Category Archives: Ghana

Bank Closures in Ghana and Tanzania

August 2 saw bank closures in Ghana and Tanzania with interesting back stories on the institutions from regulators in both countries.

Tanzania: the regulator Bank of Tanzania (BoT) issued notices that covered two separate cases. BoT took over Bank M, closing it down for three months and appointed a statutory manager (in place of the directors and management of the bank) who will determine the future of the institution. The statement (PDF) read that this was done for reasons that “..Bank M has critical liquidity problems and is unable to meet its maturing obligations. Continuation of the bank’s operations in the current liquidity condition is detrimental to the interests of depositors and poses systemic risk to the stability of the financial system.“. Two years ago, Bank M distanced itself from M Oriental Bank in Kenya.  

The Bank of Tanzania also published an update (PDF) on other banks whose licenses it had revoked in January 2018. Of these earlier bank closures, three of them had been given up to 31 July to increase their level of capitalization and as a result, the BoT had approved a decision to merge one of the affected banks – Tanzania Women’s Bank with another bank – TPB which will result in all its customers, employees, assets, and liabilities transferring to TBP Plc . Meanwhile, two of the other banks, Tandahimba Community Bank and Kilimanjaro Cooperative Bank managed to meet the set minimum capital requirements and have been allowed to resume normal banking operations.

Ghana: Meanwhile in Ghana, the regulator Bank of Ghana revoked licenses of five banks – uniBank Ghana, Royal Bank, Beige Bank, Sovereign Bank, and Construction Bank – and appointed a receiver manager to supervise their assets and liabilities as a combined new indigenous bank, called the Consolidated Bank. All deposits at the five banks have been transferred to the new bank and customers will continue banking at their usual branches which will now become branches of Consolidated. Also, all staff of the five banks will become staff of Consolidated, except for the directors and shareholders of the five banks who will “no longer have any roles”

The Bank of Ghana statement reads that .. “to finance the gap between the liabilities and good assets assumed by Consolidated Bank, the Government has issued a bond of up to GH¢ 5.76 billion. ” and goes on to give some details and background of the problems encountered at the former five, leading to the subsequent bank closures:

  • uniBank: The Official Administrator appointed in March 2018 has found that the bank is beyond rehabilitation. Altogether, shareholders, related and connected parties of uniBank had taken out an amount of GH¢5.3 billion from the bank, constituting 75% of total assets of the bank. Over 89% of uniBank’s loans and advances book of GH¢3.74 billion as of 31st May 2018 was classified as non-performing, in addition to amounts totaling GH¢3.7 billion given out to shareholders and related parties which were not reported as part of the bank’s loan portfolio. uniBank’s shareholders and related parties have admitted to acquiring several real estate properties in their own names using the funds they took from the bank under questionable circumstances. Promises by these shareholders and related parties to refund monies by mid-July 2018 and legally transfer title to assets acquired back to uniBank have failed to materialize.
  • Royal Bank:  Its non-performing loans constitute 78.9% of total loans granted, owing to poor credit risk and liquidity risk management controls. A number of the bank’s transactions totaling GH¢161.92 million were entered into with shareholders, related and connected parties, structured to circumvent single obligor limits, conceal related party exposure limits, and overstate the capital position of the bank for the purpose of complying with the capital adequacy requirement.
  • Sovereign Bank:  Subsequent to its licensing, a substantial amount of the bank’s capital was placed with another financial institution as an investment for the bank. The bank has however not been able to retrieve this amount from the investment firm with which it was placed, and it has emerged that the investments were liquidated by the shareholders and parties related to them. Following enquiries by the Bank of Ghana, the promoters of the bank admitted that they did not pay for the shares they acquired in the bank. The promoters of the bank have since surrendered their shares to the bank, while the directors representing those original shareholders have since resigned. The Bank of Ghana has concluded that Sovereign Bank is insolvent, and that there is no reasonable prospect of a return to viability.
  • Beige Bank: Funds purportedly used by the bank’s parent company to recapitalize were sourced from the bank through an affiliate company and in violation with regulatory requirements for bank capital. In particular, an amount of GH¢163.47 million belonging to the bank was placed with one of its affiliate companies (an asset management company) and subsequently transferred to its parent company which in turn purported to reinvest it in the bank as part of the bank’s capital. The placement by the bank with its affiliate company amounted to 86.86% of its net own funds as at end June 2018, thereby breaching the regulatory limit of 10%. Also, the bank has not been able to recover these funds for its operations.
  • Construction Bank: the initial minimum paid up capital of the bank provided by its promoter/shareholder, was funded by loans obtained from NIB Bank Limited. An amount of GH¢80 million out of the amounts reported as the bank’s paid-up capital and purportedly placed with NIB and uniBank, remains inaccessible to the bank – and the bank’s inability to inject additional capital to restore its capital adequacy to the minimum capital of GH¢ 120 million required at the date of licensing threatens the safety of depositors’ funds and the stability of the banking system.

