Category Archives: ESOP

CDC Group buys Kenya’s ARM Cement

We now have more details now about the CDC purchase of ARM Cement.

  • CDC African Cement (CADAC)  (registered in Guernsey), wholly owned by CDC Group, will pay Kshs 40 per share for 353.7 million shares  – an amount of Kshs 14.1 billion  (~$139 million) to  acquire $41.66% of ARM.
  • Shareholders will have to vote to increase share capital of ARM.
  • CADAC will also  enter an agreement with Pradeep Paunrana (ARM’s CEO) and Amanat Investments (the main family shareholding)  (who owned 46% of the company, prior to the CDC investment) to vote in concert with CDC.
  • ARM also has to get its lenders and  employees to sign on (The Employee Share Ownership Plan – ESOP had issued 21 million shares and owns about 4.6% of ARM).
  • The CADAC statement indicates they don’t intend to takeover the company, but there’s no comment on if future plans may include a delisting of ARM, which has cement operations in Kenya, Rwanda, Tanzania and South Africa.
  • The deal is planned to be complete by July 2016.

$1 = Kshs 102.

ARM shares are trading between Kshs 36 – Kshs 37.

CBA Bond

The Commercial Bank of Africa (CBA) has an ongoing medium term note (MTN) bond issue to raise Kshs 8 billion ($90 million) with green shoe option for another Kshs 2 billion. Investors in the MTN bond will receive 12.75% paid semi-annually for the next six (6)  years.

  • The minimum investment is Kshs 1 million ($11, 235) for the MTN that is priced in multiples of Kshs 100,000 thereafter and runs from  26 November to 10 December. Other recent financial bonds in Kenya include CFC raising Kshs 5 billion, an 11% infrastructure bond from the Central Bank of Kenya (minimum investment was Kshs 100,000), NIC Bank’s 12.5% bond which was oversubscribed by 30% in raising Kshs 6.5 billion (90% of which came from institutional investors), and Britam also got Kshs 6 billion (minimum investment was Kshs 100,000 for the 13% bond).
  • In case of an over-subscription those who apply for more than Kshs 100 million ($1.1M) of the MTN will get priority in allocation.
  • The CBA bond will be listed on the fixed income securities market segment of the Nairobi Securities Exchange
  • CBA which has 23 branches in Kenya, 12 in Tanzania, and 1 in Uganda, plans to use the funds to strengthen Tier 2 capital and fund regional expansion. CBA is looking at partnerships with other institutions to make it a stronger regional financial services platform.
  • The MTN bond is budgeted at Kshs 67 million (0.67% of the target for the fund-raising) and this is split as: arrangement fee – Kshs 40M(CBA capital), legal fee – 4M (Coulson), Accountants – 3.5M (PWC) , marketing – 10.5M (Ogilvy), and the NSE gets Kshs 0.8M while the Capital Markets Authority (CMA) gets Kshs 8 Million.
  • CBA’s EPS was Kshs 15.22 in 2013, with a 4.38 DPS, payment of over Kshs 1 billion. Shareholders include a CBA Employees Share Scheme (ESOP) who own 2.5%.

Nairobi Securities Exchange IPO

The Nairobi Securities Exchange (NSE) launched its IPO on July 23. It runs up to August 12, 2014 and they are selling 66 million shares at Kshs 9.50 per share (with a minimum investment of 500 shares costing Kshs 4,750) and the NSE plans to raise Kshs. 627 million (~$7.3 million).

Excerpts from the prospectus and other sources. 

  • The NSE borrowed Kshs 300 million from Kenya Commercial Bank to part finance the purchase of the Westlands building that now houses the exchange. (The interest rate is minus 2 the bank’s base rate). Part of the funds raised from the IPO will be used to repay the Exchange’s mortgage debt.
  • The Dar es Salaam Securities Exchange has completely divested from the NSE and CDSC.
  • The NSE has about Kshs 1 billion assets and an EPS of 10.70. They had earnings of 622 million and a profit of Kshs 262 million in 2013. The NSE owns Kshs 20 million worth of  Safaricom bonds and Kshs 15 million of Housing Finance ones
  • The IPO is budgeted to cost Kshs 40.8M
  • Ahead of the IPO in which 194 million (M) shares are being listed, the Kenya Government and the Investor Compensation Fund each own 6.56 million shares and 22 stockbrokers each own 4.08M shares – for a total of 128.6M shares. 2.5 million shares are reserved for employees of the exchange (The NSE  has 38 employees and 5 senior managers). 
  • KRA assessed and charged them Kshs 19m for 4 years of back taxes, of which Kshs 15m has been paid
  • One of the options the Exchange is contemplating is to establish regional exchanges in Somalia, the Democratic Republic of Congo (DRC), South Sudan and Burundi 
  • The NSE expects to introduce the REITs and ETFs, and there are also plans to introduce the a Derivatives Market this year. The NSE also plans to upgrade of the Automated Trading System (ATS) and the Bonds Trade Reporting System with some of the proceeds from the IPO.

