Category Archives: afrexim

Depositary Receipts for Afreximbank Investors

Afreximbank, an African multilateral financial institution, is raising equity of up to $300 million and expanding its shareholder base by selling depositary receipts backed by Class D shares which will be listed and traded on the Stock Exchange of Mauritius.

The African Export-Import Bank (Afreximbank) depositary receipts private placement which opened on July 25, and today in Nairobi, representatives of the bank, State Bank of Mauritius (SBM Holdings), and CBA Group (Kenya) met institutional investors as Kenyan pension and fund managers are a key target for the offer. The depositary receipts have also been marketed to Nigerian investors.

Mauritius has long been a financial gateway to India, with over 1,000 funds there overseeing investments in India. But SBM Holdings Chairman Kee Chong Li, was proud to  say that the depositary receipts arrangement was a historic first for shares of  a pan-African bank, arranged by African advisers, to be listed on an African stock exchange.

Afreximbank, headquartered in Cairo, aims to narrow the trade financing gap in Africa, estimated at $120 billion annually by offering intra-Africa trade finance products including local content finance (Nigeria and Angola oil) , special risks finance, a countercyclical trade liquidity Facility (COTRALF – which has provided $8 billion to African central banks and commercial banks in 2016) guarantees, construction & tourism finance, and one for medical tourism.

Afreximbank has 135 shareholders in four different classes: Class “A”- comprising African governments, central banks (include Central Banks of Egypt (9.83%) and Nigeria (7.33%), Reserve Bank of Zimbabwe (6.74%), banks of Uganda and Ghana, governments of Nigeria (6.17%), Cote d’Ivoire and Kenya –  in total, 43 Class A shareholders  own 63% of the bank), Class “B” – African financial institutions (including SBM Holdings, Nigeria, Egyptian banks – National (6.62%), Misr and du Caire – who combined own 26%), Class “C” made up of non-African financial institutions (13 shareholders own 10% including China Eximbank (5.48%), Standard Chartered) and a new Class “D” open to individuals that was created in 2012.

Afreximbank has a $12 billion balance sheet which includes $10 billion of loans. For 2016, net interest income was$273 million, and net earning were $113 million – of which they paid $37 million dividends. In terms of their exposure, 68% of lending were to financial institutions, then 16% to the energy sector, while geographical, lending is 43% to West Africa and 42% to North Africa, then 7% to Southern Africa and 4% in East Africa.

About the depositary receipts:

  • New class D shares and the depositary receipts are aimed at sophisticated long-term investors such as pension funds and wealthy individuals.
  • The depositary receipts will be listed on the Stock Exchange of Mauritius.
  • The 6,977 Afreximbank Class D shares are the form of 69.77 million depositary receipts (every 10,000 depositary receipt supports 1 class D share).
  • This is a private placement, and the minimum investment is $30,000. It runs from 25 July to 22 September.
  • The listing will be on 4 October at Mauritius. Currently, Afreximbank shares are not listed anywhere, but, after Mauritius, they may consider listing the depositary receipts in Nairobi and Lagos.
  • Holders of depositary receipts will be entitled to receive dividends as class D shareholders
  • The shares are dollar-denominated which is a stable currency. The placement in Mauritius where there are no capital gains or dividend taxes, and, in addition, the SBM Chairman said that Mauritius will grant residency to (large) investors who buy $500,000 worth of depositary receipts.
  • The target for the Class D depositary receipts was $100 million from African investors, but they got very positive response from beyond Africa that’s more than double.
  • The deal is being handled by SBM Mauritius Asset Managers as the lead arranger, and co-transaction advisors are CBA Capital and Lion’s Head Global Partners.

KQ Operation Pride

What is Operation Pride? Kenya Airways (KQ) has just released its financial results for 2016. It’s been another loss making year, and it’s clear that major changes will have to be made. Internally at KQ, they have Operation Pride, launched in October last year but, which started in March this year, and which KQ CEO,  Mbuvi Ngunze,  said aims to:

  1. Close the profit gap (and get the airline to a 5% after tax return).
  2. Revising their business model to focus on Africa
  3. Achieving Financial stability.

Item 3 is really about the shareholders (which includes the Government of Kenya – as a shareholder and regulator, and KLM) making balance sheet, debt and equity decisions. KQ has already secured $200 million from through an on lending agreement with the Kenya government, and got the first $100 million in September 2015, and the rest of it this month – in July 2016.

And while the move to layoff some pilots and other staff (once other discussions with court and the unions are resolved) , Operation Pride is not about jobs. It also more than cutting on costs without compromising quality and waste without reducing service.

Operation Pride started out as 460 initiatives that mainly came from suggestions from staff, consultants and stakeholders to improve the business.  KQ staff will champion these as they are implemented over the next 18 months, and expected to generate about $200 million. About 40% of the impact will be from cutting costs and about 60% will be from growing revenue at the airline.

KQ CEO deck

KQ CEO deck

After the 2016 results announcement this week, the Kenya Airways team showed their guests some examples of the 134 ongoing processes that they have started on. Most are intended to generate recurring savings, but some of the are one-time initiatives have already borne fruit, according to management, including:

  • Removal of 7 large aircraft  will this will reduce KQ fleet costs by about $8 million per month. They were largely idle, and some have been sold, and others leased (3 777-300’s to Turkish) and (2 787’s to Oman). KQ is still able to serve all their existing routes (with about 60 weekly flights outside Africa) with the smaller fleet of 36 active aircraft.
  • The Heathrow deal in which they combined and sold two different time slots in conjunction with Air France raised a record amount. They had previously served London with night flights, but which meant a plane sat idle the whole day in London. Now they only need one aircraft and lease a slot from KLM , which  means an (almost) immediate turnaround.

