Category Archives: IFC

Kenya Green Bonds Launched

A few days ago saw the launch of green bonds in Kenya with the signing of a memorandum of understanding between the Kenya Bankers Association, Nairobi Securities Exchange (NSE) and Financial Sector Deepening Africa (not FSD Kenya). Through this, they hope to deliver lower cost funds through capital markets to finance green projects. China is actually the leader in this along with India, but Kenya, as part of a climate bonds initiative, will be the flagship for green bonds in Africa.

NSE CEO Geoffery Odundo NSE Odundo said green bond listings at the NSE would attract impact investors while Kenya Bankers Chairman, Lamin Manjang said they hoped the first green bond would list at the NSE this year. FSD Africa has committed $600,000 to this and the IFC will partner with KBA to determine green portfolio i.e. projects that quality for such finance, from sectors such as energy, agriculture, infrastructure, transport, manufacturing. Other actives to be undertaken include and enabling small banks to take part in financing the pipeline, extending green bonds across East Africa, creating a pool of Kenya green finance experts, and promoting green Islamic finance.

More on renewable energy project finance in Kenya.

Understanding the KQ & KLM Partnership

 The IFC-led privatization of Kenya Airways (KQ) in which KLM became a strategic partner, and shareholder, in the airline,  purchasing 26% of the Kenya government’s shares in the airline for US$26 million, and after which the shares of the company were listed in an IPO, was celebrated as one of the most significant privatization deals for a decade, until Kengen and Safaricom.

But that’s all in question with the recent loss announced by Kenya Airways with quite a bit of blame being directed at KLM for the position in which the KQ finds itself in. What does this entail?

A master cooperation agreement and shareholders agreement were signed between KLM and KQ in 1995, and a codeshare agreement and joint venture agreement followed in 1997.

KLM has seats on the board of Kenya Airways and some of the tenets of master cooperation agreement give any KLM director veto power over KQ decisions on:

IFC celebrates KLM's investment in KQ

IFC celebrates KLM’s investment in KQ

  • The appointment or dismissal of the Managing Director or Finance Director of KQ
  • The acquisition or disposal of any aircraft and any other variation in the size and composition of  KQ’s fleet. (KQ’s 2012 rights issue IM notes that following the approval of a 10 year business plan in July 2011,  KQ’s management embarked on implementing the strategic initiatives for the first five-year period. In particular, the Business Plan envisaged that KQ will acquire 46 aircraft over the period to March, 2016.) 
  • The allotment and issue of any shares
  • Entering into of any co-operation agreement with an airline that is a major competitor of KLM.
  • Material alteration KQ’s existing route network or material increase or reduction in the capacity on its routes
  • Material commitment or expenditure on sales and marketing or distribution of KQ’s products and services
  • Any sale of shares by the Government of Kenya to a major international airline.

Other notes from the IM and media

Global ticketing: In 2010, Kenya Airways became a full global airline partner of the SkyTeam global airline alliance, alongside KLM, having been an associate partner since 2007. KQ is currently the only SkyTeam member with significant operations in Africa.  With 14 SkyTeam member airlines, KQ’s passengers can take up to approximately 14,000 daily flights to 926 destinations in 173 countries. (So KLM helped KQ join? Will a break from KLM mean a break from Skyteam?).

Freight: In support of KQ’s expansion into freighter operations through the launch of a dedicated freighter business, the Board of Directors approved the acquisition of 12 freighter aircraft. In February, 2012, KQ introduced its first dedicated cargo aircraft, a Boeing 747-400F, to be operated in association with KLM and which was expected to fly twice weekly between Guangzhou, Nairobi and Lagos.

Passengers: This translated article hails Kenya Airways as being a jewel in the crown of KLM:  “The investment by KLM Kenya Airways is one that works out well for both parties.  Both companies fly each day between Amsterdam and Nairobi which there is a double daily connection..collectively the route has about one million passengers transported per year..

The cooperation agreement was expanded in November 2013: ..the collaboration was extended with the new routes London-Nairobi, Amsterdam-Entebbe / Kigali, Amsterdam-Lusaka-Harare and Amsterdam, and the Amsterdam-Kilimanjaro / Dar es Salaam. Kenya Airways and KLM jointly total around 44 weekly flights with a total turnover of over US$500 million.

However, this week, the KQ CEO said that the “In the context of the revenues and the costs on the routes in the joint agreement venture which we share 50-50, over the last three years, the route has been loss making,” ..and he said the Dutch Airline had since paid them a settlement transaction. 

