Category Archives: emerging markets

Merger deals in Eastern & Southern Africa (COMESA)

An interesting list of merger statistics was published by the COMESA Competition Commission which regulates trade between member states in the Common Market for Eastern and Southern (COMESA) region.

Most of the proposals involve companies in Kenya Mauritius Zambia Zimbabwe Uganda and Rwanda and are mainly concentrated in energy, banking and agri-business.

It showed that there were 46 deals in 2019, compared to 45 in 2018, and that last year the Commission approved 37 mergers with unconditional clearance and 6 others with conditions. Some were covered earlier, but some notable ones last year include:

Airline/ Oil/Energy/Mining M&A

  • Acquisition of shares by Azura Power (Mauritius) in Thika Holding, Thika Power and Thika Power Services. The target, Thika, is registered in the British Virgin Islands and generates electricity from heavy fuel oil and provides related support services. Azura is acquiring 90% from Melec and the other 10% will be held by Africa Energy Resources Plc.
  • 100% of Iberafrica Power E. A. (“Iberafrica”) has been acquired by the Africa Infrastructure Fund via a Danish partnership. Iberafrica owns and operates a 52.5 MW heavy fuel oil Nairobi power plant and has a PPA with Kenya Power and Lighting Company that will expire in 2034.
  • Matador (managed by the Carlyle Group) intends to acquire between 30 – 40% of the shareholding in CEPS, the parent of a group of companies that supply fuels and fuel derivatives products, with operations in Egypt and Kenya.
  • KenolKobil Plc is acquiring 10 petroleum retail outlets in Zambia from Samfuel.
  • Engie Afrique S.A.S. is acquiring Mobisol Kenya and Mobisol Rwanda which market, distribute and sell solar home systems and related appliances in Kenya and Rwanda.

Banking and Finance: Finance, Law, & Insurance M&A

  • MyBucks (formerly New Finance Bank), a Malawian bank, is acquiring 100% of Nedbank Malawi, which has 11 branches and 50,000 customers. Mybucks is a subsidiary of Frankfurt-listed fintech MyBucks SA which intends to consolidate the two banks.
  • The acquisition of 66.53% of Banque Commerciale de Congo by Equity Group Holdings Plc (covered here).
  • The acquisition by Access Bank Plc of 100% of Transnational Bank Plc (covered here)
  • The proposed acquisition by Banque Centrale Populaire (BCP) of Banque Malgache de l’Ocean Indien (BMOI),a Malagasy commercial bank with 19 branches.

Agri-Business, Food & Beverage M&A

  • PepsiCo is acquiring Pioneer Food Group of South Africa which supplies various grocery products, beverages and breakfast cereal products in the COMESA region.
  • Actis International, through Neoma Managers (Mauritius), is acquiring the management rights held by Abraaj Investment Management (in provisional liquidation) that represent a controlling interest in firms that are in the manufacturing, casual dining and healthcare sectors.
  • Vivo will acquire shares comprising 50% of Kuku Foods Kenya, Kuku Foods Uganda and Kuku Foods Rwanda. Vivo distributes and markets fuels and lubricants across Africa, while Kuku Holdings, incorporated in Mauritius, operates “KFC” quick-service restaurants franchises in Kenya and Uganda, while Kuku Foods Rwanda is not yet operational.
  • The acquisition of a controlling shareholding in Almasi by Coca Cola through its affiliate Coca-Cola Sabco (East Africa).
  • The proposed merger involving Pledge Holdco, an affiliate of TPG and Maziwa, which is controlled by Bainne Holdings. The target owns subsidiaries that sell dairy products in Kenya and Uganda.
  • Zaad BV will acquire a 40% stake in EASEED, a seed firm with interests in Kenya, Tanzania, Ugandan, Rwanda and Zambia, with an option to acquire an additional stake in the future. EASEED is newly incorporated, owned and controlled by a Kenyan national, Mr. Jitendra Shah.
  • A merger between the Finnish Fund for Industrial Development Cooperation and Green Resources AS, a Ugandan operator of East Africa’s largest sawmill (in Tanzania) as well as other electric pole and charcoal manufacturing plants in the region.