Access Kenya EGM

This morning  saw what was likely the very last shareholders meeting of Access Kenya, as a public company. The Company Secretary reported receiving 11,207 proxies representing 85% of the shareholders at the extraordinary general meeting (EGM) that was to vote on the de-listing of all the issued 218 million ordinary shares of the company form the Nairobi Securities Exchange following a buyout offer that the board of directors had already endorsed and which 75% of the shareholders had voted in favour of.

A few of the retail shareholders present asked lots of questions about the deal, and it seemed they were unhappy that just over five years after they bought shares in the company at an IPO, after which the share had risen to 38 shillings, before dropping to Kshs. 4, and getting low inconsistent dividends, in between, they were now being evicted from the company.  

Some questions/topics raised:
– Why sell out for Kshs 3 billion (~$35 million) that could easily have been raised locally? The Directors 
– Was the a capital markets (CMA) rule on the minimum number of years that a company had to remain listed after an IPO? The directors said there was none, and the regulators had approved all decisions taken by the directors in the deal 
– Some shareholders said they had bought shares at about Kshs. 18, and were taking a big loss. Directors replied that Kestrel Capital, as an independent advisor, said Kshs. 14 was a good price to take and that Kshs 14 was a big improvement  from the Kshs 4 low in the past year, and Kshs. 9 when the deal was announced and shares frozen
– Were the needs of minority shareholders considered in the negotiations, and why didn’t the majority shareholders simply reduce their stakes, instead of selling the company outright?
– Why was the offer to retail shareholders structured as a ‘unconditional, mandatory one? The directors said that no one was being forced out of the company, and that any shareholders who wanted to remain could do so, and they will still receive annual audited accounts from Access Kenya..they noted that there were still some shareholders of Unilever Kenya which delisted  in 2009
– What is the fate of employees who own shares in the ESO..and will they be arm-twisted to vote the shareholders acceptances past the 90% threshold? The directors said Dimension Data were a $6 billion company who’s parent was a $100 billion one with ambitious plans for Access Kenya and Eastern Africa.

The final results of the shareholders voted will be tabulated by Deloitte and released in two days – and payments should be made to shareholders in September 2013. 

NSE Moment: Britak, Transcentury, Kigali Bank, Stima SACC0

This week we were reminded that there’s been no IPO at the Nairobi Stock Exchange (NSE) since 2008 (Co-Op Bank) and the events in the last few days were the fulfillment of initiatives that companies like Britak and Transcentury had initiated earlier in the year.

Britak: The British American Investments Company Kenya kicked off their IPO this week. The group had Kshs 9 billion in income, and pre-tax profit of Kshs 2.8 billion in 2010. With group assets of Kshs 25 billion, it is second only to the ICEA at 27 billion.

They are being sold at Kshs 9 with an allocation criteria of 30% East Africa retail, 30% foreign, 37% institutions, 3% employees, agents, and individual policy holders and can be obtained at British American branches, Equity bank , Standard Chartered (and partner Postbank), NIC, CBA banks and stockbrokers.

The minimum for retail investors is 2,000 shares (Kshs 18,000 while for institutions it’s 10,000 shares (Kshs 90,000 or ~$1,000). The IPO is budgeted to cost Kshs 320m ($3.5M) with estimated payments to transaction advisor 24M, sponsoring broker 6M, legal costs 9M, selling commission 87M, CMA 9M, NSE 1.5M, PR 67M, and advertising 90M.

Of the Kshs 5.9 billion to be raised, 1 billion will be for regional expansion (Tanzania, South Sudan, Rwanda), 1.2 billion will be for Kenyan operations (set up a frontier investment fund, new branches), 2.5 billion for the housing & mortgage sector aimed at affordable housing models, and 750 million will go to pay off a loan at CBA bank that was used to purchase shares in Equity Bank (Britak own 11% of equity and 16% of housing finance banks).

