Category Archives: CMA Kenya

Bond Moment: M-Akiba, EABL and other NSE Bonds

Update on NSE Bonds or bonds listed at the Nairobi Securities Exchanges and other bonds, since the last bond moment in May 2015 http://bankelele.co.ke/2015/05/bond-moment-may-2015.html.

Globally, the bond market is bigger than equities one, and according to the latest CMA Kenya quarterly statistics (PDF),  bond market turnover in Kenya has been larger than the equities one since 2009 mainly due to government bonds. In 2016, equity market turnover was Kshs 147 billion (down from 209 billion) in 2015. Bond market turnover was Kshs 433 billion (~$4.2 billion) in 2016 (up from 305 billion in 2015). Turnover has been 99% due to government treasury bonds, while that of corporates is less than 1% of bond turnover in a year – except in the years 2010 and 2011.

If one doesn’t want to buy NSE bonds directly, there are CMA-approved bond funds for investors including the Apollo Bond Fund, Co-op Bond Fund, Diaspora Bond Fund, Dyer & Blair Bond Fund, ICEA Bond Fund, Madison Asset Bond Fund, and the Old Mutual Bond Fund. These fixed income /bond funds total Kshs 1.4 billion (or 2.5% of the 57 billion) of funds management by fund managers in Kenya.

Government Bonds

  • M-Akiba: Following the successful launch of M-Akiba, Kenya’s Kshs 150 million , 10%, tax-free, 3 year bonds that were entirely sold via mobile phone (the minimum investment was Kshs 3,000 (~$30))  another Kshs 4.85 billion (~$47 million) is to be floated in June 2017.
  • Following the launch of a green bonds program, banks, under the ambit of the Kenya Bankers Association (KBA), have partnered with Nairobi Securities Exchange (NSE) towards raising the country’s first bank-supported climate change-aligned corporate debt instruments in the next six to eight months. The capital flows from the green bonds in Kenya will go towards funding bank clients that require finance for clean and sustainable development projects in the priority areas of energy, agriculture, transport, infrastructure, building and urban planning, and water and waste management…so far, banks operating in South Africa and Morocco are already tapping the green finance opportunities in partnership with local municipalities and development finance institutions. projects. Also in South Africa, the World Bank’s International Finance Corp (IFC) successfully raised a 9-year, 1 billion Rand Green Bond via the Johannesburg Stock Exchange. More on the Kenya Bankers Association Sustainable Finance Initiative.
  • The Kenya Government finance bill 2017 will give Islamic finance bonds the same treatment as conventional bonds and also allow Islamic finance products in the cooperatives sub-sector.
  • The Rwanda government is about to issue a 10 billion Rwanda franc (~$12 million), 7-year Treasury bond. It will be issued on May 24 and the funds will be used for infrastructure project and capital markets development. The bonds will be listed at the Rwanda stock exchange and trade in multiple of 100,000 francs (~$120).
  • Nigeria has asked Goldman Sachs & Stanbic IBTC Bank to advise it on the sale of a debut “diaspora bond” targeted at Nigerians living abroad. – via @kenyanwalstreet

Corporate NSE Bonds:

  • Centum announced a Kshs 2 billion one year 14.5% note for the Two Rivers Development.
  • Cytonn is seeking advisors  for their medium term notes to raise Kshs 5 billion from the public towards the financing of Cytonn real estate’s (CRE) projects including Taraji Heights in Ruaka and The Ridge in Ridgeways.
  • On Monday EABL listed the Kshs 6 billion (~$58 million) of bonds at the Nairobi Securities Exchange (NSE) as the second and final tranche of its Kshs 11 billion shilling medium term note program that was launched in 2015. The tranche attracted bids worth Kshs 8.4 billion, representing a 41% over-subscription. The bonds maturing in March 2022 will pay an annual fixed interest of at least 14.17% and the raised funds will go towards optimising operations and restructuring the brewer’s balance sheet. “This is the first corporate bond to be listed on the bourse this year, and we are confident that its success, a subscription rate of 140.9% will open the doors for more listings in the course of this year.” said Nairobi Securities Exchange CEO Mr. Geoffrey Odundo. Citi upgraded EABL as a buy, due to its low price – seeing value even as the beer market was flat. The first half of FY17 (ended December 2016) showed decent volume growth for EABL (+5% YOY) but weak sales growth (-6%) as beer demand continued to shift from mainstream to value. EABL is doing well in spirits but struggling in beer, and Tanzania continues to present a challenge. – Citi report.
  • A South African credit-only micro-finance institution Real People Investment Holdings which issued a multi-billion bond in Kenya late 2015, has received a negative rating. Global Credit Ratings (GCR) said it had downgraded the primary and special servicer quality ratings assigned, with the outlook accorded as negative.
  • Transcentury bond holders lost 50% in a restructuring buyout deal.

