Monthly Archives: November 2010

Reading the Bralirwa Tea Leaves

Brasseries et Limonaderies du Rwanda Limited – (Bralirwa) is Rwanda leading beer brewer and which is now offering shares to the public in an IPO. In the spirit of the East African Community, the shares are offered to residents of all member countries (Read that Tanzania).

In the past, cross-border opportunities have been in the case of Safaricom (Kenya) and Stanbic (Uganda) IPO’s as well as with cross-listing of a half-dozen Kenyan companies across the exchanges of Kenya, Uganda, Tanzania and soon Rwanda.

from reading the information memorandum (IM)

On Offer: – 25% of company is for sale; being 128.57 million shares at 136 RwF per share (~Kshs 18) and minimum shares are 100, with units of 100 thereafter
– IPO allocation will be 35% retail (Rwanda and EAC nationals), , 5% employees & distributors, 30% international investors, and 15% to Qualified Institutions (insurance, pensions firms) in Rwanda and in EAC – if oversubscribed Rwanda nationals will get 60% in retail pool
– Runs from 23 November to 17 December and trading begins in February 2011

About Bralirwa: – Current shareholders are the Heineken group with 75% and state of Rwanda with 25%; the shares were split by 5000:1 ratio in November 2010 to facilitate this IPO
– The IPO represents a complete divestment by Rwanda government
-Heineken, the no. 2 brewer in Africa controls the group.
– The company is largest taxpayer in Rwanda – accounting for 12% of domestic tax revenue
– Sales in 2009 were $60 million and with a net profit of $11 million
– Subsidiaries include Coglegas (62% of company exploiting methane in Lake Kivu) and Bramin (50% of a maize processing company)
– Bank borrowing is a fixed interest rate of 12.25% and Bralirwa has unsecured borrowing facilities from Bank of Kigali, Commercial Bank of Rwanda, Fina Bank, Kenya Commercial Bank and Access Bank which have a combined facility limit of Rwf 3.5 billion ($5.8 million)
– Staff benefits for 528 (45) staff listed in IPO include performance-based bonus scheme insurance scheme, subsidized mortgages vehicle leases, medical treatment (free of charge), uniforms for school going kids of employees, school fees for orphans of staff killed in 194 and drinks for employees at special occasions
– The company’s supply chain is via the port of Mombasa for clearing and transportation of inputs, and a 1000 KM along the northern corridor through Uganda which takes 3-4 weeks and they use SDV Transami
– Regional competitors – EABL Kenya (Central Glass) and KIOO Tanzania – provide the company with bottles
– Competitive strengths include the fact that importing beer from Kenya or Uganda is uncompetitive owing to freight, fuel and insurance costs however high energy costs of US cents 22/kkwh are a challenge.

Incentives: – While effective income tax in the country is 32% in 2011, it can drop to 8% (over 5 years) for companies that sell over 20% of their shares to the public
– 2009 divided was 5.1 billion RwF ($8.5 million) or approximately RwF 50 per share (Kshs 6.5)
– No capital gains tax
– Withholding tax is 5% for Rwanda and EAC residents (but elsewhere IM says all dividend subject to 15% withholding)

Market: – Bralirwa market share in Rwanda in 2010 is 94%
– Rwanda has a Population of 10.5 million people, but per capita beer consumption of 9 litres trails Kenya (11 litres) and Burundi (18 litres!!)

Kenya Links: Bralirwa will be Rwanda’s first listed company, joining Kenya’s KCB, which is the only equity, trading on the Rwanda Stock Exchange. Kenyan influence is strong in the form of KCB (collecting agents), Dyer & Blair (transaction advisors), Faida Securities, Renaissance Capital, Muriu Mungai advocates (legal advisors), and the Central Depository & Settlement Corporation – CDSC (registrars). However Kenyan investors may be currently pre-occupied with their own KPLC rights issue and Deacons private placement

Governance & Registry: – Votes at annual general meeting shall by poll and articles explicitly state not by show of hands
– Company may buy its own shares
– All directors signed the IM document
– IM declares none of the directors are involved in bankruptcy proceedings or been convicted under criminal proceedings or been judged by a court to have been fraudulent or dishonest (Ethics Kenyan corporates can learn )
– Articles also state – if a shareholder dies, their survivor, executor and administrators only persons recognized to have an interest in the shares

Online Share Trading in Kenya

Tonight CFC Stanbic Financial Services launched online share trading which they say is the first online share trading platform in the country. The actual ceremony was conducted by Information Permanent Secretary Bitange Ndemo (a Mumias shareholder through CSFS) who noted that while Diaspora Kenyans remitted $2 billion per year, they hand no true seamless mechanism to buy shares – until now.

It’s a light-weight system accessible to CSFS customers to make trade orders – buy, sell, cancel, monitor volumes, settlements, & trade live at the Nairobi Stock Exchange in real time as well as get statements & portfolio valuations.

Disclaimer: I’ve been a long-term investor through CSFS primarily through e-mailing trades, and this has been quite satisfactory. Enabling online share trading is a service which several brokers have promoted, but delivery has been spotty. The CSFS system is available even on Smartphones,and while SMS and mobile money are not highlighted, these will be features to push for and the service is one to try out and see.

Uganda Moment: Expat, CHOGM, Laico, Nirvana

I made a trip to Kampala Uganda last week, which was very short but very relaxing two days. Unfortunately, it was an all-conference (business) trip over two days that left very little time for sight-seeing compared to the last time I was in Uganda, in 2007, but quick in-and-out airport – hotel – conference – hotel – airport with chats with taxi drivers and few locals is how a lot of non-residents form decisions about a country. The town looks better; much spruced up, cleaner, and greener.

