Monthly Archives: August 2013

Access Kenya EGM

This morning saw what was likely the very last shareholders meeting of Access Kenya, as a public company. The Company Secretary reported receiving 11,207 proxies representing 85% of the shareholders at the extraordinary general meeting (EGM) that was to vote on the de-listing of all the issued 218 million ordinary shares of the company form the Nairobi Securities Exchange following a buyout offer that the board of directors had already endorsed and which 75% of the shareholders had voted in favour of.

A few of the retail shareholders present asked lots of questions about the deal, and it seemed they were unhappy that just over five years after they bought shares in the company at an IPO, after which the share had risen to 38 shillings, before dropping to Kshs. 4, and getting low inconsistent dividends, in between, they were now being evicted from the company.  

Some questions/topics raised:
– Why sell out for Kshs 3 billion (~$35 million) that could easily have been raised locally? The Directors 
– Was there a capital markets (CMA) rule on the minimum number of years that a company had to remain listed after an IPO? The directors said there was none, and the regulators had approved all decisions taken by the directors in the deal 
– Some shareholders said they had bought shares at about Kshs. 18, and were taking a big loss. Directors replied that Kestrel Capital, as an independent advisor, said Kshs. 14 was a good price to take and that Kshs 14 was a big improvement  from the Kshs 4 low in the past year, and Kshs. 9 when the deal was announced and shares frozen. 
– Were the needs of minority shareholders considered in the negotiations, and why didn’t the majority shareholders simply reduce their stakes, instead of selling the company outright?
– Why was the offer to retail shareholders structured as an ‘unconditional’, mandatory one? The directors said that no one was being forced out of the company and that any shareholders who wanted to remain could do so, and they will still receive annual audited accounts from Access Kenya..they noted that there were still some shareholders of Unilever Kenya which delisted  in 2009
– What is the fate of employees who own shares in the ESO..and will they be arm-twisted to vote the shareholders’ acceptances past the 90% threshold? The directors said Dimension Data was a $6 billion company who’s parent was a $100 billion one with ambitious plans for Access Kenya and Eastern Africa.

The final results of the shareholders voted will be tabulated by Deloitte and released in two days – and payments should be made to shareholders in September 2013. 

Nairobi New Media Stocks, 5 Years Later

It’s been over five years since a wave of new media stocks appeared at the Nairobi Stock Exchange  (NSE) including Access Kenya Safaricom, and Scangroup. They are all in the news this month, but for different reasons.
For Access Kenya, the deadline for shareholders to vote on a takeover by Dimension Data was extended by a day due to a national Holiday last week, However, Dimension Data just announced that they have received acceptances from 75% of shareholders and approval the Competition Authority of Kenya and will now proceed with the takeover which will lead to a de-listing of Access Kenya at the NSE.
Safaricom shares seem to have stabilized in the Kshs 7-8 price range after spending quite a bit of time at Kshs 3/=, well below the IPO price of Kshs 5/= in 2008. This disillusioned a lot of retail shareholders who bought their shares hoping to quadruple them when they listed but then had to sell them at a loss. The company has since weathered many changes but remains the market leader in Kenya, thanks largely to M-Pesa and the floundering of their rivals (Orange, Airtel and Essar).
Scangroup got an investment from the WPP, in 2008 who gained a controlling interest for about $18 million. The shares traded at about Kshs 72, and while they have lagged other shares this year, this is still a tremendous gain from the IPO price from Kshs 10.45.
This week, WPP announced, that they would seek to increase their stake to just over 50% in a deal worth about $95 million. This will be done through a combination of cash, new shares and exchange of partnerships in joint companies (Ogilvy & Mather, Ogilvy Africa, Ogilvy (in Kenya, Tanzania, Mauritius) Millard Brown (East Africa, and Mauritius), and Hill & Knowlton (East Africa and Africa) which will become full subsidiaries of Scangroup over the next one year.

Turning Round the Lunatic Express

A few weeks ago, Rift Valley Railways (RVR) and Citadel Capital had a small media briefing to highlight the state of their investment in a consortium to run the Kenya Uganda-Railway. It was meant to signal an escalation in the marketing the achievements of the consortium but it also highlighted the state of the railway that they invested in about three years ago.

The railways which moved 4.2 million tons in the early 1970s’ when it last got a public investment but had been in steady decline since with increased competition from roads and pipelines. It was then passed on by the Governments of Kenya and Uganda through a concession to new owners who, as it became apparent later, were without money or management expertise – and were down to one working train, and about to pull the plug on the venture.

The new investors, led by Citadel and Transcentury, fundraised through debt and equity and set about rebuilding hundreds of kilometres of rail tracks that were dangerous if trains moved at their regular speeds, refurbishing locomotives and wagons, automating line movements, creating storage facilities, and putting staff succession plans in place. This year they launched a graduate trainee program that will have a class of 20 this year who were selected from 3,400 applicants and will soon install a train simulator for training.

Passenger services are 4% of Revenue

Their concession called for an investment of $40 million in 5 years but it’s taken a budget of $300 million to get where they are today, including $11 million worth of levies paid to the governments every year. They hired a management team from Brazil who engineered similar turnarounds, and there has been some progress in going from 22 days to move cargo from Mombasa to Kampala, to a current average of 8 days. The best performance is 4 days, and their internal goal is to make that period the average by 2015. They are back to moving 1.5 million tons a year, meeting a consortium target with s plan to get to 4.5 million tons by 2016.

But even as they are breaking even, the governments’ of Kenya and Uganda are restless. In recent weeks, the Deputy President complained about the creaking 90-year-old relic known as the Lunatic Express that was built by the British Colonial government, while the Transport Cabinet Secretary believes that with 20 million tons passing through the Mombasa Port, there’s need for five other railways.

There are designs to have a Chinese-built wide-gauge railway from Mombasa to Uganda (to be financed with a 1.5% tax on all imported goods) and another 1,500-kilometre track from a planned new Lamu port all the way to South Sudan.

Even with clients like Total, Hass, Maersk, Coca Cola, Shell, the World Food Program Bamburi, Athi River, and EA Portland cement companies, RVR still have a way to go with proving to other corporates that they are a viable reliable option to the hundreds of trucks that make that daily journey from to and from the Mombasa Port.