Category Archives: ICDCI

Kenya gets Coal Power

Amu Power is a consortium of Gulf Energy on the technical side and Centum Investments who will do the funding side aims to be the only locally owned independent power producer and will produce 960MW  via coal power at the Kenyan coast.

The plant will be designed and built Chinese partners, supported by the ICBC, the world largest bank, with partial guarantees of the African Development Bank and built to World Bank standards for coal plants. The total cost of the project will be $2 billion and about  Kshs 36 billion will be spent in 21 months of construction around Lamu i.e. about Kshs 1.8 billion in a county that has an annual budget of Kshs. 1.6 billion

The backers are trying to work with the local community where there’s a local unemployment problem; they will need, train, and employ local certified welders plumbers, masons, bricklayers etc. Amu is planning to lease land from the Kenya Ports Authority in Kwasasi on the mainland (not on any of the Lamu islands) for their 100-acre plant that they will operate for 25 years. Coal plants are always set up next to large bodies of water and they plan for excess water they desalinate to be shared with the town people.

The Intention is to use coal from Kitui, Kenya once production there starts but the plant will be built to use South African grades of coal that may be imported in the interim. The founders say coal is necessary for industrial growth to a scale that hydro and renewable energy can’t match. South Africa is 94% powered by coal, the US 43%, China 81% and India 68%.

Shares Portfolio February 2015 

Compared to last quarter, the portfolio is up 26% while the NSE 20 share index is up 3% since November 2014.
snoop
The Stable
Bralirwa (Rwanda) 
Centum (ICDCI) —
Diamond Trust —
KCB ↑
Kenya Airways ↑
Kenya Oil ↑
Mumias ↑
NSE ↓
Safaricom ↑
Scangroup ↑
Stanbic (Uganda) ↓
Unga ↑
Changes
In: None
Out: None
Increase: None
Decrease: None
Best performer: Mumias Sugar  (up 58% this quarter), then Kenya Airways  (38%)
Worst performer: Stanbic – Uganda (down -5%) , NSE (-4%)
Looking Forward To
– Bank profits & dividends from banks (KCB, Diamond)
– More M&A deals from Centum

Reading the Tea leaves at Centum, Kenya Airways, Safaricom

Three companies that had their year-end in March 2014 have just published their annual reports which are now found on their individual websites. 

Centum
Has  a (massive ) 160 page annual report and 37,000 shareholders

  • At the August 2014 AGM shareholders will be asked to approve items including:
  1. The incorporation of Two Rivers Property owners Company
  2. The incorporation of Two Rivers lifestyle Centre limited Kenya branch
  3. The acquisition of 30% shareholding in Broll Kenya
  4. The acquisition of 73% shareholding in Genesis investment Managers Kenya
  5.  The incorporation of King Beverages
  6. The incorporation of Bakki Holdco
  7. The incorporation of Shefa Holdings

Other Notes

  • Rent income went from Kshs 6 billion in 2013 to Kshs 17 million in 2014?
  •  Other income was Kshs 443M, up from 12M
  • Cash flow went from Kshs 1.5B  to (minus)  -448<
  • The restated accounts have Kshs 237M paid to company shareholders, yet there are no dividends declared to be paid this year
  • For Genesis, they paid 1 billion for a company worth 153 million
  • They raised Kshs 4.1 billion in 2012 at about 13%
  • Centum Exotics owe Kshs 2 billion, Centum developments owe 1.8 billion and Two Rivers owe 2.5 billion to the company
  • 81% of investments are in Kenya, 13% in East Africa, and 5% outside and 87% of the groups assets are not held on any stock exchange. Centum’s investments include 17.8%  of General Motors East Africa, 15% of NAS Air  services, 27% of KWAL, 27% of Nairobi Bottlers & 43% of Almasi (Coca Cola bottlers), 35% of Platinum Credit, 1.6% of K-Rep bank, and 21.5% of AON Minet & 13.8% of UAP insurance companies

Kenya Airways (KQ)
130 page annual report and has 77 000 shareholders.