Pharmaceutical, Health and Medical M&A

  • TPG Global LLC and Abraaj Healthcare Group Hospitals. (AHG) which owns subsidiaries that provide healthcare services at hospitals and medical clinics in Kenya (Nairobi and Kisumu).

Logistics, Engineering, & Manufacturing M&A

  • A joint venture involving Bollore Transport & Logistics Kenya, Nippon Yusen Kabushiki Kaisha, and Toyota Tsusho Corporation was incorporated in Kenya in January 2017 and will result in Bollore NYK Autologistics that will provide inland transportation, storage and distribution of new or used vehicles arriving at any other port in Kenya and any vehicles manufactured and/or assembled in Kenya.
  • The formation of a joint venture between CFAO (a wholly-owned subsidiary of Toyota Tsusho) and tyre-manufacturer Compagnie Financiere Michelin SCmA (Michelin) that is intended to develop a distribution network to promote tyre sales and tyre-related services in Kenya and Uganda.
  • The proposed merger between Augusta Acquisition B.V., a subsidiary of Uber International, and Careem Inc, a technology platform in the greater Middle East. Uber has operations in Egypt, Kenya and Uganda while Careem operates in 125 cities across 15 countries, including Egypt and Sudan. The COMESA Commission found Egypt is where there was an overlap of the two companies in and approved the deal with some interesting conditions on fares, safety, surge pricing, driver compensation, data sharing, among others.

Real Estate, Tourism, & Supermarkets M&A

  • A proposed merger involving African Wildlife Holdings partnership and Wilderness Holdings. Wilderness operates under various brands including Wilderness Safaris, Wilderness Air, Governors’ Camp Collection and Governors’ Aviation in Kenya, Rwanda, Zambia and Zimbabwe.
  • A Mauritius private equity fund, through Amethis Retail, intends to acquire a minority stake in Naivas International and will indirectly gain control of the target’s Kenyan subsidiary, Naivas, a family-owned, leading supermarket chain with 58 stores. In Kenya, Amethis has invested in and indirectly controls Chase Bank, Ramco Plexus and Kenafric.

Telecommunications, Education, Media & Publishing M&A

  • The proposed merger involving Airtel Networks Kenya and Telkom Kenya, in which Telkom Kenya end up with a 49% shareholding in a renamed Airtel-Telkom was approved as it was not likely to affect competition within COMESA.
  • The acquisition of 100% of Eaton Towers Holdings by NYSE-listed ATC Heston. Both have operations in Kenya and Uganda.
  • Raphael Bidco Ltd, which is owned by CVC Funds, is acquiring joint control of GEMS, an international education company. It is listed as being active only in Egypt, but there are GEMS schools in East Africa.

Absa AFM Index shows African countries improve in investor readiness

The 2019 Africa Financial Markets Index report that was released in October, found that several countries had closed gaps to perennial leader South Africa, improving on several measures such as financial transparency, local investor capacity, legal protection and macroeconomic opportunity.

Showing just how much African countries have made progress, while only six had scored better than 50 (out of the maximum 100) in the first index in 2017, last year ten countries did that, and in 2019, thirteen countries scored better than 50 points.

The ranking of countries in the Absa 2019 Africa Financial Markets Index and some of the market/investor activities highlighted in the report include:

South Africa (and also number 1 in the last index): Is the top country in 5 pillars after it regained the lead from Kenya on the foreign exchange one. The JSE also launched a Nasdaq clearing platform.

2 (4) Mauritius: Has diversified its economy from sugar and textiles to tourism and financial services. It leads the continent in pension assets under management of $4,331 per capita. It has also established a derivatives trading platform.

3 (3)Kenya: More detail on Kenya’s ranking and investor initiatives here.

4 (6) Namibia: Bank Windhoek issued a green bond in the year. One concern is that the country lacks sufficient financial markets experts.

5 (2) Botswana: The country’s exchange has large market capitalization, but this is mostly due to dual-listed mining companies that have low trading volumes. They also formed a financial stability council to coordinate different regulators and plan to launch a mobile phone bond product like Kenya’s M-Akiba.

6 (5) Nigeria: Showed big improvement as they have liberalized their exchange rate and built up reserves. Pension funds were freed up to invest in infrastructure, bond, and Sukuk funds.

