenues by offering a Government guarantee, and to open places for 25,000 more students, eliminating a 2 year wait for furuterh studies.
According to a report in Business Daily newspaper (www.businessdailyafrica.com), Higher Education Minister William Ruto said Treasury is finalizing details. He said it aims to achieve interest rates of 6%-8% “rather than the market rates of 18%.” A recent government infrastructure bond raised KSh30.5 billion at a 7.3%, but corporate bonds yield twice as much.
Listing this kind of bond could prepare the way for other institutions.
The Government is considering many plans to boost enrolment, which has blocked students and hurt quality of learning. The newspaper quotes Prof Olive Mugenda, chairperson of the Vice-Chancellors’ Association and vice chancellor of Kenyatta University, that public universities have not been able to expand their facilities in line with the increased intake because of minimal funding from the Government: “We are looking forward to the Government to double or triple the current funding worth KSh5 billion.”
Students also pay tuition fees. Universities need to build more lecture rooms and improve libraries. The Government also plans a full public open university, offering e-learning at university level.
Universities will be seeking to increase their capacity to offer tuition by building more lecture theatres and better equipped libraries.
September 14th, 2010 by Tom Minney
Stakeholders in the Kenyan capital market are still waiting for changes to the Capital Markets Act to allow potential demutualization of the Nairobi Stock Exchange (www.nse.co.ke). According to a recent report in the Standard (www.standardmedia.co.ke), Peter Mwangi, NSE chief executive, said amendments to the CMA Act would come into force on 1 January 2011, after the Finance Bill is passed into an Act of Parliament. He said the exchange stands ready to make the necessary applications to effect its demutualisation once the 2010 finance bill is assented.
The paper quotes him as saying at the First Annual African Alliance East African Investor Conference Gala dinner in Nairobi: “In furtherance of this, the NSE recently streamlined its operations in preparation to becoming a full service securities exchange.”
The paper says current members of the NSE approved the proposal for a demutualised exchange in March 2010, but the political process required to enact the necessary legislations into law is going slowly. The existing 19 NSE members, mainly stockbrokers and investment banks, resolved to retain 80% shareholding in the demutualised company for 2 years, split equally among themselves, before diluting it to 40% through an initial public offering (IPO). The CMA’s Investor Compensation Fund (ICF) and Treasury will each own 10% of the new entity. The ICF is expected to its sell a portion of its stake to replenish its reserves.
The brokers also agreed to change the name of the demutualised exchange to Nairobi Securities Ltd, with an authorised share capital of Sh1 billion ($12.4 million), and the change the memorandum and articles of association to reflect the new status. The NSE’s current paid up capital is fixed at Sh200 million.
The demutualisation process aims to improve corporate governance by separating ownership of the exchange and trading rights of the member firms, which can lead to conflicts of interest. Brokers enjoy a monopoly of the NSE and some brokers also act as dealers and fund managers.
According to the Standard, demutualisation is expected to transform the exchange, and position it to realise its vast potential, and attain its vision of being a leading securities exchange, with a global reach.
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.