Category Archives: Corporate governance

Olympia Turnaround? Part III

The Olympia Capital Holdings 2022 shareholders AGM at Nairobi club on Friday, August 26 started with a bit of confusion as the Chairman, Dr. Chris Obura, insisted that shareholders needed to wear masks unless they were speaking. It was attended by about 100 shareholders and was the first physical meeting in three years as the last two had been held virtually. The Chairman said the company had found that hosting virtual AGMs was more costly than physical ones and so the company had decided to try one, even as Covid-19 protocols remain.

The meeting took about an hour with lots of Q&A with shareholders about not having seen the documents they were being asked to approve, such as the annual report and minutes of last year’s online AGM (posted online and which the registrars had emailed) and the lack of a dividend.

Governance: The company has a unique structure with a holding company and subsidiaries and has primarily relocated its business to Botswana. The Managing Director was not at the AGM as the Chairman said that he works full-time in Botswana. This has been the case since the passing of their previous Managing Director Michael Matu in 2020.

Manufacturing Cost: During the Q&A, the Chairman mentioned that, of their Kshs 500 million in sales, 400 million is from Botswana where Olympia now does its floor tiles manufacturing, after halting that in Kenya. He said that the cost of manufacturing was one-third cheaper in Botswana than in Kenya.

Dividend when? Olympia can only pay dividends when its various subsidiaries pay dividends to the parent company – and the one in Botswana was not allowed by law to pay until it had settled a bank debt. But now that the loan was capitalized, a dividend may come to Olympia’s shareholders from profits next year.

Goodies: The Chairman said they had not expected many shareholders to show up and that the venue had only set out a small amount of tea and snacks. Nevertheless, the board agreed on Kshs 500 cash as lunch allowance and each shareholder was paid on the way out of the meeting.

Verdict: Looks like shareholders have a pent-up demand to attend physical AGMs after two years of virtual ones, that were occasioned by Covid-19.

Chase Bank’s Long Tails

Nearly six years after the collapse of Chase Bank, the Capital Markets Authority has come down with harsh penalties on some of its former senior managers, directors and auditors. This is not over the collapse of the bank, but over misleading statements, failure to disclose material information or conflict of interest in the issue of a bond that the bank  floated in May 2015. Its first tranche raised Kshs 4.8 billion, 10 months before ether bank close. The bond’s Information Memorandum (IM) indicated that the funds raised would be used for branch expansion, IT investments, and new products. 

Penalties Levied:

  • Kshs 10 million against Deloitte, the reporting accountant for the bond note program and its partners will be reported to ICPAK.
  • Kshs 5 million fines each against Duncan Kabui, the former Group Managing Director,  Paul Njaga the former CEO and Ken Obimbo the former Group Finance Director. In addition, Kabui is debarred from being a director or partner in an issuer on the Kenyan capital markets for 10 years, while Obimbo is debarred similarly for 5 years.  
  • Kshs 2.5 million each against the former members of the Audit & Risk Committee – Laurent Demey, Muthoni Kuria and Rafiq Sharrif. The fine also was levied against Anthony Gross, who was Chairman of the Committee and who was ordered to attend corporate governance training.
  • Kshs 1 million, a smaller fine, against Richard Carter, a former director of Chase.  

 The Business Daily (BD) had reported on some findings that the CMA had made unearthed at Chase when it went reviewed its IT systems and which the CMA felt that Deloitte should have flagged such as a Kshs 14 billion hole at Chase, an IT override switch, and a Kshs 1 billion bonus paid to Chase’s former Chairman Zafrullah Khan that was later shared with other directors and executives.  The fines are against 9 of 12 people targeted, and who appeared before an ad hoc committee put together by the CMA but 3 others went to court and halted the CMA probe proceedings against them – and the BD has identified them as Khan, former Finance GM Makarios Agumbi and former Corporate Assets Manager James Mwaura.

In another matter, a judge has ordered SBM Bank which took over the assets of Chase Bank to compensate AfrAsia Bank of Mauritius for a $7.5 million deposit that they had placed at Chase just before the bank was closed in April 2015. The judge said that due process was not followed in notifying depositors about the transfer of the bank assets from Chase to SBM and found that SBM, not the Kenya Deposit Insurance Corporation, is where AfrAsia should have pursued their claims. Will this open the door to other aggrieved depositors in collapsed banks like Chase, Dubai, and Imperial? – Read more in the Business Daily.  

Related:

  • Earlier updates in the Chase and Imperial bank cases 
  • Past CMA actions on company directors on governance matters. 

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.