On the Revenue side:

  • Improved incentives to agents,  who still generate 70-80% of the ticket sales.
  • Targeting corporate customers.
  • Adjusting flight times: E.g between Lusaka and Dubai, they can fly passengers at an attractive price and the total journey is just now over one hour longer, even with a stop-over in Nairobi, than the direct Emirates flight.
  • New routes in Africa, the Middle East, and China  through new code-sharing partnerships (category one status for JKIA will also mean that they will be able book tickets to the US for flights on partner airlines). This is essentially a redesign of Project Mawingu a decade ago  in which KQ set out to fly many new routes by themselves.
  • (A system that can?) React to try to match different over 1,000 ticket prices combinations every day.

On the Expense side:

  • The 787’s bring  lower operating costs, than the released 777’s and lower maintenance costs
    Demo of food leftover after a typical KQ flight

    Demo of food leftover after a typical KQ flight

    than the retired 767’s

  • Use new hotels in Nairobi that offer good services and buying packaged deals from overseas hotels.
  • Re-negotiating handling contracts as a result of smaller aircraft.
  • Revising inflight meal service – serving lighter meals to reduce waste, and removing beverages that were not popular.
  • Controlling and reducing staff travel.

 

Fin4Ag14

All this week, Nairobi plays host to a conference called Fin4Aag14 which has the theme of Revolutionising Finance for Agri-Value Chains.

It started with plug & play session in which 18 companies got to introduce their platforms linking agriculture to finance across Africa. This is the second edition of the session that was introduced at the conference in Kigali last year and proved to be quite popular.


The 18 companies were: 

  • Tangaza Pesa: automates the value chain by doing KYC on farmers with bio data, crops produced,  and GPS  to build credit records
  • Ensibuuko (Uganda) helps (via web & mobile) to manage rural SACCO’s that can reach many of the rural unbanked farmers 
  • FarmDrive (University of Nairobi) enables small farmers to keep basic record by mobile phone and build a credit score 
  • Farmers Record Management System (FARMIS) aggregates farmers with financial institutions  to access finance and ensure loans are properly utilized 
  • Zoona’s eVoucher platform: enables agri-business supply chain payments and insurance 
  • Credit Information Sharing: enables information sharing by credit bureaus for lenders to make decisions
  • Umati Capital: paperless solution that aims to shorten dairy farmer  payment periods from 6 weeks to 24 hours
  • Agrilife – enables farmers to access markets inputs, savings, and asset finance 
  • Musoni System: a core banking for SACCO’s and micro-banks, loans, and savings that can also integrate with m-pesa and tablet apps 
  • Farmforce (Sygenta) enables traceability of farm produce for quality and for farmers to access small loans 
  • e-Krishok: Online & mobile infer for Bangladesh farmers to access information, traders and finance 
  • Creditinfo’s Credit Bureau Solution – enables credit bureaus can collect info on farmers so they can access loans without need for collateral 
  • Craft Silicon have a platform can link to MFI’s, bank, SACCO’s (Elma?)
  • aWhere Platform: with over 1 billion data points collected, enable farmers to be aware of field risks to make smarter decisions. this includes weather data for all of Africa since 1999 and others they pull from mobile services
  • AgroCentral – uses ICT to buy produce from farmers
  • RiMFin (Ghana): enables rural famers to receive mobile payments and save them in their phones 
  • finFinancials (Fintech) core banking platform that can integrate with others for digital or mobile payments
They will be there all week presenting their platforms and engaging the attendees who are from across Africa, Caribbean and Asia and who include development specialists, financiers, policy makers and top bankers who hope to get youth interested in agriculture.

There was a brief session on warehousing that detailed both the challenges and the opportunities for warehousing. Commodity warehousing types include private, public and community. Examples were cited from Tanzania (community food stored in individual houses but linked to MFI’s ), Ivory Coast (large presence in Cocoa Rubber Cashew sectors), Madagascar (communities totaling 80,000 rice farmers in villages part guaranteed by DFI’s cover 2% of the national production but provide price stability), and Nigeria (massive 1.3 million ton silo capacity against  large formal sector demand of 1.9M tons), Burkina Faso and Uganda (2 successful warehouse companies). 


Challenges facing warehousing include high costs (leaving some empty of commodities) fraud, long value chains, and contract defaults (by both small farmers and larger organizations like WFP).

Fin4Ag14 is organized by the Technical Center for Agricultural and Rural Cooperation (CTA),  Central Bank of Kenya and African Rural and the Agricultural Credit Association (AFRACA), and is supported by the FAO, the Rockefeller Foundation and Afreximbank. 


Homeless African Banks

Regional African banking institutions seem to be having some trouble with their host nations.

First it was the African Development Bank which is hosted by Tunisia after war broke out in Ivory Coast. A Wall Street Journal story earlier this month highlighted the dilemma posed by US pressure to have this African Bank hosted in an African, i.e. sub-Saharan country, but at the same time not shut the door on a return to Ivory Coast.

Now it’s the African Export-Import Bank which is about to be evicted from Egypt. This stems from a long running dispute when Egypt, upset that one of their own was not elected president of the bank, locked out the incoming president and froze their funding of the bank. Bank shareholders met thereafter and resolved that the election of the president was in order and asked that Egypt accept and respect that decision. Now Egypt has decided to sell their shares in the bank – resulting in the members looking for a new headquarters.