Diamond Trust: Fourth Rights

Diamond Trust Bank is back for a fourth rights issues in recent years from its 11,136 shareholders at a rate of (Kshs 165) $1.95 per share, with each of shareholder entitled to buy 1 share for every 10 held. This follows others done in 2006, 2007 2012  and now this one.
Contrasting the four issues 
Year – Nov-06 ; Nov-07 ;  Jul-12 : Jul-14
Target (Kshs M) – 735 ; 1,600 ; 1,809 : 3,631
New shares (M) – 15.5 ; 23.3 ; 24.4 : 22.0
Price (Kshs)  – 50 ; 70 ; 74 ; 165
Ratio    1:8 ; 1;6 ; 1;8 : 1:10
Budget (Kshs M) 41.6 ;  54.7 ; 57.6: 100.1
  • The IFC remains as a principal funder and shareholder for the bank.
  • Diversification has paid off with the bank having 30% of assets and 19% of profits from outside Kenya. While 77% of Diamond Trust’s $61 million after-tax profit is from Kenya, the Tanzania and Uganda operations contributed about $7 million each of profit with Burundi trailing at ~$150,000 
  • They have extended traditional banking services in the mobile and card age by having M-Pesa at all their ATM machines. They also issues prepaid cards  for NationHela, NakumattGlobal and MiCard and handle remittances/money transfer for WesternUnion, MoneyGram and XpressMoney
  • Others institutions that may need to have rights issues or raise capital this year include ABC, Commercial Bank of Africa, Consolidated and Equatorial banks. 

Shares Portfolio May 2013

Performance: Compared to last quarter and year ago, the portfolio is up 9% in value from February (excluding new investments), while the NSE 20 share index is up is up 7.5% since February 2013.
The Stable
Barclays ↑
Bralirwa (Rwanda) ↑
Centum  (ICDCI) ↑
Diamond Trust ↑
East African Portland Cement ↓
Equity Bank ↑
KCB ↑
Kenol ↓
Safaricom ↑
Scangroup ↓
Stanbic (Uganda) ↑
Unga ↑
Changes
In: Centum, Portland Cement
Out: Total, EABL
Increase: Equity, Kenol, Safaricom
Decrease: None
Best performer: Safaricom (up 30%), Equity, Stanbic  
Worst performer: Kenol (down 29%)

Looking forward to:

– Dividends from Equity, Barclays, KCB, Scangroup, Bralirwa and Safaricom.
– Coldtusker writes about upcoming rights issues at the NSE including Uchumi and National Bank. 
– Still yet to venture into Kenya government treasury bonds a year later.

Other Events:

Access Kenya is being bought out by Dimension Data and will be de-listed from the Nairobi stock exchange – pending regulatory approval, shareholder approval, and no better offers.
– Citi released bearish reports during the Kenya election on Equity and KCB based on unsustainable interest rates, and growing non performing loans, among other issues in the Kenyan banking sector. 
– Citi also had a report on Kenya Airways predicting two more years of losses, difficulty financing Boeing 787 planes without raising more capital, that is probably beyond the appetite of current KQ shareholders and other NSE investors. It mentioned the possibility of Etihad Airways extending their new code share partnership into an investment in KQ, but the airline has to remain 51% Kenyan owned in order to enjoy preferential African route rights. Other large shareholders in the airline are teh Government of Kenya, KLM airline, and the International Finance Corporation.
– The Safaricom 2013 results (PDF) results released this morning showed that revenue grew by 16% to $1.45 billion (including MPesa revenue of $256 million) and profit before tax grew 47% to $300 million. 
Umeme of Uganda which cross-listed at the NSE has still not had a trade in Kenya despite some okay performance in the last few months.

Kenyan Consumer Guide on Solar for Homes

Kenya is currently the largest market for solar home systems on the African continent and second largest in the world, after China, by both annual sales as well as total installed base. The Kenyan solar home system (SHS) category is considered the most competitive by far, and due to its history and heritage, one of the most developed, albeit primarily in the informal sector.  Today, there are over 350,000 solar home systems across Kenya and the market is still growing at more than 15% a year.
What does this mean for you, the consumer?
 Variety of solar options for rural households
Choice:  With so much to choose from and new products, services, and business models being launched, how can you evaluate what kind of solution would work best for your household needs?
Not only is there something for every budget but big names such as Safaricom, Total, Dayliff (Davis & Shirtliff), Sollatek and the IFC with its “Lighting Africa” initiative, all have something to offer.  Do you go with the brand that is backing the product or do you evaluate the category of product and its suitability for your home?
Let’s start with what are the categories of  “solar products” and then take a closer look at each brand’s offerings.  The products available in the market can be clustered broadly into the following:
1. “SHS in a box” or “Lighting kit in box”
2. Stand alone solar lanterns
3. Emerging “pay as you use” business models
4. Solar home systems (SHS)
1. “SHS in a box” or “Lighting kit in box”:  Today, complete kits like the one shown below are available in certain electrical shops around the country. This particular one, sells for somewhere around Kshs 15,000 (~$175)  and includes a motion sensor security light as well all the components required for installation.
They are available in three main sizes – small, medium and large – but keep in mind that since brands like these are social enterprises, they are aimed at the lower income demographic – and the 15W kit shown above is the ‘Large’ size but is limited to providing only lights, and will not be able to power a television set or a stereo system. Note also that the battery is not included. Depending on the brand, expect to pay around Kshs 4000 to 6000 extra.
An alternate type of kit is the Phillips one shown below, meant for middle-class urban homes as a backup for electricity power cuts.  Available at selected Nakumatt supermarkets for Kshs 6,000 ($70), this is one of the most expensive backup solar light kits in the market,  however, the elegant design and details such as a wall mounted light switch make it an attractive option for the upwardly mobile home.
Advantages and Disadvantages
Philips kit
The advantage of this type of complete kit is that all the components are ostensibly designed to work seamlessly together and everything necessary to the system up and running is available in one box.  This approach addresses one of the biggest challenges with SHS in Kenya which is the dearth of well-trained fundis (technicians/installers/repairmen) with the experience and knowledge of designing a solar home system.
The disadvantage of such a system, however, is that it is limited to the components provided, in that one cannot simply add on and build a larger system. Some of the best-provided homes in off-grid rural locales have extensive installations built up over time to power their entire homestead and numerous electrical appliances – so when choosing what kind of system to purchase, keep your future needs in mind.
2.  Solar Lanterns:
Total sign

