Category Archives: CMA Kenya

ESG requirements for Nairobi companies

The Nairobi Securities Exchange (NSE) has launched an environmental, social and governance (ESG) disclosures guidance manual for listed companies on the Nairobi Securities Exchange. 

The guidance was developed with the Global Reporting Institute (GRI) as a proactive initiative by the NSE ahead of more formal rules expected from the Capital Markets Authority (CMA). The NSE is the fourth exchange on the continent after Egypt Nigeria and Botswana to publish guidelines.

NSE board member Isis Nyong’o said 50% of exchanges worldwide have published guidelines, and there are moves to make disclosures mandatory rather than voluntary and companies will soon not be able to attract foreign funding without ESG disclosures. She said that after a grace period, the NSE will also require companies to report annually on ESG.

The guide lists benefits of ESG reporting as more effective capital allocation, access to new sources of financing from sustainability-conscious investors such as DFI’s and P/E funds, more efficiency, better regulatory compliance and better supply chains.

ESG reports are to be prepared following the GRI standards. Companies are advised to recruit ESG champions from across their organization, familiarize their teams with the ESG reporting requirements, provide resources, raise awareness, and develop management plans. They are also to map out and engage with stakeholders – both low-influence such as customers and suppliers, along with the high0influence ones who are regulators and investors.

Companies are to publish their ESG reports and seek external assurance from third-parties to enhance credibility and accuracy and can also integrate their ESG reporting with the Sustainable Development Goals (SDG) they have prioritized – whether they are in banking, investment, manufacturing, agriculture, energy & petroleum, construction, commercial & services, insurance, or telecommunications sectors.

For banks, the Kenya Bankers Association has already produced sustainable finance principles for the industry while the Central Bank has developed guides on climate risk management. Some ESG areas that banks could report on are: 

  • General measures including; governance, strategy, ethics, stakeholder engagement, business models, risk management & controls.
  • Economic measures including; financial return versus economic viability, community investments and taxes. 
  • Social measures including; working conditions, financial products information to customers, consumer protection, inclusivity, political funding, and cyber security.
  • Environmental measures including; materials sourcing, emissions, energy-choice, waste management, electronic waste management, and environmental impact assessments. 

It is expected that adhering to the ESG reporting approach can be used to meet the reporting requirements of the CMA’s corporate governance code for listed companies. Currently, ESG, as measured by sustainability reports, is largely the preserve of larger institutions including Safaricom, Bamburi (parent is Lafarge), East African Breweries (parent is Diageo) and Absa, KCB, Cooperative and Stanbic banks.

The NSE plans to have more training and capacity building sessions about the ESG guide manual which can be downloaded from their website.

Private Equity investment guide for East Africa

This week in Nairobi saw the launch by  EAVCA, FSD Africa and IFC Africa of a new private equity (PE) investment guide for East Africa.

The PE investing guide is a tool to enable pension funds across East Africa to assess and invest in private equity assets by raising knowledge among pension fund managers who are primarily invested in stocks and bonds.

It is a simple guide that can be read in just thirty minutes to gain an understanding of private equity assets. It has a checklist of useful information to look for before investing in PE, and after to manage portfolios, and roles for general and limited partners.

Also, EAVCA released a market report on the current status of private equity investments in the region following a survey of pension schemes and PE general partners. It found that, while five Eastern African countries have generous provisions for pension funds to invest in private equity, led by Rwanda at 20%, Uganda at 15% and Kenya at 10%, the uptake has been low with Uganda attaining 2.2% investments in PE funds followed by Kenya at 0.08%.

Nzomo Mutuku of Kenya’s Retirement Benefits Authority (RBA), who officiated the launch,  said that while pushed for pension schemes to diversify and explore alternative investments to grow returns for members, many still had huge investments in one company (i.e Safaricom) and stocks and bonds of banks in which they held their deposit funds. (Later it came up the concentration in a few NSE stocks is not unusual among sub-Saharan markets- Nigeria’s largest firm commands 35% of the market while in Ghana, the top three firms have an 80% share).

Other Insights from the Q & A after the launch:

• Excluding South Africa, there is about $100 billion of funds held by pension and insurance funds and collective investment schemes (CIS). Of that East Africa, has about $30 billion with  Kenya at $20 billion.