  • Are owed Kshs 156 million of Precision Airline of Tanzania (down from 242M)  and they own 41% of the airline.  KLM owns 27% of KQ. KQ are owed 4 billion by Aircraft Cargo Handling  and they owe the company back 7 billion
  • Have 12 year loans with Afrexim, Citibank, Stanchart that are guaranteed by USEximBank, while Co-Op bank financed purchase of a spare Embraer engine. The loans are at rates of 3.5 to 6.5%, and total $1 billion
  • KQ has paid Kshs 27 billion in airline deposits, and got a refund of about Kshs 2.8 billion in 2014 (from Boeing?). KQ also has Kshs 26 billion of aircraft lease commitments in the future.

The B787-8 aircraft will replace the B767- 300s on a one for one basis. The B777-300ERs provide growth in capacity. The B737-300s exit the fleet as JamboJet gains it’s Operating Certificate and determines its own fleet requirements. Two of the E170s will be returned to the lessor as will two B737- 800s, which will be replaced with new leased aircraft. KQ Embraer 190

The most important project for the Information Systems team during the year under review was the Boeing 787 e-Enabling project. The project was set up in February 2013 to implement the e-Enabling platform design recommended by Boeing for the B787 aircraft. The purpose of the e-Enabling platform is to ensure secure transfer of B787 Aircraft Software from Boeing servers to Kenya Airways servers and subsequently into the B787 aircraft.

  • JamboJet lost Kshs 118 million so far, but KQ will apply a deferred tax of 221 million from Flamingo, their previous low cost subsidiary airline against that
  • KQ sas 4,000  employees and also has an ESOP that has been inactive since 2006 (with 2 million shares) . While outgoing CEO Naikuni (famously) still has no shares, directors with shares include Alex Mbugua with 25,000 while Chairman Evans Mwaniki has 42,000.
  •   Spent Kshs 40 billion on fuel & oil, and 8 billion on aircraft hire. Have  Kshs 1 billion in fuel derivatives
  • Have Kshs 106 billion in revenue (85% from passenger flights) and 89% of revenue is foreign (i.e. non-local flights) and they fly to 62 foreign destinations
  • Putting a damper on Africa Rising, the Chairman’s statement notes that

African airlines international air travel expanded by 5.5% in 2013, a solid result but slower than growth in 2012 (7.5%). Overall, the demand backdrop for carriers in the region was strong, with robust economic growth of local economies and continued development of internationally trading industries. But some parts of the continent showed weakness, including the South African economy which recently experienced a slowdown. There has also been some slowdown in regional trade growth

  • The Kshs 5 billion loss in 2014 is an improvement from an 11 billion loss the year before.

Safaricom
136 pages and has 660,000 shareholders.

  • The Communications Authority (ex-CCK) gave Safaricom credit of Kshs 542 million against a license of Kshs 696 million.

Safaricom’s operating licence was issued for a period of 15 years from 1 July 1999 to 30 June 2014. On 25 June 2014, the Communications Authority of Kenya (CAK), formerly the Communications Commission of Kenya (CCK), confirmed the renewal of Safaricom’s operating licence for a further ten years from 1 July 2014 to 30 June 2024 at a renewal fee of USD 27 million.

  • Own 32% of TEAMS  (up from 22.5%). The company  acquired 10% at a cost of (just) Kshs 550, 620?!  TEAMS  had revenue of Kshs 382 million and a profit of Kshs 42 million in 2014. In 2013 they paid Kshs 556 million for the remaining 49% of One Communication which also has a deferred tax asset of Kshs 204 million.
  • There is an M-Pesa holding company that is separate from the company and who are trustees of all the funds that are held in M-Pesa. There is also a Safaricom Foundation that participates in many (small) projects and an M-Pesa foundation that is involved in larger (and fewer) projects.
  • Have Kshs 12 billion of bonds that retire in the next 18 month (7 billion in Nov 2014 and 4.2 billion in Dec 2015)
  • Bonga points; 84% of the points redeemed were for non-merchandise items (airtime, voice minutes, data bytes and SMS) while 16% were redeemed for merchandise items (phones, tablets?) in 2014.
  • The company bid and won a Kshs 201 million deal to brand Kasarani stadium and gymnasium
  • Lipa Kodi has 88 housing agents collecting rent from 60,000 houses while 122,000 merchants have signed on with Lipa Na M-Pesa
  • Directors: Chairman Nicholas Nganga has 885,00 shares, Michael Joseph has 2.3 million, Esther Koimett 517,000 and CEO Bob Collymore has 908,000
  • The newspapers in August 2014 note that shareholders will be asked to approve base station purchase from Yu for $1 million

