Category Archives: CMA Kenya

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 n 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.

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.

 

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.

BK Group – Bank Kigali Rights Issue and Nairobi Listing

BK Group, the holding company for Bank of Kigali, which is the leading financial institution in Rwanda, has launched a rights issue that will end with it cross-listing its shares on the Nairobi Securities Exchange (NSE).

BK Group is floating 222.22 million new shares at Rwf 270 with a target to raise Rwf 60 billion (~$70 million or Kshs 7 billion) through a rights issue in which current shareholders are eligible to buy one new share for every three they own. All the funds will go to shore up the capital of the BK Group bank and its subsidiaries. Also, 7.2 million new shares will be allocated to an employee share ownership plan (ESOP) for eligible director and employees.

Incorporated in 1966, the bank ended 2017 with assets of Rwf 727 billion (~$830 million or Kshs 84 billion) and pretax profit of Rwf 34 billion. Its subsidiaries include an internet company (TecHouse), registrar, nominee, securities, and general insurance company. It has 79 branches and 2 million customers. It has an estimated 32% share of the Rwanda bank market, ahead of BPR 13%, Cogebanque 10%, Equity 8%, KCB 7%, Ecobank 6%, and a 4% share of assets each for both GT Bank and Access. 

In 2011, the Government had offloaded 25% of its shareholding to the public as the bank listed on the Rwanda Stock Exchange. It is still the major shareholder through two organizations, the Rwanda Social Security Board (RSSB) and Agaciro Development Fund with 32.4% and 29.4% respectively. Others are the Rock Creek Group Dunross and Co Aktiebolag, Kamau Robert Wachira, RWC Frontier Markets Equity Master Fund, Frontaura Global Frontier Fund, and The Vanderbilt University – T133. After the rights issue, the top two shareholders will have 30% and 22.1% respectively with the ESOP having 0.8%. The government is not taking part but RSSB will partially participate to ensure their shareholding remains at 30% while other shareholders who don’t participate will be diluted by 25%.

The rights issue is from October 28 to November 9. It will be followed by a rump issue that will be from November 12 to 16 November in which shares not taken up in the rights issue will be offered to through a private placement to qualified institutional investors at Nairobi’s NSE.  Results will be announced a week after and the new shares admitted on the Rwanda Stock Exchange, with a cross-listing on the Nairobi Securities Exchange, on November 30. 

The target is 70% success with the 155.56 million being taken up worth Rwf 42 billion. In the event of an over-subscription, the rights issue has no green-shoe option and refunds will be done. In a statement released today, Kenya’s Capital markets Authority confirmed approval of the listing at Nairobi with an estimate that 40% of the funds will be raised through the rump issue. 

BK Group advisors are Renaissance Capital (Rwanda) as the lead transaction advisor, BK Capital – sponsoring broker and registrars, Trust Law Chambers as legal advisors, PricewaterhouseCoopers as reporting accountants, Bank of Kigali is the receiving bank and Hope Holdings are the PR & Marketing Advisors. The rights issue will cost Rwf 1.72 billion comprising Rwf 526 million transaction advisor fees and Rwf 900 million as placement commission (1.5% payment to authorized agents who are BK Capital, CDH Capital, SBG Securities, Faida Securities,  Baraka Capital, Core Securities, African Alliance Rwanda and MBEA Brokerage). Other fees are Rwf 90 million to the RSE, 39 million legal advisory and Rwf 22 million each for reporting accountants, receiving bank, sponsoring stockbroker and also for media and advertising.

$1 = Rwf  873, 1 Kshs = Rwf  8.58

EDIT Nov 23 results : Rights issue announced uptake was 43% with 104 million of the offered 222 million shares subscribed for, raising ~$31 million. And following the rump offer, by institutional investors, who oversubscribed for the shares and took up took up 136 million shares for ~$41 million, the total issue performance has been recorded at 107% and the new shares will list on Nairobi and Kigali exchanges on November 30.