• The IFC has been in private equity for over 20 years and is invested in 300 funds globally, with 50 of them active in this region.

• One pension manager cited their investments in I&M bank before it listed at the NSE, UAP, and invested in an energy IPP that gave attractive returns of 13% on a Euro investment.

• Another mentioned that they had participated in 40 bonds offers in 17 African countries with decent returns and no defaults.

• Speakers cautioned about Kenya’s move to raise the capital gains tax on private equity from 5% to 12%, a move that the country’s parliament has since set aside thanks to concerted lobbying.

The teams will next move to market the assets class to trustees in Botswana and Nigeria.

Online currency trading with FXPesa in Kenya

With the recent attention on exchange rates and online forex (foreign exchange) trading in Kenya, this month we got to engage with one of the pioneers in the space – EGM Securities.

Their parent company is Equity Global Markets Capital, with seven locations across the world, They launched in Kenya in 2017 after they got a non-dealing online foreign exchange broker license from the Capital Markets Authority (CMA). This means that they don’t set the prices locally, they just enable the trades and make money from the spreads.

They then spent their first few months tweaking and develop their offering in Kenya where the mobile phone is prevalent for payment transactions. They then came up with FXPesa, a simple tool for retail traders to use.

FXPesa was launched in May 2019 and also has a web version. Within six months, FXPesa had registered over 25,000 users. They have integrated with local payment methods such as M-pesa, Equitel, cards, and bank transfers for traders to get money out and in easily. People can trade as little as $100, right from an uber or matatu. Prices change in nano-seconds, but traders on FXPesa can set “stop-loss” and “take profit” triggers and also earn trading bonuses.

After downloading the FXPesa from an app store, users can register and get on to a demonstration portal. The demo account comes with some virtual money, and prices the same as real the trading side, for new potential investors to get started. 

Meanwhile, EGM does some vetting and extensive know-your-customer (KYC) checks to ensure the accounts are legitimate and not being used for money laundering. They also offer beginner, intermediate, or advanced training classes. They also aim not to be used for dangerous speculation and cap trading amounts based on people’s income.

FXPesa offers clients over 100 instruments such as currency pairs, commodities, indices and shares. Some of the most popular ones are currency pairs like Euro/US dollar, US dollar/ Japanese Yen and Great Britain pound/US dollar as well as commodities like gold and crude oil, and Apple and Google shares. The South African Rand is the third most traded currency.

EDIT: On June 4, 2020, Genghis Capital announced a partnership with EGM Securities, to offer investors a wider range of alternative asset classes including online currencies, commodities, precious metals, oil, and biotech company stocks.

EDIT: On April 20, 2021, EGM Securities become Kenya’s first online trading broker to offer derivative contracts on the most liquid traded equities and index in the country – futures contracts on British American Tobacco, KCB Group, Equity Group, Safaricom Plc, East African Breweries and ABSA Bank Kenya, as well as the NSE 25 Index. 

Acorn Green Bond for Student Accommodation in Nairobi

This week saw the approval of the first-ever green bond in Kenya, issued by Acorn Holdings to fund student accommodation projects around Nairobi.

Acorn is one of the largest developers in Kenya, having delivered over 50 projects worth $550 million in the last decade. These include the local headquarters for Coca Cola, Equity Bank and Deloitte, and the UAP Tower, which is currently the tallest occupied building in Nairobi. They plan to raise up to Kshs 5 billion ($50 million) investors through a bond that has a bullet maturity in five years and which pays 12.25% interest. The green bond issue is partially guaranteed by GuarantCo up to a maximum of $30 million.

Acorn has ventured into purpose-built student accommodation (PBSA), under two brands, Qwetu and Qejani. They are developing projects close to universities around Nairobi, which target students at campuses of USIU, University of Nairobi, Daystar, KCA and Riara universities.

This is to address the current situation where the increasing number of students at universities live in sub-standard housing, without amenities, in poor condition or which are considered unsafe. These are mostly in older building not designed for students such as former domestic-staff quarters. Yet students require reliability water & electricity, Wi-Fi, security, furnishings etc. and which ensure security and privacy.