NSE Moment: Buyouts, Vultures, Divestments

A look at recent deals at the Nairobi Securities Exchange (NSE) and other privatization and equity bids since the last update. 

Divestments

  • Essar released a bombshell from India that they would be abandoning their investment in the old Kenya Pipeline Refineries and sell their stake back to the Kenya Government for $5 million. At the same time a Receiver Manager put up (the closed) Pan African Paper Mills up for sale, but that is likely to be complicated by links the company had with vulture funds who purchased Panpaper’s debts in the international secondary debt market. These faceless entities — basically different mutations of one group (going by the names like Noon Day Asset Management Asia and Farallon Capital Institutional Partners) — and 11 such firms own 37% of the company’s debt.The Essar fallout prompted Parliament to also look into the mystery of Orange Kenya which keeps asking for more government support even as the government loses equity in the company.Since then, the government announced that a new office will advise the government on state investments: Attorney-General Githu Muigai said the Government Transaction Advisory Services Office will guide state deals with the aim of sealing opportunities where the latter has been losing its shareholding in parastatals without monetary gain.  
  • EDIT: Another divestment is Kenya Wine Agencies Limited (KWAL) finally exiting Uchumi after disposing of all its shares. It had 18% in 2004 and 4% in 2012. – via @NSEKenya 

Done Deals

Recent M&A deals approved by the Kenya Competition Authority include:

  • Agri-Business: The acquisition of Juhudi Kilimo (turnover of Kshs 30 million) by Soros Economic Development Fund.
  • Aviation: The acquisition of Lady Lori Kenya by Ian Mbuthia Mimano, Adi Vinner and Peter Nthiga Njagi.
  • Education: The  purchase of 60% of Safer World Investments by School Operators Limited (owners of Peponi School) (The two will have a combined turnover of Kshs 672 million or ~$8 million)
  • Finance & Banking: The acquisition of Francis Thuo & Partners by Equity Investment Bank.
  • Food: The acquisition of 66% of Coca-Cola Juices Kenya by the Coca-Cola Export Corporation.
  • The acquisition of Lonrho PLC by FS Africa  (as part of a $280 million deal in South Africa).
  • The acquisition of Ma Cuisine by Harper Holdings.
  • Health: The acquisition of Jampharm Chemist by Viva Afya (the two have a combined turnover of Kshs. 19.5 million).
  • The acquisition of Ascribe Group (which has a turnover of Kshs 70 million) by Emis Group.