The Britak IPO runs from 12 July to 5 August and they have also reached out to bloggers, with forums and their own blog posts such as this tale of their CEO’s initial investment.

However, there are some concerns that with their 45-year history and strong brand name (-pay Kshs 18 million a year to British American), this is a retail magnet IPO and the sale of 650 million shares (30% of the company) is likely to be over-subscribed, and the dividend paid (Kshs 200m in 2010) is likely to be safaricom-ish (small)

The company has also called for the Government to extend current tax incentive for newly listed operating companies to also include holding companies (like Britak)

Transcentury: The investment group which has had a spectacular climb and string of investments, most notably with East African Cables listed their shares at the NSE on July 14.

Their shares had been trading at an OTC exchange and were listed at the NSE at Kshs 50, which worked out to a P/E ratio of 38

The Group also has a Mauritius convertible bond issued to finance the restructuring of Rift Valley Railways and investment in geothermal and other energy projects, but which also has the potential of diluting investors shareholding by over 1/3. (150 million shares available to bond holders over the next 5 years prices between 40 and 50)

Still, Transcentury has been am inspiration to other investment groups, albeit not as well connected to initiate projects with more risk such as energy real estate, and offshore. The introduction is budgeted at Kshs 20 million (220,000 – CMA 5M, NSE 1M, advisor 8M, stockbroker 4M) and the PDF prospectus is ‘protected’ so you can’t copy sections of it.

Family Bank: Their long dalliance with the NSE is about to be fulfilled as their shareholders will next month approve a listing at the exchange. They will also vote on an ESOP for managers and 1 % transfer of shares of the company to the new CEO. It has since emerged that he is purchasing the shares at a discount as part of his employment package.

Stima SACCO: Away from NSE is Stima SACCO that is in the process of raising funds of about Kshs 500 million ($6 million) . They have advertised in newspapers (even on TV), which may land them in trouble with the CMA, for selling shares to the public without adequate information. At Kshs 100 per share, individuals can buy 200 shares at a minimum (Kshs 20,000).

Kenya Airways: Nothing yet from the airline who were expected to approach shareholders for new funds. The government has allocated funds to invest and defend their 26% stake an the airline which has since signed a deal for new Embraer aircraft to grow their African footprint.

Bank of Kigali: The Bank of Kigali is aiming to raise $62 million from new investors in an IPO that runs from 30 June to 29 July. The Bank control 25-30% of the banking sector in Rwanda; it had profit of 8.6 billion francs ($14 million) in 2010 on assets of 197 billion francs ($324 million) – equivalent to a smaller mid-size Kenyan bank

300 million shares are on offer, and the minimum is 200 shares per person at 125 francs per share ($0.075 or Kshs 18.65). They are open to cross-border investors and the allotment will be to 27% retail East Africans, 2.4% to employees & directors, 15% – East African institutions, 15% to Rwanda institutions and 40% to international investors.

The Rwanda government owns 66% of the bank, and the other 1/3 are owned by the social security fund of Rwanda. 16 billion francs ($27 million) will go to the Government for reduction of its shareholding and 20.8 billion francs ($34 million) will go to the bank to reduce its assets & liabilities maturity gap and grow its loan book and operations (from 33 to 60 branches). This will result in new shareholders owning 45% of the bank, the government 30% and the social security fund with 25%

Other: The IPO prospectus lists
– lawyers acting for the bank, number of cases they have and prospects of loan recoveries
– lawsuits filed against the bank by name (former employees, debtors opposing auction)
– list of subcontractors and related partners such as visa card providers, SMS partners, providers of credit reference and lines of credit etc.
list of properties owned and rented by the bank and rent amounts. Also Rwanda depreciate building over 5 years, after each revaluation

Risks & Exposure – one of the operational risks is scarcity of qualified personnel in Rwanda
– commerce restaurants & hotels account for 46% of the bank portfolio while construction was 29%. Also 11% of loans were to a single group and records of large are available for review to persons who sign non-disclosure agreements
– Kenya is the country’s largest trading partner: Rwanda exports 33% to Kenya and imports 16% back.

Staff: – All staff are entitled to bonus and in 2010 this totaled 8% of profit, which that was shared by 441 staff (out of 454), and the average award was $3,200.
– The bank also runs an in-house dispensary and provides full medical cover to staff and 4 dependents
– The oldest director was born in 1960, the youngest in 1977. At senior management, the managing director is the oldest employee at 54, while the head of finance is the youngest at 31.