MTN Ghana IPO

MTN Ghana the leading Telco in that country has just launched an IPO as part of a requirement for obtaining a 4G license in 2015 and which has resulted in the offer of 35% ownership in the company to Ghanaian investors and with the shares listed thereafter.

MTN Ghana: It is the largest telco company in Ghana with 17.8 million subscribers, and with an estimated 47% market share and 12 million data customers. MTN Ghana had 2017 revenue of  GHS 3.42 billion (about $728 million) and a net profit of GHS 715 million ($152 million). They target is to pay put 60% of profit as dividends. It is part of the MTN Group that has 217 million customers across 22 Africa and the Middle East countries such as Uganda, South Sudan South Africa Sudan (not Kenya but for a corporate business unit), and it is the largest telco in 14 of these countries.

Looking at the IPO documents in an A to Z format:  

Ghana:  Ghana is the second biggest economy in West Africa. It has a population of 28 million, and a recent average economic growth rate of 7.0% per year. Ghana has a mobile penetration of 130% (38 million customers), and besides MTN, other companies are Airtel, Tigo, Vodafone and Glo.

GSE: The MTN Ghana shares, which will trade as MTNGH, will be listed on the Ghana stock exchange, which operates three markets including a main market with 34 listed equities, an alternative market and a fixed income market.

IPO Applications: Ghanaians can subscribe for the new shares through MTN USSD app, online, or at MTN branches. Payment options are by cash, cheque, MTN money, bank transfers and (Visa & MasterCard) debit cards, while payment by credit cards and postal orders are not allowed. Customers (who are clients of IC Securities) will also be able to trade/sell their share by USSD on the phone app

Mobile Money: 11.6 million customers use it to do a variety of things including money transfers (they have 90,000 agents/merchants), buy airtime, bill payments, bulk payments, pay fees to schools on the platform, save (and invest), “TBill4All” (partnership with Ecobank Ghana enables buying of treasury bills), “Y’ello” save (partnerships with Fidelity Bank for savings), international remittance, send money to bank accounts, buy “mi-life” insurance and do ATM cash-outs at machines at 8 of the 17 banks that MTN partners with. “MoMo” has also used for payment in the Google store since December 2017.

Shareholding changes: Ahead of the IPO, MTN Group owns 97.65% and a company called Zent 2.35%; after the IPO it is envisioned that MTN Group will have 63%, Zent 1.91% and new investors 35%. The minimum target to be deemed a success is 10% i.e uptake of 0.35 billion GHS ($75 million) – and allocation to non-Ghanaians will be limited to 5% of the issues shares

Taxes: MTN Ghana pays about 3% of Ghana government tax revenue and supports 500,000 jobs through its ecosystem of suppliers. It paid 1.1 billion cedis ($225 million) in 2017 as income tax, communication fees, withholding, customs duties, PAYE and other taxes.

Threats: The document cites threats to MTN Ghana growth plans including; battery theft (from cell sites), fibre cuts (average 3 per day on their 5,000 kilometre nationwide fibre network), SImbox fraud, load shedding (electricity power shortages), OTT calls and competition from other Telco’s.

 Timelines: The IPO runs for nine weeks from 29 May to 31 July 2018. There will be regional sideshows for two weeks in June, and allotment and listing are planned for on 5 September 2018. If there is an oversubscription, refunds will be from August 8.

Transaction advisors: The sponsoring stockbroker is IC securities, and receiving agents are all stockbrokers and receiving banks are almost about 20 Ghanaian banks – such as Access, Ecobank, Barclays, UBA, FBN, GT Bank, Societe Generale, Standard Chartered, Stanbic, Zenith, FBN, GN, and Fidelity.

Valuation: They are offering 4.63 billion shares at GHS 0.75 per share (about $0.16 or Kenya 16.1 per share ) and MTN Ghana can employees get a 10% discount. The offer documents by MTN Ghana compared its implied value from the IPO of about $2.2 billion (GHS 10 billion) to other peer Telco’s including MTN Group (South Africa) $18.6 billion, Bharti Airtel (India) $26.2 billion), Etisalat (UAE) $40.5 billion), Safaricom (Kenya) $11.5 billion), Itissalat Al-Maghrib (Morocco) $14.3 billion, Sonatel (Senegal) $4.0 billion, and Vodacom Group (SA) $22.6 billion) .