Qejani is a high-rise, mass-market, offering which students can rent for between Kshs 7,500 -12,500 ($125) per month for single, double or quadruple room accommodations, while Qwetu is their premium brand.  The funding will go towards completing student accommodation facilities including Qwetu USIU Road 3 & Road 4, Sirona Phase 1 & 2, Bogani East Road Qwetu, Bogani East Road Qejani, and Nairobi West Qwetu.

The green bond offer, which is restricted to sophisticated investors, opened on 16 August and closes on 27 September 2019. Allotments will be done on 30 September 2019, with the minimum level of subscription set at 40% for it to be deemed a success.

Other aspects of the bond issue:

  • It is restricted to sophisticated (institutional) investors.
  • Opened on 16 August and closes on 27 September 2019. Allotments will be done on 30 September 2019.
  • The minimum level of subscription is set at 40% for it to be deemed a success.
  • Stanbic Kenya is the issuing and paying agent for the green bonds, and they will confirm that funds will not be used for more than 65% of the project costs with Acorn contributing the other 35%. 
  • Helios Partners are investors in Acorn.
  • GuarantCo is sponsored by the governments of the UK, Netherlands, Switzerland, Australia and Sweden and by FMO, the Dutch development bank.
  • Moody’s Investors Service has assigned a provisional B1 to the Acorn bond.
  • The issue will be certified as a green bond given that Acorn’s projects are constructed in accordance with the International Finance Corporation – IFC’s EDGE (“excellence in design for greater efficiencies”) requirements for sustainable buildings and certified by the Green Business Certification Inc. (GBCI) “.. they aim to steer construction in rapidly urbanizing economies onto a more low-carbon path. Certification is based on benefits generated from providing solutions in construction and operation: energy, water, and materials.” 
  • The green bonds program is endorsed by the Central Bank of Kenya, the Capital Market Authority and the National Treasury.

EDIT October 3, 2019.

Edit: Jan 13 2020: Acorn Holdings listed the Kshs 4.3 billion green bond on the Nairobi Securities Exchange.

EDIT Jan 20 2020: President Uhuru Kenyatta rang the bell to mark the cross listing of Kenya’s first green bond on the London Stock Exchange (LSE).

Edit: October 27 2020: Acorn plans to transfer its partnership interest in Acorn Project II to a new Acorn Development REIT (D-REIT) that has been approved by the CMA.

Edit: February 24 2021: Acorn converted its bond intro units trusts as two real estate investment trusts (Reits), a D-REIT and I-REIT on the NSE’s new unquoted securities platform.

Edit: 29 March 2021: Acorn reported the results of their offer. The I-REIT raised Kshs 3.34 billion and the D-REIT raised Kshs 4.24 billion. Each had 22 professional investors and the shares will be traded on the OTC facility of the NSE.

Edit: May 6 2021: Acorn announced that it will make an early repayment of Kshs 777 million of the Kshs 5 billion medium-term note and the amount will be delisted from the fixed-income segment of the Nairobi Securities Exchange.

To be updated.

Case Digest – Kenyan Capital Markets Court Cases

Kenya’s Capital Markets Authority (CMA), has published a digest of legal cases that Authority has been involved in, and some of which were later appealed.

The 27 cases cover ten years, and most the largest share involve dealings at  Uchumi and others revolve around executives and directors of CMC, commercial banks, and a handful on rogue stockbrokers who preyed on retail investors during the heyday of the Nairobi Stock Exchange during the IPO listings of Kengen and Safaricom.

Some notable cases include, Solomon Alubala who was fined Ksh 104.8 million and barred from holding a position at a listed firm for ten years, Bernard Mwangi who attended Uchumi board meetings and sold shares while the company was performing poorly, CMA cases versus Jeremiah Kiereini and  Martin Foster, Chairman and CEO of CMC Motors, the CMA versus the Institute of Certified Public Accountants of Kenya (ICPAK) over audits done by its members at CMC, cases involving Chadwick Okumu, CFO of Uchumi, and CMA versus Jonathan Ciano, a CEO who was for a time celebrated for turning round the Uchumi. They also have a case of Alnashir Popat and Imperial Bank directors, and Munir Ahmed MD of National Bank who the CMA fined Kshs 5 million and barred from holding a position at a listed company for three years.

The cases are published in partnership with the National Council for Law Reporting who have an online database of over 124,000 court cases.