Deals Bubbling

  • Brookside Dairies have taken over Buzeki, the makers of Molo Milk, in a Kshs 1.1 billion ($13 million) deal that increases Brookside’s share of the dairy market to 44%.  – EDIT GAZETTE NOTICE No.  15068 – THE TRANSFER OF BUSINESSES ACT: NOTICE is given that the furniture, fittings, fixtures and the assets and the stock being the business of manufacturing and selling of milk and milk products owned by Buzeki Dairy Limited (the “Transferor”) on the premises situated at Ganjoni, Mombasa have been sold and transferred by the Transferor to Brookside Dairy Limited who will carry on the said business of manufacturing and selling of manufacture of milk and milk products at the premises of Brookside Dairy Limited under the name and style of Brookside Dairy Limited (the “Transferee”) with effect from 1st November, 2013 (the “Completion Date”).The address of the Transferor is Post Office Box Number P. O. Box 85532-80100, Mombasa, Kenya. The address of the Transferee is Post Office Box Number P.O. Box 236–00232 Ruiru, Kenya. The Transferee is not assuming nor does it intend to assume any creditors or debtors of the Transferor incurred in connection with the purchase and business of the assets of the Transferor up to and including the Completion Date and the same shall be paid and discharged by the Transferor and likewise all debts and liabilities owing and due to the Transferor up to and including the Completion Date shall be received by the Transferor. Dated the 5th November, 2013. KIPKENDA & COMPANY ADVOCATES, Advocates for the Transferor. COULSON HARNEY ADVOCATES
  • Centum shareholders approved new investments in Liberty Beverages, Mvuke Power, Two Rivers Lifestyle Centre, Centum Share Services, Centum Asset Managers (who are buying Genesis Kenya)  and the acquisition of 79% of Kilele Holdings.
  • Africa Media Venture (AMVF) a Dutch-based venture capital firm has raised its stake in a Kenyan restaurant guide website, EatOut, from 25% to 32% for Kshs 17 million ($200,000) in a transaction that values the online portal at Kshs. 220 million.  
  • Lonrho is selling its entire stake (11%) in African airline Fastjet. 
  • Crystal Ventures (owned by the Rwanda Patriotic Front) plan to sell their 20% stake in MTN Rwanda, in an IPO which will make MTN Rwanda the third company listed on the Rwanda Stock Exchange – after Bralirwa and Bank of Kigali.
  • Sameer Investments is buying out 41 million shares that Bridgestone owns in Sameer Africa – after which Sameer will own 159 million shares equivalent to 72% of the company.
  • Across the border, Tanzania’s Precision Air is looking for a government investment, just a year after an IPO which raised $7 million and reduced the shareholding of Kenya Airways from 49% to 35%
  •  Unga Group will acquire Ennsvalley Bakery for Kshs 125M ($1.5 million) and also dispose of its shares in Bullpak.
  • EDIT: Kestrel Capital has arranged a $1.2 million private placement of convertible debentures in Stockport Exploration to local Kenyan qualified investors. Stockport is listed on the Toronto Stock Exchange and has mining interests in Nyanza Kenya where they are exploring along a prolific gold-hosting greenstone belt. Zeph Mbugua, the Chairman of TransCentury, became a director of Stockport in February this year. 
  • EDIT:  Swedfund, the Swedish state’s venture capital company, and The Africa Health fund through The Abraaj Group, a leading investor operating in global growth markets, made a $6.5 million investment in The Nairobi Women’s Hospital, a leading private healthcare provider for women and their families (men and children) in East Africa.

Shareholder Restructurings

  • Businessman Christopher Kirubi is acquiring an additional 32 million shares in Centum Investments (for ~$8.6 million) which will raise the stake he controls to about 30% and he has received an exemption from complying with the NSE requirement to make a takeover offer.
  • After listing at the NSE, I&M shareholders have done a swop to bring the company’s investor numbers past the 1,000 shareholder mark.
  • The WPP Group (through Cavendish) is increasing its shareholding in Scangroup from 33% to 50%.  WPP, the largest advertising group in the world, is strengthening its control of Kenya and the East African market ahead of the merger of the two other advertising firms – Omnicom the No 2. in the world  (owners of TBWA) and No. 3 – Publicis (of France)  – which, when combined, will be larger than WPP.

De-Listing’s – Companies leaving the NSE 

  • Access Kenya Group after their buyout by Dimension Data was approved by the Government
  • CMC is at the conclusion of a buyout offer from Dubai’s Al-Futtaim Group who are offering existing shareholders Kshs 13 a share, or about $90m. 
  • The Dubai-based conglomerate, which holds lucrative distribution rights for Toyota and Honda in its home market, will help the struggling Nairobi-based automotive group expand its brands beyond its existing stable, which includes Volkswagen, Ford, Mazda and Suzuki.
  • R.E.A. Trading, which owns 56% of Rea Vipingo Plantations has offered to buy out all other shareholders at a price of Kshs 40 per share, representing a 43% premium. The shares that have since been suspended from trading and will be delisted from the NSE if the deal succeeds.

