Monthly Archives: July 2011

5 ways to protect your NSE shares from irregular sales

We all hope the days of collapsing stockbrokers at the Nairobi Stock Exchange (NSE) are now a thing at the past. However new share offering such as Britak, Family Bank and Bank of Kigali, and other personal finance initiatives such as the I’m a Cooperator movement are likely to convert some people into first time share buyers. So how does one ensure that their funds are not misused by an errant stockbroker or their employees? Read on

A guest post by Shiroh
While it takes a lot of sweat to save for investments, many investors have found themselves in a tricky situation when unscrupulous dealers engage in irregular sale of their shares. While this practice cannot be tolerated for all involved, it is important that one takes proactive steps to avoid losing your investments. These can include;

1. Subscribing to the Central Depository System Alert Service: The mobile phone has truly revolutionized many industries in Kenya. For a nominal amount of Kshs. 10, one can receive alerts to their mobile phone anytime a transaction is made from their CDSC account. For more details, check the CDSC Kenya website.

2. Freezing activity on CDS Account: Since getting mobile phone may not be possible for people residing abroad, freezing any activity on a CDSC account can be done. These instructions are communicated to the CDSC and activity can only resume at the request of the account holder.

3. Constantly monitoring your activity of your account at your preferred Stockbroker. Many people don’t bother to check the activity of their accounts once they make the investments only to get a shock of their lives when they want to liquidate them. A broker is under obligation to provide investors with a statement of account through which they can monitor the movement of their investments.

4. Developing a personal relationship with a dealer or broker. While some personal relationships work to the detriment of the investor, sometimes having a specific person who can address any enquiries that you have can be a great plus.

5. Finally, you should report any fraudulent sale of shares to the Complaint Handling Unit of the NSE.

Guide to Tunis

A Guest post

Intro: Despite the changes sweeping across North Africa, business analyst and columnist, Carol Musyoka took some time to visit Tunis and kindly agreed to do a guest post

Getting There: You have limited choices, flying to Tunisia and have to go through the Middle East or through France. Tickets from Nairobi start at about $800 on Emirates, Eqypt Air, or Qatar Air (which I used).

The airport (process) is horrendous as Visas are issued on arrival. Though, my hosts had already pre-arranged for the visa, the officials at the airport were rude and sleepy – and despite arriving at 6 A.M, I only left the airport at 9 A.M. Also, they only accept payment in Tunisian dinars (which no one carries) and you have to be given a pass to walk out of the Arrivals terminal to go to a foreign currency bureau to get it.

Getting Around: Tunis has a very good public transport system in the form of buses. I used a cab once or twice, but it’s too hot to walk around since temperatures were in the forties!

Security was good pre-Ben Ali (Abidine Ben Ali was ousted as President in January 2011) and has slightly deteriorated. However I never felt any danger because it was summertime and the streets would be packed past midnight.

Language/Communication: The language you need here to get around is French, not English. I didn’t make any calls but used my Safaricom roaming to send text messages for the two days I was there, only to come home and find a bill of approximately Kshs 5,000/- ($60) for two days of texts!

Food & Life: There are different kinds of hotels as Tunis is a big tourist destination. Also an important point to note about African cities these days is that the electricity supply is very reliable.

Main local dishes are couscous and lots of Middle Eastern food. very delicious for the adventurous palate. Beer and alcohol was available and is now available to the locals unlike during Ben Ali’s time when there were restrictions on how much they could buy at the supermarket.. Imported wine costs horrendously as they have a protectionist policy to promote local brands

Much of the street & bar talk at this point is about life post-Ben Ali especially as there’s so much freedom now that the secret police have been disbanded.

Shopping/Sight-Seeing: The beaches and of course the ancient city of Carthage. There are lots of shopping areas, but I loved Sidi Busaid the most. Tourists buy tons of knick-knacks made from porcelain and camel leather.

Biggest surprise about the country: That it feels like you’re in a European country with an Arab population. Also, and even more amazing, was finding that they have black people from the South! One odd sight was that there are tons of men who just hang out at cafes smoking cigarettes and shisha pipes all day.

NSE Moment: Britak, Transcentury, Kigali Bank, Stima SACC0

This week we were reminded that there’s been no IPO at the Nairobi Stock Exchange (NSE) since 2008 (Co-Op Bank) and the events in the last few days were the fulfillment of initiatives that companies like Britak and Transcentury had initiated earlier in the year.

Britak: The British American Investments Company Kenya kicked off their IPO this week. The group had Kshs 9 billion in income, and pre-tax profit of Kshs 2.8 billion in 2010. With group assets of Kshs 25 billion, it is second only to the ICEA at 27 billion.

They are being sold at Kshs 9 with an allocation criteria of 30% East Africa retail, 30% foreign, 37% institutions, 3% employees, agents, and individual policy holders and can be obtained at British American branches, Equity bank , Standard Chartered (and partner Postbank), NIC, CBA banks and stockbrokers.