7 (15) Tanzania: Created a tax ombudsman and also repealed an amendment that had made it illegal to publish statistics that were not approved by the Government.

8 (8) Zambia: Improved budget reporting. But reserves dropped due to high interest payments on external debt as mining production has declined.

9 (11) Rwanda: Share of exports grew, and an agreement was reached with the IMF to accelerate urbanization and financial markets.

10 (10) Uganda: Market trading activity dropped from $25 million to  $11 million and one of the largest stockbrokers opted not to renew their operating license.

Others were:

11 (16) Egypt: Topped the pillar of macro-economic opportunity due to export gains and declines in non-performing loans. Moody’s also upgraded their banking system ratings.

12 (9) Morocco: Now publishes monetary policy announcements and data releases. Has an active financial market but limited availability of financial products. It plans to launch an agricultural commodities exchange.

13 (7) Ghana: Is seeking to cap foreign holdings of government debt. The Bank of Ghana merged small banks and revoked licenses of others that did not meet minimum capital requirements.

16 (13) Ivory Coast: Enabled more-accessible budget reporting and plans to launch an agricultural commodities exchange for 2020.

20 (20) Ethiopia: Announced plans to launch a stock exchange for 2020, with aims to have significant privatization events including the listing of telecommunication companies. Local banks are also adopting international financial reporting standards. But the requirement that their pension funds can only invest in government securities is considered an impediment.

Also on the index are Seychelles (ranked 14), Mozambique (15), Angola (17), Senegal (18) and Cameroon (19). The 2019 AFM Index report was produced by the Absa Bank Group and the Official Monetary and Financial Institutions Forum (OMFIF) and it can be downloaded here.

Kenya remains the third most attractive financial market in Africa

The third edition of the Africa Financial Markets Index report that was released in October 2019, found that Kenya had retained its third position thanks to industry efforts to improve opportunities for investors.

The AFM index by the Absa Bank Group and the Official Monetary and Financial Institutions Forum (OMFIF) is a useful tool designed to gauge Africa’s readiness to fund itself and its growth plans. It reviews 20 African countries across six pillars of market depth, access to foreign exchange, market transparency, tax & regulatory environment, the capacity of local investors and macroeconomic opportunity and the legality & enforceability financial agreements.

Overall, South Africa remained in first place, topping four of the six pillars, while Mauritius topped the legal agreements measure and Egypt topped the macro-economic opportunity one.

Speaking on trends across Africa observed in the 2019 AFM Index, Jeff Gable, the Head Of Research at the Absa Group, said there were several exciting financial markets events across the continent this year. These included the first-ever sovereign blue bond by Seychelles to support marine projects, Nigeria selling a 30-year government bond that was four times over-subscribed, Uganda halving the withholding tax on government bonds from 20% to 10%, Zambia launching a primary dealer system and Ethiopia announcing plans to launch a stock exchange in 2020.

On the AFM Index 2019, Kenya, along with Botswana and Namibia, increased to above 50 in the first pillar of market depth. The value of bonds listed in Nairobi doubled from $8.8 billion to $17.5 billion, mostly due to sovereign issues. However there remained a need to have more active trading of bonds and equities, and Kenya has rolled out an M-Akiba infrastructure bond targeted at retail investors that they can access for just over $30.

Kenya came second behind Mauritius on the pillar of enforceability of market agreements. It also scored well for its new insolvency law which encourages rehabilitation of distressed firms, and its endorsement of standard financial master agreements (ISDA GMRA, GMSLA).

However, it lost the lead on the foreign exchange pillar to South Africa. While the country has built up high foreign exchange reserves, up from 4 months to 5.8 months of import cover, the International Monetary Fund (IMF) had reclassified Kenya’s exchange rate regime from ‘floating’ to ‘other managed arrangement.’  The AFM Index has continued to highlight the risk of rigid management of foreign exchange by some African countries and pushed for more flexible regimes.

On the third pillar of market transparency, Kenya’s tax code was found to be supportive, but the country had raised taxation on mobile cash transactions creating some uncertainty. There has also been some recent progress as, in the last few weeks, capital markets stakeholders have convinced the Government to retain the country’s capital gains tax at 5%, and set aside an amendment in the 2019 Finance Bill that had proposed to change it to 12.5%.