Kenya Airways and Delta Codeshare

EDIT 15 August 2018  Delta Air Lines entered into a codeshare partnership with Kenya Airways. Effective August 15, Delta’s code will be placed on Kenya Airways’ flights from Amsterdam, Paris, London, and Accra to Nairobi, enhancing connectivity and providing customers with a one-stop seamless travel experience from the United States. In addition, Delta will place its code on Kenya Airways’ services to more than 10 key cities across Africa, including: Addis Ababa, Ethiopia; Lilongwe, Malawi; Maputo, Mozambique; Johannesburg, South Africa and Djibouti City, Djibouti.

May 10 2018 Delta Air Lines and Kenya Airways have applied to the US Department of Transportation with an expedited request for the two airlines to be expeditiously granted reciprocal codeshare rights for each others’ flights.

The application (PDF) dated 7th May, applies to Delta and Delta Connection flights in North America, Latin America, and the Caribbean to carry the Kenya Airways (KQ) code, while the Kenya Airways will immediately place Delta’s code (DL) on flights between Nairobi to/from Johannesburg (South Africa), Lilongwe, (Malawi), Djibouti (Rep. of Djibouti) and Maputo, (Mozambique).

Delta routes will be part of the codeshare.

Delta which reaches 325 destinations, currently has services to Dakar (Senegal), Lagos, Accra, and Johannesburg, while Kenya Airways is scheduled to start flights to New York in October 2018. There is no mention of Air France/KLM, who have been Kenya Airways long-term joint-venture partner for two decades, in the new US codeshare application.

The new codeshare arrangement which covers “persons, property, and mail,” is an expansion of a previously approved reciprocal codeshare arrangement between Northwest Airlines and Kenya Airways for flights originating in Kenya and North America. Northwest merged with Delta in 2009. The new codeshare will also extend to all Delta Connection regional affiliate airlines (namely Compass Airlines, Endeavor Air, ExpressJet Airlines, GoJet Airlines, Republic Airline and SkyWest Airlines).

Aside from Kenya, Ethiopian Airlines, which flies to several American destinations of Washington (DC), Newark, Los Angeles, Chicago, Toronto (Canada), Buenos Aires (Argentina) and Rio de Janeiro & São Paulo (Brazil) is also expanding its American network via routes in West Africa. The airline is reported to have secured rights to fly passengers to Houston via Accra, while it also confirmed that it had entered a codeshare with Air Côte d’Ivoire for flights to Newark via Abidjan.

Real Estate Moment: Ghana Cities, Old Taxes, & Pricey Mortgages

Ghana Cities: Last weekend, in Accra, the Renaissance Group launched two new cities that they plan to be the represent the future of urbanization in Ghana. The cities will be mixed-use areas where residents will live work and play and are in the same vein as Tatu City that was launched in Kenya, but which has been embroiled in a shareholder court case that has affected the pace of the project.

The concept of new cities that Renaissance is planning in Ghana, Kenya (Tatu on 2500 acres for  70,000 people),  Zambia (Roma park) and the Democratic Republic of Congo (Kiswishi on 6900 acres in Lubumbashi to break ground in 2012)  are based on some harsh realities; 

That African cities are fast growing (there are now 52 cities with over 1 million people), attracting rural migrants in search of employment and opportunity. There is a shortage of housing that is quality or decent, and many city  developments are unplanned. Also the infrastructure in many of these  cities is lagging  and authorities  will not be able to supply the services or utilities that residents need to have, while residents are facing ever longer commutes.
The two Ghanaian cities are King City (located 10km from Takoradi harbour in North Akase area) which will be built over 10 years in phases to house 90,000 people and Appolonia (located 30km from Accra and 20km from Tema Harbour) which will have retail and commercial developments on 2000 acres to house 88,000 people. Appolonia which is now having water & road development will break ground in 2013.
With both cities, local communities are investing their land in the deal. They are not selling, and remain as  equity partners with a stake to get a return on their undeveloped land and create employment for the youth and Renaissance team estimates that Accra itself will need another 5 – 6 cities to absorb its fast growth.

Both the cities will have high, medium, and low cost housing units and as the local mortgage continues to develop, the Renaissance team expect that most people should be able to afford homes. Ghana now has mid-market mortgages accessible over 10 years for about 80,000 Cedi’s (~$40,000 or Kshs 3.3 million).