The minimum for retail investors is 2,000 shares (Kshs 18,000 while for institutions it’s 10,000 shares (Kshs 90,000 or ~$1,000). The IPO is budgeted to cost Kshs 320m ($3.5M) with estimated payments to transaction advisor 24M, sponsoring broker 6M, legal costs 9M, selling commission 87M, CMA 9M, NSE 1.5M, PR 67M, and advertising 90M.

Of the Kshs 5.9 billion to be raised, 1 billion will be for regional expansion (Tanzania, South Sudan, Rwanda), 1.2 billion will be for Kenyan operations (set up a frontier investment fund, new branches), 2.5 billion for the housing & mortgage sector aimed at affordable housing models, and 750 million will go to pay off a loan at CBA bank that was used to purchase shares in Equity Bank (Britak own 11% of equity and 16% of housing finance banks).

The Britak IPO runs from 12 July to 5 August and they have also reached out to bloggers, with forums and their own blog posts such as this tale of their CEO’s initial investment.

However, there are some concerns that with their 45-year history and strong brand name (-pay Kshs 18 million a year to British American), this is a retail magnet IPO and the sale of 650 million shares (30% of the company) is likely to be over-subscribed, and the dividend paid (Kshs 200m in 2010) is likely to be safaricom-ish (small)

The company has also called for the Government to extend current tax incentive for newly listed operating companies to also include holding companies (like Britak)

Transcentury: The investment group which has had a spectacular climb and string of investments, most notably with East African Cables listed their shares at the NSE on July 14.

Their shares had been trading at an OTC exchange and were listed at the NSE at Kshs 50, which worked out to a P/E ratio of 38

The Group also has a Mauritius convertible bond issued to finance the restructuring of Rift Valley Railways and investment in geothermal and other energy projects, but which also has the potential of diluting investors shareholding by over 1/3. (150 million shares available to bond holders over the next 5 years prices between 40 and 50)

Still, Transcentury has been am inspiration to other investment groups, albeit not as well connected to initiate projects with more risk such as energy real estate, and offshore. The introduction is budgeted at Kshs 20 million (220,000 – CMA 5M, NSE 1M, advisor 8M, stockbroker 4M) and the PDF prospectus is ‘protected’ so you can’t copy sections of it.

Family Bank: Their long dalliance with the NSE is about to be fulfilled as their shareholders will next month approve a listing at the exchange. They will also vote on an ESOP for managers and 1 % transfer of shares of the company to the new CEO. It has since emerged that he is purchasing the shares at a discount as part of his employment package.

Stima SACCO: Away from NSE is Stima SACCO that is in the process of raising funds of about Kshs 500 million ($6 million) . They have advertised in newspapers (even on TV), which may land them in trouble with the CMA, for selling shares to the public without adequate information. At Kshs 100 per share, individuals can buy 200 shares at a minimum (Kshs 20,000).

Kenya Airways: Nothing yet from the airline who were expected to approach shareholders for new funds. The government has allocated funds to invest and defend their 26% stake an the airline which has since signed a deal for new Embraer aircraft to grow their African footprint.

Bank of Kigali: The Bank of Kigali is aiming to raise $62 million from new investors in an IPO that runs from 30 June to 29 July. The Bank control 25-30% of the banking sector in Rwanda; it had profit of 8.6 billion francs ($14 million) in 2010 on assets of 197 billion francs ($324 million) – equivalent to a smaller mid-size Kenyan bank

300 million shares are on offer, and the minimum is 200 shares per person at 125 francs per share ($0.075 or Kshs 18.65). They are open to cross-border investors and the allotment will be to 27% retail East Africans, 2.4% to employees & directors, 15% – East African institutions, 15% to Rwanda institutions and 40% to international investors.

The Rwanda government owns 66% of the bank, and the other 1/3 are owned by the social security fund of Rwanda. 16 billion francs ($27 million) will go to the Government for reduction of its shareholding and 20.8 billion francs ($34 million) will go to the bank to reduce its assets & liabilities maturity gap and grow its loan book and operations (from 33 to 60 branches). This will result in new shareholders owning 45% of the bank, the government 30% and the social security fund with 25%

Other: The IPO prospectus lists
– lawyers acting for the bank, number of cases they have and prospects of loan recoveries
– lawsuits filed against the bank by name (former employees, debtors opposing auction)
– list of subcontractors and related partners such as visa card providers, SMS partners, providers of credit reference and lines of credit etc.
list of properties owned and rented by the bank and rent amounts. Also Rwanda depreciate building over 5 years, after each revaluation

Risks & Exposure – one of the operational risks is scarcity of qualified personnel in Rwanda
– commerce restaurants & hotels account for 46% of the bank portfolio while construction was 29%. Also 11% of loans were to a single group and records of large are available for review to persons who sign non-disclosure agreements
– Kenya is the country’s largest trading partner: Rwanda exports 33% to Kenya and imports 16% back.

Staff: – All staff are entitled to bonus and in 2010 this totaled 8% of profit, which that was shared by 441 staff (out of 454), and the average award was $3,200.
– The bank also runs an in-house dispensary and provides full medical cover to staff and 4 dependents
– The oldest director was born in 1960, the youngest in 1977. At senior management, the managing director is the oldest employee at 54, while the head of finance is the youngest at 31.