The country was also flagged for its capping of interest rates which had shrunk credit availability and weakened companies profitability.

Kenya’s Treasury Cabinet Secretary, Ukur Yatani, in a speech read on his behalf at a Nairobi launch of the report, spoke of the need for Kenyans to save and invest to fund economic growth. Even with the country attaining formal financial inclusion of 82%, up from 26% in 2006, more could be achieved through financial markets.

He said that the country had established a Nairobi International Financial Centre authority to attract capital to Kenya and with the movable property security rights in place, the government was now supporting the setup a Kenya Mortgage Refinance Company that would make it easier for banks to advance funding towards affordable home ownership.

He noted that President Kenyatta had declined to assent to the Finance Bill until Parliament reviewed the cap on interest rates which, evidence showed, had resulted in a negative impact on the economy. Kenya was one of the few countries on the index which saw bank non-performing loans go up, from 10 to 11.7%, last year. He hoped that Members of Parliament would now view the President’s determination as an opportunity to give a stimulus to the economy.

Jeremy Awori, CEO of Barclays Bank of Kenya said that the country had ranked favourably, rising from 5th, when the first AFM Index report was published in 2017, to 3rd in 2018, a position it retained this year. This was due to efforts by industry stakeholders and regulators who had also worked with the Capital Markets Authority to launch a 10-year master plan for the industry. He added that, after Kenya had come up with new regulations for exchange-traded funds, Barclays Kenya had launched the first ETF in the region – New Gold which had performed well since its introduction.

He said that, as Barclays transitions into the Absa brand in Kenya and across Africa, customers will not feel any change in products or services and that they were working to upgrade systems to ensure they remain accessible from anywhere in the world. He added that strong domestic financial markets were a cushion to economic headwinds and that Barclays would soon launch a new wealth and asset offering in Kenya.

Charles Muchene, Chairman of Barclays Bank of Kenya, saluted Paul Muthaura, the outgoing CEO of the Capital Markets Authority, who has led the organization to be recognized as the most innovative capital markets regulator in Africa for four years in a row.  He said that a new ATS platform,  introduced at the Nairobi Securities Exchanges, had broadened the capacity of traders, enabling them to do multiple transactions on the same day, while also supporting securities lending and derivatives trading.

Later, in speaking about the capacity of local investors, the CMA CEO spoke of the need to educate, and shift, more retail investors towards long-term gains from managed funds. This would cushion them from the tendency to speculate on quick returns from land, gambling, and pyramid schemes.

Geoffrey Odundo, CEO of Nairobi Securities Exchange, said they had held some positive engagements with the National Treasury to get more big government listings to the NSE. He also said that they now have an Ibuka program to nurture small companies to be more attractive for investments, adding that this was part of a plan to increase its equities turnover from 6% of the total market to 15% in a few years. The NSE now had 12 asset classes including equity and index futures launched earlier this year and had been voted the second most innovative exchange in Africa.

The 2019 AFM Index report can be downloaded here along with a databank summary of the different country rankings under each of the six pillars.

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

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), crypto-currencies, distributed ledger technology (blockchain technology), artificial (e.g. algorithmic trading), big-data, RegTech credit rating, online lenders, and online banks. 

They give safe legal status and a 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 other 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.

EDIT:  In December 2018, The CMA published draft rules to access the sandbox space for the public to review and give feedback on. Some clauses in the proposed rules include payment of a non-refundable fee of Kshs 10,000 (~$100), submission of company registration documents, CV’s of all founders and key management personnel and list things like the customer acquisition plan, what they propose to test in a live environment and how that will help accelerate the depth of Kenya’s capital markets. During the sandbox phase, companies are to report on fraud attempts, customer complaints and lessons learnt and these shall remain confidential. They may also be suspended from the environment for things like data breaches.

EDIT: In October 2020, the CMA approved the exit of Pezesha Africa, granting it a ‘No Objection’ which allows it to .. operate its debt-based crowdfunding platform in the Kenyan capital markets, after a successful one-year testing period in the Regulatory Sandbox.