Other Bonds

  • The African Development Bank had led the establishment of an African Domestic Bond Index and a $200 million African Domestic Bond Fund to deepen liquidity in local bond markets. It has also issued local currency bonds in 11 countries, including Kenya, South Africa, Egypt, Ghana, Nigeria, Botswana, and Uganda. leading the African Union in mobilizing domestic resources required to execute the Bank’s five developmental priorities dubbed the ‘High 5s’. – Light up and power Africa, Feed Africa, Industrialize Africa, Integrate Africa and Improve the quality of life for the people of Africa.
  • The Africa Finance Corporation issued a US$500 million 7 year Eurobond. The senior, unsecured Eurobond which carries a coupon of 3.875% was priced to yield 4.000% and matures in April 2024. It attracted orders of US$2.4 billion, representing about 5 times over-subscription from 231 investors. The bond will be listed on the Irish Stock Exchange. The Eurobond was distributed to investors in Europe (29%), United States (25%), United Kingdom (24%), Asia (18%) and the Middle East (4%). Citi, J.P. Morgan, MUFG and Standard Chartered Bank acted as Joint Lead Managers and Bookrunners for the U.S. dollar-denominated issue.
  • FSD Africa (Financial Sector Deepening Africa) and KfW Development Bank will invest £15.3 million (~$19.8 million or Kshs 2 billion) in the African Local Currency Bond Fund enabling it to step up its engagement with developmentally important industry sectors such as green energy and housing and take on investments in fragile and conflict-affected states. ALCBF is managed by Lion’s Head Global Partners (LHGP) Asset Management LLP.
  • Bonds, Loans & Sukuk Africa “the continent’s only Pan-African debt event” takes place on 13th & 14th March 2018, at the Cape Town International Convention Centre.

Uchumi Rights Issue: CMA Acts – Part I

Yesterday the Capital Markets Authority (CMA) meted out punishment, following the Uchumi Supermarkets (USL) rights Issues.

Back in 2014. Uchumi’s rights issue to raise Kshs 895 million ($10 million) by offering shareholders 3 shares for every 8 held at Kshs 9 per share, with the funds to be used for expansion in East Africa and refurbishment of stores.

(Excerpts from) The CMA statement reads:

  • The regulatory breaches of the former directors and the two USL officers were identified in respect of the period of 2012 – 2015 and involved making changes to the Information Memorandum (IM) after CMA approval; failing to make proper disclosure of material information to inform investor decision making; misapplication of Rights Issue (RI) proceeds; mis-statement of financial statements in 2014; weaknesses in board oversight of the branch expansion programme; inadequate conflict of interest management; and inadequate disclosure of asset sale and leaseback arrangements. The breaches of the transaction advisor revolve around not ensuring changes made to an approved IM were submitted to CMA for further approval.

Also that

  • Out of the Ksh895 million right issue proceeds received by USL in January 2015 it was established that a small portion was used to pay the rights issue expenses but the balance was transferred to the trading account from where payments were being made to settle outstanding suppliers’ debts as opposed to funding branch expansion.

And

  • With respect to the financial statements for the period ended June 30, 2014, that were used to support the Right Issue, it was established that a Ksh350 million asset sale and lease back transaction was recognized, while the agreement for the same was signed and funds received in September 2014 . As a result of this recognition, USL’s profits as at June 30, 2014 were enhanced by Ksh19.97 million arising from the gain on sale of the assets. Further, the USL liabilities were understated to the tune of approximately Kshs.1 billion. The Board subsequently reversed this treatment in the audited accounts in 2015, stating that this recognition had been premature.

Other recent actions by the CMA have targeted directors of Imperial Bank and CMC Group.

Snooze and Lose Your Investments: Part II

Centum Investments, which recently announced a record profit, and the end of a seven-year deliberate dividend drought, has been running ads in the newspapers and online, asking shareholders to register their names & details via SMS to ensure that they get their payments on time.

At the same time, Centum has also published a list (PDF), on its website, of shareholders who have not claimed their dividends. The list has about 9,000 names, and that’s a shocking stat, considering that Centum  has about 37,000 shareholders.

No shareholder likes to lose out on a dividend or an investment. And regular shareholders who attend AGM’s have also been aware about resolutions at companies to comply with a legal requirement to  surrender unclaimed assets, including dividends, to the government.

Almost all large public companies, except those which listed recently, list & highlight their liability from unclaimed dividends (owed to shareholders) for many years in their annual reports. But if 25% of Centum shareholders, have not claimed their dividends, totaling Kshs 78 million after almost 8 years, it raises many questions about why this situation exists. But one reason could be that shareholders have been unable to receive their dividends because some companies and their registrars have made it very difficult for shareholders to prove, claim and receive their rightful dividends. lost shareholders

  • $1 = Kshs 100
  •  A  registrar is an institution,  responsible for keeping records of shareholders..and  when an issuer needs to make dividend payment to shareholders, the firm refers to the list of registered owners maintained by the registrar.
  • Centum ads say the registration is free, but normal SMS costs seem to apply.

