Category Archives: CMA Kenya

Stanbic to Increase Kenya stake to 75%

Stanbic

August 17 EDIT: Stanbic Africa has been granted an extension by Kenya’s CMA to acquire another 27.3 million shares and take their Stanbic Holding shareholding to 75% up through December 2019.

July 23 EDIT : After the two rounds of tenders closed, Stanbic announced that they received acceptances which resulted in their Kenya shareholding increasing to 68%. The statement adds that they have applied to continue buying shares of the bank through the market to reach their 75% target i.e from other shareholders of the company through the Nairobi Securities Exchange.

June 21 EDIT: Results of the first closing were announced and Stanbic received offers of 26.32 million shares out of the 23 million target and they will buy 23.56 million shares valued at Kshs 2.24 billion shillings – which will increase their shareholding to 65.96%. The second phase already commenced on 12 June, and those who participated in the first phase will begin to receive payments from 25 June. Participants who take part will forego the Kshs 4 per share dividend.

May 16 EDIT: Stanbic published a new notice in which the offer changed to a tender on a “willing-buyer, willing seller” basis with no element of compulsory acquisition. It will be in two phases which run from May 21, with the first closing to June 11 and the second on July 2. This will allow those who take it up the offer to be paid earlier – and that will be after the first closing date. Preference is given to the shareholders with less than 10,000 shares, and Stanbic shares now trade at 89-92 shillings.

March 16 2018 Original: Stanbic Africa Holdings (Stanbic) – SAHL has tendered an offer to other shareholders of its Kenyan subsidiary who may be willing to sell their shares to the SAHL group at a premium as it seeks to increase its stake in Kenya’s 8th largest bank.

SAHL, which owns 237 million shares representing 60% of Stanbic Kenya, is seeking to buy another 59 million shares, which will take its stake to 75% (296 million shares) as part of a commitment to grow its business in Africa. Stanbic Kenya is listed on the Nairobi Securities Exchange and SAHL has declared that the shares will remain listed after the deal and have applied for an exemption from being required to make a formal takeover.

The bank shares were trading at Kshs 83 before the announcement, and SAHL is offering to buy no more than 59 million additional shares at Kshs 95 (~$0.94) a share. SAHL states that it will give preference to shareholders on the register date for up to a maximum of 10,000 shares in the offer, which runs to April 27.

In 2016, Stanbic Kenya had 4,424 shareholders, 3,837 of whom owned less than 10,000 shares, and 1,838 of these had less than 500 shares. While SAHL states that it is not acting in concert with any other parties, it is entirely possible that the three largest shareholders behind SAHL in the Kenyan bank – two foreign firms and one local company who may own a combined 59 million shares may be targets of the offer.  One of the shareholders has also recently divested from owning large stakes in other NSE-listed companies including Athi River Mining and Kenol-Kobil.

SAHL established its banking presence in Kenya in 2007 by initially merging with the CFC Bank Group. Shareholders who take up the new offer to sell their shares will also forego a dividend of Kshs 4.00 per share declared this month when Stanbic reported bank profits of Kshs 5.6 billion along with assets of Kshs 239 billion, loans of 130 billion and deposits of Kshs 153 billion.

Barclays launches the Africa Financial Markets Index 

Barclays launched their first edition of the African Financial Markets Index (AFMI) that ranks and compares the depth of financial markets in seventeen African countries. The countries were score against six broad pillars of (1) Financial markets depth, (2) Access to foreign exchange,  (3) Market transparency & the regulatory environment, (4) Macroeconomic opportunity, (5) Enforceability of agreements and (6) Capacity of local investors.

South Africa came out on top of the AFMI with 92 out of 100. It was classified as a highly developed market but (with a) challenging macroeconomic outlook; It was followed distantly by Mauritius (66), Botswana (65) and Namibia (62).

Kenya was ranked fifth (59), just ahead of Nigeria (53) Ghana (49) and Rwanda (48), and Kenya was found to be the most sophisticated in East Africa due to innovations and reforms by the Nairobi Securities Exchange (NSE) and the Capital Markets Authority (CMA).  Kenya’s scores were quite consistent across the six pillars with recent developments including the de-mutualization and the IPO of the NSE, the launch of a first exchange-traded fund by Barclays Kenya, and the launch of the M-Akiba bond.

Kenya is the seventh largest stock exchange by market capitalization and sixth by bond listings. But George Asante, Managing Director and Head of Markets at Barclays Africa said that Kenya lacked deep-pocketed market-makers who could broker deals, and take price risks and also that Kenya needed to develop a primary dealership network. He added that the participation of local investors in long long-term investing was quite limited and local investors are critical as they buffer volatility caused by foreign investors. Assets were concentrated among buy-and-hold investors, rather than pension funds and insurers. Kenya’s domestic institutional investors have $12.6 billion of assets but this only works out to  $173 per capita and he suggested that Kenyan markets and regulators needed come up with more securities listings, instruments, and innovations.