Stalled Deals

  • There was a Financial Times (FT)  article on queues forming to buy up East African retailers but deal opportunities at Nakumatt and Naivas have been hampered by shareholder/family disputes that darken their buyout reputations and possibilities.

Centum 2009 AGM

The Centum 2009 shareholders annual general meeting was held on Friday July 17 2009. Their last meeting I attended was 1½ years ago in February 2008 when ICDCI (changed its name) and became Centum. a quick Google search reveals other companies around the world with a similar name. So shareholders were right when they pushed for a more authentic, African name

AGM recap: From reading the minutes of the last shareholder meeting seems there was quite a bit of drama at the company’s last AGM in January where the independence of directors was questioned, and there were some interesting director elections whos resulted were polled and motions by some shareholders to remove two directors – (Chairman James Muguiyi and businessman Chris Kirubi) flopped. Most media reports however dealt with the delayed AGM and the payment of dividends at the door, but the best recap of that comes from the Nation

Bored this time: This was one of the longest AGM’s I have been to in a while. The Chairman and the CEO of the company each give long speeches about the company, that easily took up almost 2 hours – giving views on the performance of the company and future outlook as relates to the corporate bond they are about to launch.

Centum Performance their investment book is worth 6.5 billion (($84 million) down from 8.1 billion the year before. Reasons for decline were gains on disposal totaling 311 million, and further impairment of Rift Valley Railways (RVR) shares 271 million.
– The portfolio is consists of : 25% is KCB shares, General Motors East Africa 25%, Insurance 19%, 4% is publishing (a 35% stake in Longhorn), Beverages is 24% (includes shares in EABL, and several coca cola franchises), Services is 4% (includes 0.1% of Safaricom, and shares in NAS, and RVR), and 5% is a newly acquired (23% stake) of Carbacid . some values are KCB Kshs. 1.84 billion, GM 978 million, UAP 877 million, Nairobi Bottlers 660 million, KWAL 263 million, EABL 426 million, Mt. Kenya Bottlers 209 million
– Target is to have administrative costs at less than 2.5% of their assets. 2009 was 123 million (1.5%) and 2008 (136 million = ~1.6%), which includes cost of staff, running company, shareholder costs etc. striking a blow to companies that say public shareholders are expensive to administer
– On RVR: board maintains that it is still good company, had bad management. Once new deals are signed, new technical partners and this will see $50 million invested in the company. Fundamentals are still good, lots of foreign investor interest on the company, and it will be wrong to walk away when the value is down

Corporate Bond: Centum will be launching a corporate bond to raise Kshs 2 billion (~$26 million), reasons given include
– It’s the right rime, Safaricom and Kengen about to launch, while a recent bond from CFCstanbic bank was over-subscribed. After prospectus and approvals, it will be marketed to pension funds, institutions, insurance companies, even shareholders can subscribe
– Current borrowing costs at 170 million out of 6.5 billon assets are very manageable. Their dividend flows are not consistent, so they sometime need overdrafts, but can’t grow the business on overdraft. The Bond will add some long term funds to balance sheet
– They have a pipeline of investments lined up, and what is a bad market for others is a good time for Centum to buy into companies. Funds will be invested 60 – 70% in private companies, 20-30% in listed companies and 0.15% in real estate. They already signed the deal for Carbacid for about Kshs. 400 million that was done through Rasimu Limited, a new wholly owned subsidiary
– Bond is better than bank debt, cheaper, long term, more flexible. It will cost 9.5% to 12.5% per year

Image Centum plans to expand into Africa from Kenya and their vision is to be Africa’s foremost investment channel. Chairman mentioned that their name brand is important, and regretted that bad press had seen the share price dip

Voting: The voting was done by ballot, and the auditors will tally the results. So at the meeting, motions in the agenda were proposed and seconded, with shareholders asked to mark ballot forms and leave them outside after meeting for votes to be tallied. With the new registrars CRS, voting by this method could become the norm, especially on controversial votes, where shareholders numbers at the annual general meeting can be canceled out by real tally of proxy votes. That was the case at the January meeting, where the 1,536 shareholder attendees (with 258 proxies) tallied yielded just 1% in the re-election the directors.