Plan For Your Retirement

Kenyans have been saving more each year for their retirements. From about Kshs 50 billion in 2000, assets in the retirements benefits industry have risen to about Kshs 814 billion in 2015. However, the Retirement Benefits Authority (RBA) estimates that fewer than 15% of the population will be secure in their old age.

This low number this probably ties in with the people who were employed in formal sectors.   That is people whose employers enrolled them in occupational pension schemes, and made deductions from their salaries, and remitted amounts for their retirement to be managed at statutory (i.e NSSF) or other pension schemes. Most employers only enroll their employees in NSSF; however, it’s not enough to just contribute to the National Social Security Fund (NSSF) (here’s why) if one wants to have a comfortable, decent retirement, one in which they are independent, and able to enjoy their own pursuits.

retire in style

Kulegalega is a campaign that aims to educate and encourage more young Kenyans to start taking charge and enhance their savings and investment, from a young age, and long before they consider retiring.

While access to pensions services, alongside other financial services like banking, remains a challenge, there are now more opportunities to save with secure service providers that are regulated by the RBA.  It’s also important to demystify the idea young people have that they can’t afford to save, or that they will only be able to invest and save when they are older and have risen in the work place and have higher income. It is important to start saving as soon as possible, and get into the habit of saving today, to enjoy tomorrow.

Coop Bank 2016 AGM

Co-operative Bank of Kenya (Coop) had its 8th AGM (since listing) on Friday 27th May, at Bomas, in Nairobi. At the end of 2015, Kenya’s 3rd largest bank had 342 billion in assets, and profits of Ksh 15 billion. It had Kshs 208 billion in loans and Kshs 265 billion in deposits. The CEO also mentioned that Q1 profit in 2016 was almost Kshs 5 billion and they hoped to attain Kshs 20 billion by the end of 2016.

Highlights

  • Soaring Eagle: The CEO gave an update of  the ongoing transformation project that seeks to improve Co-op’s efficiency and services to the 5.9  million customers of the Bank. Now, only 25% transactions are done at branches, as customers  have the choice to use other channels like mobile phones, ATM,s internet, or bank agents. Internally, staff are tasked to cross sell bank products & open accounts, and they receive promotions, bonuses, and increments based on KPI’s and appraisals. They consulted with McKinsey for some of this.
  • Regional Expansion / Subsidiaries & Associates: They own 60% of Kingdom Securities (stockbrokers), and in South Sudan they own 51% of Coop Bank there, with the government of South Sudan owning the other 49%. The bank went from a loss of Kshs 687 million to a pre tax profit of Kshs 850 million, and the CEO said that Sudanese see the bank as their own, as they have a stake a board and management are local. They plan to use the same joint venture approach to take Coop Bank to Ethiopia, another large closed banking market. They also own 100% of Co-op Consultancy and Co-op Trust Investment Services, 35% of Cooperative insurance (parent of the listed CIC insurance) and 31% of CIC South Sudan.
  • Shareholders: The bank has almost 96,000 shareholders who will each receive Kshs 0.8 per share in dividend – and this will total Kshs 3.9 billion in 2015 (up from 2.4 billion). The bank Chairman said that they had to maintain a balance with the dividends paid out so that they they did not have to call on shareholders to put money back in to the bank as it grows. Coop shares were issued after a 2008 IPO at Kshs 9.5, and now trade at 18.3. They have also issued  bonus shares (twice?).
  • Elections: During the shareholder election, the CEO explained two unique points. One was that Coop Holdings which owns 65%  of the bank, had already had its AGM and nominate 7 directors (that they are entitled to) and merely forwards the names to the Bank for endorsement at the AGM. Second was that the CMA now requires that companies make shareholders aware that they have audit committees, and to have shareholders vote for the members of the audit committee at the AGM.
     Chami meets CEO

Q&A

  • One Shareholder asks about the cost of banking saying that If he deposits Kshs 100 at an agent, Kshs 20 is cut, and there’s another Kshs 50 for each of his ATM withdrawals. The CEO they share these fees with the agents who have to pay for costs like electricity or to run their kiosks. Another one asked that Coop asked the bank to open more agent locations (now at 8,765) to serve other parts of the country.
  • Insider Lending at Coop? The CEO assured that all loans taken by directors (total about Kshs 300 million) and employees (about 6.5 billion) are being serviced properly, and that they are known to, and approved by the board. Insider lending had brought down other banks in Kenya, but, he said, this was not an issue at Coop.
  • Legal cases? All banks have legal cases, and they highlighted the main ones in the annual report.