  
Other mega real estate developments, blogs & articles 
Tips: Nahinga blogs about three real estate investing lessons from the Accra Mall project, that began in the early 1970’s namely

– (Speculate)/purchase real estate in the direction that a City can grow towards.
– Use professionals and maintain a high standard of quality.
– Have an exit strategy.
  

Garden City: The real estate sector in Nairobi is attracting more PE interest, and Actis’ portfolio includes ten institutional quality assets in seven countries in sub-Saharan Africa.

Following in that model equity firm Actis and partners including Game are to develop Garden City  which will include homes, an events arena, and the largest retail mall in East Africa. It has already attracted MassMart from South Africa and it will break ground in December 2012.

 Other Mega project opportunities

Railway prime real estate: The Kenya Railways Corporation plans to develop 385 acres of prime real estate land in Nairobi, Mombasa, and Kisumu, and is seeking investors to build hotels, residential housing, light industries and shopping malls.

Kisumu Floatel: A project is seeking investors  to establish a luxury passenger vessel as a 5-star floating hotel  on Lake Victoria that will accommodate 80 passengers.

Cautionary Tale: But sometimes mega projects can go wrong like this ghost city built by Chinese investors in Kilamba, Angola.
 

Taxation Time: The Kenya Revenue Authority has published some recent notices about taxation of rental income and other income  from real estate. While collection of value added tax (VAT of 16% ) has observed in the commercial building sector, some residential owners have ignored that, while others have not been aware that they are also supposed to pay income tax that graduates from 10% on net rent income of up to ~122,000  to 30% on all rental income over ~Kshs. 466,000 ($5,600)

There are also other treatment for non residents, partnerships, estates of deceased landlords and Kenyans living in the diaspora, as well as tax incentives available for  rental income on real estate investment trusts (REITs)  and on low income housing projects (less than $20,000).
 

Nairobi Real Estate Price Index: Hass Consult have just released their second quarter report on housing price trends.  They applauded the recent lowering of the Central Bank CBR rate (to 16.5%) as they noted that the impact of high interest rates will continue to be seen in a slow down in new building amid the high finance costs. They also noted that, while the pace of building in Nairobi is at a peak, it’s still a fraction of the housing demand, and while projects are coming to fruition, new ones are not being started as people who would be buying homes are instead staying in rental properties longer

The release of the report was sponsored by The Mortgage Company, a mortgage brokerage firm who also released a mortgage rate sheet for consumer comparison and which showed I&M bank had the lowest mortgage rates of 18%, while Equity, CBA and Family Banks had the most expensive at 24%.
  

Mortgage Chat: The Kenya Bankers Association which is turning 50 this year, just re-branded and launched a new outlook and new website. One of their new outreach programs will be a weekly mychat session with a bank CEO, and in a few weeks time,  they will feature Frank Ireri, the Managing Director of Housing Finance bank, who will chat about mortgages.

<b>TV Time</b>: Finally, there will be a new TV show coming to NTV in Kenya that will be devoted to real estate and will air on Sunday afternoons in a few weeks time.

Kenyan Guide to Accra

Adapted as a guest post with input from Coldtusker
(Pic via airliners.net)
Getting There: Accra’s Kotoka airport is small & dated [but efficient] airport but the corridors can be a challenge o navigate if you have lots of luggage. An interesting feature of the NBO-ACC flights are the traders [mostly women] with HUGE bags/packages [from shopping trips in Dubai or China] who you can’t even see while they push their carts. It’s like a moving wall of goods! These ‘packages’ are held together by well-sewn polypropylene [plastic gunias] material. Emirates flies A340, with larger cargo bays while Kenya Airways (KQ) lies much smaller 737-300s. Other planes on the tarmac include Delta & British Airways both which have daily flights.

No visa is needed for Kenyans, but the flights are costly such as Kenya Airways (KQ) which is $1,000 – Ouch!

Getting Around: A taxi trip from Kotoka to town costs about $5-7 but some hotels will provide transport if you let them know in time. The traffic from Kotoka to town even at the worst of times is much better than Peak hours in Nairobi. Taxis are the most common (for visitors) way to get around; they are easy to catch in most places, and unlike Nairobi, these guys drive around ‘looking’ for customers. The are ‘painted’ with AMA (Accra Metropolitan Area) zones & numbers and are easy to spot. Plus they honk at you if they think you need a ride. Fares are not fixed but negotiable. So negotiate! The ‘quality’ of these taxis varies from ramshackle taxis to new ones. Some have windows that don’t open while others have AC. Always ask since Accra can get hot & humid. Think Mombasa. Boda bodas are available, as are matatus or buses. It is quite safe to walk around in many areas during the day, but at night, always use taxis.