AfDB 2021 annual meetings

The African Development Bank Group (AfDB) has announced its series of annual meetings for 2021.

The theme of the annual meetings which will take place from June 23-25 is “building resilient economies in post-covid Africa” and will include the 56th annual meeting of the governors of the African Development Bank and the 47th one of the African Development Fund. The 81 governors of the bank will review the annual report and operations of the group and adopt key resolutions with a focus on inclusive growth, debt and governance.

Just like in 2020, the meetings will be held virtually due to the ongoing Covid-19 situation in which the prescribed mitigation measures are restricted gatherings and travels.

Most dialogue sessions will be restricted to only the governors and bank officials, but there will be some” knowledge events” that are open to the public such as on climate change and building Africa’s health defences.

EDIT: Also during the annual meetings will be the 2021 African Banker Awards with the two main ones being the African Bank of the Year Award (contested by Afreximbank, Attijariwafa, Banque Centrale Populaire, Commercial International Bank, Equity Group Holdings, Standard Bank Group, Trade and Development Bank and Zenith Bank) and the African Banker of the Year between Ade Ayeyemi of Ecobank Transnational Admassu Tadesse (TDB), Brehima Amadou Haidara (Banque de Développement du Mali), Herbert Wigwe (Access Bank), James Mwangi of Equity Group, João Figueiredo – (MozaBanco), and Kennedy Uzoka of United Bank for Africa.

Also Innovation in Financial Services Award, Financial Inclusion Award, Sustainable Bank, SME Bank, Investment Bank (with nominees Absa EFG Hermes, FBNQuest, Misr Capital, and  Standard Bank of South Africa. There is also the Energy Deal of the Year Award, Debt Deal of the Year (which includes Dangote Cement PLC $208 million bond by FBNQuest), and Agriculture Deal of the Year which has nominees from Banque Misr, Standard Bank Group, Nedbank, Stanbic IBTC Capital and, Afreximbank.

Some of the other nominees of include the Equity Deal of the Year Award, which has the Acorn Holdings student accommodation bond/REIT by Renaissance Capital, Infrastructure Deal of the Year in which TDB is nominated for both Kigali’s King Faisal Hospital and Tanzania’s Standard Gauge Railway.

Ant Group IPO

Tuesday should have seen the listing of shares of Ant Global in the largest IPO in history but it was cancelled at the last minute. This came after Jack Ma, the founder of the company, the Executive Chairman and the Chief Executive Officer were all summoned to a meeting with regulators a few hours before the launch. 

Later the Shanghai Exchange announced that it had cancelled the listing of Ant Group’s A-shares on the STAR Market and published the suspension decision which stated it was due to material matters.

Reasons varied from capital controls to politics around Jack Ma who is currently China’s second-richest man and now a global philanthropist who donated medical testing and protective equipment to different countries around the world as they battled Covid-19. 

The company was to raise $34 billion from the IPO, valuing it at $313 billion, but by the time of the cancellation, they had a staggering $3 trillion in bids from investors. The company had allocated 1.67 billion shares each for Shanghai and for Hong Kong to raise 115 billion Yuan ($17.23 billion) from each location, but Shanghai investors bid $2.8 trillion, 872 times the number of shares allocated, while those in Hong Kong bid $168 billion or 389 times their allocation.

This came after a book building done by Citi, JP Morgan, Morgan Stanley and CICC who were the joint global coordinators and book-runners. Also participating was Credit Suisse, Barclays, Deutsche Bank, ING, Goldman Sachs, ICBC, BNP Paribas and Mizuho, among other banks, while the Bank of China (Hong Kong) was the receiving bank.

Ant was started within the Alibaba Group in 2004 as a company offering online escrow services. It was spun off from Alibaba in 2011, which itself reported a 30% rise in quarterly revenue today to reach $23 billion. Earlier this year Ant had 711 million active users, just behind 800 million on Tencent’s WeChat Pay. It now serves 1 billion users and 80 million small businesses in China, and recently provided billions of dollars in loans to Chinese companies impacted by Covid-19 and also waived fees, subsidized logistics, and offered free streaming and work from home tools.

The invitation to invest noted that financial systems that have been in place for the last 200 years were designed to serve 20% of the population and that better products have to be designed for the other 80% through digital payments, digital finance, and digital daily life services. The company has 26,000 patents and patent applications.  

One of the risks cited in the listing documents is possible action by US President Donald Trump to restrict the use of payment services of Ant.

Refunds to investors started on Wednesday, November 4, and it is now expected that the IPO could be delayed by at least six months.

Edit

November 6, 2020.

January 1, 2021.

Continues