  • Election fever: from kids humming his song at the beach ‘Yes, Ssebo!’, to his posters all over town, President Museveni is in election mode, and while it appears early now for campaigns for an election next February (all the candidates, are on the nightly news at rallies), one local remarked that perhaps the president with ‘unlimited’ budget hoped to exhaust his opponents financially by election time.
  • Mobile Issues: Just what is Safaricom roaming? At JKIA I enquired about roaming tariffs in Uganda and was told to leave my line as is. But there, the charges were astronomical, about Kshs 30 to send an SMS and Kshs. 50 to receive a call! Fortunately, I was able to top up with M-pesa. Also, in different parts of town, the roaming partner would change from MTN, Orange, to Warid etc, and sometimes my remaining balance would change.
  • Also as you walk around Nairobi and take it for granted that Internet is everywhere on your phone, the same is not true in Uganda where there was no internet (at least for roamers) and buying a SIM card just for the internet was not worth the effort; so I’d be offline all day till I got back to the hotel in the evening which had a guest wi-fi. a must for any modern hotel
  • CHOGM: There’s a Uganda parliament report on the 2007 Commonwealth heads of government summit (CHOGM) on how money was diverted to build roads to private hotels and apartments, BMW’s and missing blackberry with actions recommend be taken against the vice president and various ministers. Serena and Utalii College are the only Kenyan connection I saw.
  • I went to a bank hall and shock on me was that there is no bullet-proof glass separating cash tellers from customers, and you exchange money over the counter as you would with documents at a customer service desk in Kenya (ok – security guards are armed and everyone goes through a metal detector at the bank door).
  • Finally,  the most telling moment on the trip, was a half-hour at a public beach in Entebbe on the shore of Lake Victoria. This was about a kilometer from the Laico Hotel (yes there’s also a hotel in Uganda controversially transferred and renamed the Laico, not just in Nairobi) and I sat on a beach with our taxi driver and had a Pepsi drink. It was a very peaceful moment, and one you’d be hard-pressed to enjoy in Kenya where every few minutes a hawker will approach you selling fish, music, mobile phones, clothes etc – or in Mombasa at Serena beach, for every walk 20 meters you walk/jog on the beach a young man steps forward to offer you a boat ride. That’s not how it should be.

Shares Portfolio November 2010

Solid portfolio gains, some speculative buys since last quarterly review in August 2010

The Stable
Diamond Trust ↑
EABL ↑
Kenya Airways ↓
KCB ↑
Kenol ↑
Safaricom ↓
Scangroup ↑
Stanbic (Uganda) ↑
Uchumi ↔

Review:
– Best performer: Scangroup up 74% this quarter
– Worst performer: (tie) Kenya Airways, Safaricom both down 16%
– In: Safaricom, Vipingo (error)
– Out: None
– Increase Kenol, EABL
– Decrease: None
– Unexpected gains/losses: None

Events & Outlook: – Performance: The Portfolio is up 29% in the last three months while the NSE Index is down 1.5%.
– Got dividends from: Stanbic, EABL & KQ, awaiting Safaricom (which will be paid by M-Pesa for the second year) after getting some Safaricom shares, and attending their (no SWAG) AGM
– Kenol and the Government reached some settlement which has stabilized their share price, but the battle exposed other sector players like NOCK, Gulf Energy, and Addax.
– Safaricom appear to have withstood the initial price war by Zain/Airtel as there is now concern about how long Airtel can keep the low prices in Africa.

new airtel logo? via india4indians.com

– New blood: The Kenya Government is doing a KPLC doing a rights issue, and share conversion of preference, while private companies on the horizon may include CIC Insurance, CFC Life, Deacons, and Family Bank

Making Agriculture Cool

Kenya is traditionally been perceived as an agricultural country, with and a lot of government initiatives are focused on rural areas and food production. Yet trends show that Kenyan populations is getting more urban, and younger, as shown in the 2009 cencus. John Githongo wrote in this article – we have to rethink what Kenya is. Three-quarters of Kenyans are under 30 and want to live in towns, but we are ruled by farmers and trapped by land disputes.

Land is an emotive complex issue that underlies agriculture and food production. As seen with the recent Tatu City, a $3 billion new city project, to which Maina T asks about the wisdom of using the most arable land in Kenya for buildings, on red soil which is more productive food wise.

The urban population does not grow food, has little interest in agriculture. They want to make live in cities (like Nairobi which generates over ½ the country’s GDP) and build applications for mobile phones that do A, B, C, D etc. One way to increase interest is to agriculture relevant to a young population, farmers employing new techniques new crops, not just traditional maize and beans.

In the technology space, there has been a shift, deliberate or not towards rewarding innovations and projects in the field of agriculture including:

– Apps for Africa was won by i-cow a voice-based mobile phone application that helps dairy farmers manage breeding and feeding of cows leading to better yields.
– The Chase Bank /Enablis Business Plan competition in which agri-business proposals overtook ICT both in the number of entries received and list of top 100 picked. Of these 35% of the entries submitted came from Nairobi and 30# were from people aged 18 – 25 years.
– Finally M-farm, an information resource for farmers scooped the top prize in last week’s IPO48 entrepreneur contest.

The best way to make agriculture cool is for it to make money, but by also making agriculture relevant for the youth – using best practices, new technology, and high profits (tea sector), Kenya won’t go the way of Nigeria – a country capable of agricultural production but which almost all urban foods are imported, not from the rural side, but from other countries