Money: Cedis [GHc] & Pesewas. US$ = GHc1.5 but some still quote the ‘old’ Cedi which is 10,000x the ‘new’ Cedi. You can change money in many places with few restrictions. Always confirm what you will get NET after all fees. There are several forex bureaus all over the place especially Osu.

Hotels: Tend to be pricier than Nairobi. A nice 3-star hotel costs $120-170 for a single room! The pricier ones have WiFi, swimming pool, etc. and include a good breakfast. There are others at cheaper rates of ~$60 in ‘busier & noisier’ neighbourhoods which look/feel better than our River Road ones.

Communications: Local calls are reasonable now that Airtel [lower per minute calls about US$ 0.06 per minute] is in Ghana, slightly more compared to Kenya. MTN is king, and while there are other options including Tigo, Airtel adverts are everywhere. You can use Airtel Kenya to receive calls at no charge, while SMS to Kenya were cost ~Kshs 5-10, which is very convenient. Local SIM cards used to be easy to get (from street vendors) but are now a hassle, as you have to be registered. Some hotels have WiFi, and there are many cybercafés.

Food & Bars: – The local food varies with region but expect Yams, Cassava, Peanut sauce to be part of any ‘local’ meal & much more enjoyable compared to eating Italian, Indian, Continental [available anywhere in the world]. There are also lots of Lebanese restaurants as there are a significant number of Lebanese live in Accra.
– Instead of bottled water, water is commonly sold by many vendors & firms in plastic pouches (costing Kshs 5/=). You ask for it as ‘pure water,’ which is useful for washing hands, or face in the heat.
– Beers: depends on where you go but costs between $1-5, and is widely available – though there is a significant Muslim population there so watch out for Ramadan month. Guinness Breweries (Diageo) is #1 followed by Accra Breweries (SABMiller). Multiple brands of beer.
– In bars, politics & business are common topics. Smoking is allowed indoors so you may prefer to sit outside. There are lots of small or regional political parties similar to Kenya, but since Ghana came out of a civil war less than 2 decades ago, they want ‘peaceful’ elections [but never say never]. Two-term limits apply but old presidents never fade away! Jerry Rawlings remains popular.
– Football: is HUGE, and as in Kenya, Arsenal & Manchester United fans are everywhere, but Arsenal seem to be the overwhelming favorite. Of course, everyone looks up to the Ghanaian footballers in Europe.

Business & Infrastructure: – There are problems with reliable electricity supply but projects are underway [by the Chinese] including thermal production. Just like Kenya, the hydropower plants face challenges with low water [Akasombo Dam]. Major hotels have diesel generators to alleviate this [good – as the weather is like Mombasa].
– Tema Oil Refinery has same (or worse) problems as Kenya’s KPRL. Ghana Oil is listed on GSE, but majority owned by the Government. Total has a strong position in Ghana.
– Nigerian banks seem to dominate the skyline but the largest bank is Ghana Commercial Bank [GCB] (similar to Kenya Commercial Bank). The bank is listed, with the Government as a major shareholder, and GCB is now going through a massive transformation.
– They have had flyover roads for many years, and there is a wonderful cement/concrete road from Accra to Tema that was built during Nkrumah’s days. It’s a cheap toll road (about Kshs. 20/=) for a distance equivalent to Nairobi-Thika. The drainage systems are much better than Nairobi or Mombasa. Tema is their Thika – an industrial town, but it has a port too.
– Newspapers: There are very many [English] papers but they are poorly written & seem rather sensationalist. Not as good as the Kenyan papers in terms of analysis, etc.
– Business Opportunities? For everyone & everything… if they can compete with China, India, France, UK, etc!

Sight-seeing & Shopping: Oxford St, in Osu, is very popular and has a vibrant nightlife. Seems relatively safe vs Nairobi’s CBD. There are other shopping areas but not much to buy that you can’t get in Kenya. Shopping in Accra tends to be very pricey since almost everything is imported but buy real [unsweetened] Cocoa as it is grown in Ghana. Daily spend is about $50 per day without hotel.

For sightseeing, there is the Nkrumah Circle/Gardens & such. The Presidential Palace is shaped like an Ashanti Stool of the Asantahene [built/donated by the Chinese?] It is visible from the Road & is an imposing structure which includes many government offices.

Shocker: Ghana imports milk! There is no ‘fresh’ milk but plenty of Italian & French UHT milk. Milo is also very popular, and is sold in small kiosks as well. Other imports include eggs.

Summary: In some ways Ghana is the Kenya of West Africa but the ‘socialism’ attitude is still strong so businesses need to beware.