Barclays Bank of Kenya Managing Director Jeremy Awori said that “The AFMI will be produced annually to drive conversations, track progress and address gaps in financial markets.” Already countries like Rwanda and Morocco want to use the index data to improve their financial markets.  At the tail end of the AFMI was Egypt, Mozambique, Seychelles and Ethiopia. Ethiopia was scored as “a fast-growing economy but with no financial markets depth or local investor capacity.”  

Guests at the launch included Jeffrey Odundo, CEO of the NSE, and Paul Muthaura, CEO of Kenya’s CMA. Muthaura said the CMA had a master plan to make Kenya a choice destination for capital flows by 2023, while Odundo said the NSE has broadened its  revenue and product base (by introducing REIT’s, ETF’s, M-Akiba and next derivatives, and a new law to govern securities lending), and was working to make Kenya more visible. They are active members of the Africa Securities Exchange Association and will host a “Building African Financial Markets” seminar in Nairobi in April 2018. They also plan to join the World Federation of Exchanges.

The AFMI report can be downloaded here from the Official Monetary and Financial Institutions Forum website; OMFIF produced the report with Barclays Africa

Septuagenarians and Auditor Changes on Kenyan Boards

Last week brought news that Co-Operative Bank had a new Chairman – John Murugu, who has previously worked at Treasury and CBK, is to take over as chairman on October 1, 2017, replacing Stanley Muchiri who is retiring after attaining the mandatory age of 70. 

The age of seventy as a cap for directors to serve on corporate boards has been paid lip service, until recently. But this year has seen prominent septuagenarians (70+ years) exit from financial firm boards including Peter Munga as Chairman at Equity Bank Group, Francis Muthaura as Chairman of Britam Holdings and now Mr. Muchiri who joined the board of Cooperative in 1986 and became Chairman in 2002. There could even be one more at Centum Investments with regard to top shareholder and director, Dr. Chris Kirubi who is also a former Chairman of the firm.

Dr. Kirubi was re-elected to the board in 2015, but the Centum AGM next week, where three other directors – Dr. Jim McFie, Henry Njoroge, Imtiaz Khan, all retire from the board, has an oddly-worded resolution – “Director above the age of 70 Years”  Pursuant to paragraph 2.5.1 of the Code of Corporate Governance Practices for Issuers of Securities to the Public 2015, to approve the continuation in office as a Director by Dr. Christopher John Kirubi, who has attained the age of seventy (70) years, until he next comes up for retirement by rotation.

Section 2.5.1 of the Capital Markets Authority (CMA)  Code of Corporate Governance Practices for Issuers of Securities states that it is desirable for board members to retire at the age of seventy years. Other changes in the code which are now been enforced more strictly include:

  • The Board shall rotate independent auditors every six to nine years (this is now  happening at some banks that have had the same auditors for more than a decade),
  • Auditors now narrate in the annual report to shareholders on key audit matters they encountered the company.
  • The status of Independent directors shall be checked annually, and they must not be associated by way of being an advisor to the company, or having a relationship – business or personal, with major shareholders or have cross-directorships with other directors.
  • A director of a listed company (except a corporate director) shall not hold such position in more than three public listed companies at any one time.
  • Independent directors can’t serve for more than nine years.
  • That a comprehensive independent legal audit is carried out at least once every two years by a legal professional in good standing with the Law Society of Kenya.
  • The Chairperson must be non-executive and not involved in day-to-day running of the business ( e.g. there wide expectations that Michael Joseph would play such a role as Kenya Airways chairman).
  • Publication of director resignations in the newspaper.
  • More engagement with institutional investors and media.

Kenya CMA drafts Sandbox Rules to test Bitcoin and other Fintech

Kenya’s Capital Markets Authority (CMA) has proposed rules to create a regulatory fintech sandbox for innovations which do not fit within the country’s current financial regulatory framework.

The proposed draft rules to enable the introduction and testing of financial technology (fintech) products such as peer to peer finance (crowd funding), cryptocurrencies, distributed ledger technology (blockchain technology), artificial (e.g. algorithmic trading), big-data, RegTech credit rating, online lenders, and online banks. 

They give a safe legal status and safe space to investors and developers to confidently test and unlock these unique financial innovations tailored for Kenyan consumers. The draft rules were drawn after consultation and in lines with rules in  Australia, Singapore, Abu Dhabi, Malaysia and UK as guides.

The fintech tools must be ready for testing in a live environment; this will allow them to be tested for defined periods of time and for them to be reviewed by peer groups who work with the CMA. Once companies apply to the CMA, they are to get decisions within 21 days, and at the conclusion, they are to give the CMA a report of their outcomes.

Also
• The CMA will have an annual fintech day that will feature all the sandbox participants.
• Participation in the sandbox can be revoked if a company does not do what it says it intended to, has a security breach, or harms the public, among others violations.

The sandbox rules aim to position Kenya as an investment destination of choice. CMA has in the past drafted rules on REIT’s, bonds and venture capital. Will these new fintech sandbox rules lead to more M-Pesa-like innovations? Will they enable the legal use of bitcoin in Kenya?  Review the rules (download)  and give the CMA feedback by July 26.

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.

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 under 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 bondholders 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.