E-Government Moment: Part I

Parliamentary Transcripts: This week the, the National Council for Law Reporting – [NCLR, a state corporation charged with publishing the law and judicial opinions of the High court and Court of appeal) in partnership with Google Kenya launched digital versions of the Kenya Parliamentary debates – or Hansards dating back to 1960. These are the official records of debates in Parliament and enables historians, scholars, researchers, students, and citizens to read up on mundane debates and historic moments – such as January 15 2008, when parliament was re-constituted for the election of a speaker and the swearing-in of new members, with a lot of unprecedented procedural side-shows.

The publication of the Hansards on Google books radically changes the ease with which information on parliament is obtained. The Business Daily has an article on the challenges of obtaining Hansards previously. “Until Thursday, they were only available to the public in hard copy at a fee after a visit to Parliament’s library. One also needed to have prior knowledge of the year and month in which that issue was discussed and the edition of the Hansard in which it was recorded.”

Now about 2,000 editions of the Hansard comprising 134,000 pages have been converted into 8.5 GB of data on Google books and is indexed and searchable, while still in magazine style & original font of the current Hansards for easy accurate browsing & navigation.

Government Bible: Also, two months ago, (in April 2011), the same partnership resulted in the publication on Google Books of over 100 years of the Kenya gazette. This is the ‘bible’ of the Government with gems of information such as government appointments, issuance of land title deeds, proposed land use updates, mergers, anti-corruption reports, notices of intent to acquire private land, inheritance of estates of deceased persons, bankruptcy orders, winding up & de-registration of societies and companies, applications mining, broadcasting, aviation, communication licenses etc. The collection has indexed over 190,000 pages of Gazettes from 1899 to 2011.

Summary: While concerns have been raised about the ability of foreign bodies like the World Bank and Google to get access to data, the end product is world-class and unprecedented on the continent. In addition the cost for each of these to the taxpayer has been marginal – at about Kshs. 2 million ($25,000). There are no restrictions on the use of the content on Google books which can be linked and shared with a single click and will be available on an API for more adaptations.

Other Constitutional Minefields

Kenyan parliamentarians were shocked last month when they realized that voted in last August contained a clause that required leaders to pay tax.

What other clauses in the new constitution are going to raise some headaches in the next few months and years?

1. Automatic Citizenship: Dual citizenship is allowed – and a born Kenyan does not lose citizenship by becoming one of another country. Also citizenship can be acquired an orphan who under 8 years, or by marriage to a citizen for 7 years, or by having lived in Kenya for 7 years. The 2009 census revealed an interesting dimension to Kenya citizen origins including the Somali Kenyan and other African numbers.

2. Political Parties are Irrelevant/Term Limits ill end Career Politics: Many members of Parliament have set their sights for 2012 on becoming Governors, but these carry term limits (maximum of two). There are now term limits for the Presidents (& Deputy), county, judiciary and government officers e.g. the Inspector General of police will can serve only one 4-year term (which is not enough time for an ambitious leader to carry out reforms), but oddly, there are no term limits for parliament.

Also, in running for any of these offices, independent candidates can avoid messy, expensive, party elections by running without joining a political party; all it requires is obtaining 1,000 signatures for MP and 2,000 for Senate from their constituents. Political parties have one year to comply with political parties act or be disbanded (and time is almost up)

3 Amnesty for corruption: Parliament is yet to enact creation of an ethics and anti-corruption commission, which should be able to review un-ethical actions such as conflicts of interest actions. However for all the talk about extradition of Anglo Leasing and KPLC cases, suspects can’t be tried for acts that were not offences in Kenya, or under international law. These may include corruption-related crimes, which were legislated – in 2003 (for economic crimes) and 2010 (for money laundering). The it wasn’t a crime at the time defence has already been brought up.

4. Raise Local Taxes to support Counties: There will be 47 County Governments that will receive and share at least 15% of revenue raised by the state. Using the 2011 numbers announced this week, based on tax revenue of Kshs 634. billion ($7.5 billion), the county governments will split Kshs. 95 billion. Counties may collect property, entertainment and other taxes approved. However, while counties like Mombasa, Nairobi, Narok etc., have significant sources of revenue from (permits, tourism), many counties governments are not currently, self sufficient and will have to obtain new revenue streams. County government may take loans if their assemblies approve, but only if the national government guarantees them.

5 Civil Servants can’t own Matatu’s or Kiosks : Corporate governance is set to improve as the number of state directorships is implied and directors can’t be involved in politics (e.g. chair a company and a political party). Also a person who has been removed from a state office for a violation is not eligible for any other and crucially state officers will not be allowed to have other gainful employment – is this a repeal of the (controversial) Ndegwa Rule that allowed civil servants to engage in private business?

6. Land Use Restrictions: There was a story in the newspapers this week about a land grab in the Tana Delta. The new constitution requires that Parliament ratify concessions of land and mining agreements. This effectively puts an end to the practice of Desert states, foreign universities and corporations signing up farmland for their own food production. Parliament will also set other rules on land investment, minimum and maximum land holding, matrimonial sharing and inheritance