Due to donor-funded support from institutions such as the IFC, whose Lighting Africa initiative offers market research information as well as quality audits on products, the Kenyan market is flooded with a large variety of solar lanterns, both with the ability to charge your mobile phone and without.

Total, for example, distributes d.Light’s solar lanterns at its retail petrol stations, while Nakumatt picks and chooses which products it will carry according to the needs of the location their outlets serve.   The basic light sold at Total costs Kshs. 999 ($12)  while the larger model which allows you to charge your mobile phone as well can go for upwards of Kshs. 3,000.
Powerpoint at Twiga

Given the wide variety and choice available in the Nairobi market, one can choose according to design and price as per one’s preference.  However, these solar solutions are limited to a single light and the vast majority of products tend to have the panel either embedded in the light source or attached to it permanently, limiting their flexibility.

Powerpoint’s outlet in Twiga Towers is one of the few reputable solar specialists specializing in serving the needs of urban Nairobi’s market.  As you can see, the range of solar lighting and solar lanterns offers something for everyone.  If you’re thinking of something solar for your household, that’s a great place to start your fact finding trip.
ToughStuff
 Here, ToughStuff’s ecosystem of products built to work independently around a durable solar panel – available at Nakumatt – offers you flexibility in terms of whether you want only a lightweight portable mobile phone charging solution or if you’d prefer a light or both.
3. (Pay as you go) Mobile Business Models for Solar products: With Safaricom’s launch of the M-Kopa business model, customers now have the choice of paying for a solar product using M-Pesa over an extended period of time. The solar light is from d.light such as that available via Total.  Their kit contains 3 bright lights and a mobile charging system, similar to the “Kit in a box” described above.  The business model is designed to automatically deduct Kshs 40/= ($0.47)  from your account in order to use the lights until the point where you own the system. Alternatively, the complete kit can be obtained for Kshs. 15,000 ($175) upfront.
Another is Eight19’s Indigo pay as you go solar that seems to be piloting in Kenya. Here they use vouchers or scratch cards to top up your charge rather than directly via the SIM card. This is however still in the pilot stage as the company websites do not yet show a Kenyan outlet.

4. Solar home systems (SHS): Known colloquially in upcountry locations as “sola”, the basic SHS consists of a solar panel, a battery for holding the charge,  between 2 to 4 fixtures for holding energy saver bulbs (known informally as “solar lights”) and the requisite wiring.  These kits can cost as little as Kshs 10,000 ($118)  including installation and tend to be the starting point for many homes seeking modern energy systems.

From here, one can build up to including inverters and larger panels such as the 100W-120W kits popular in Maasailand, that are able to power flat screen Sony Bravia televisions, kitchen appliances and the latest stereo systems in addition to lighting the home inside and out.  Colour television and new digital systems require 60W at a minimum in order to work. Such panels alone cost around $200 upwards but prices are very rarely displayed and often negotiable.
For a household in Nairobi,  an SHS  would be the first recommendation. Dayliff is probably one of the most credible brand names, as long as the technology is German. (Be sure to the check the back of the panel to ensure this).  Ubbink is a newly launched brand that fundi’s consider to be efficient and high quality. It is manufactured by a Dutch company establishing Kenya’s first solar panel factory in Naivasha and their panels are smaller than average offering higher wattage and more affordable cost due to lack of import duties and transportation. Check them out. Its a commonly held fallacy that physical size of the panel is important.
Do’s & Don’ts on How to buy an SHS:   (also applicable to the other options above)
 
* Do find a reputable fundi with references and experience in calculating your power requirements and designing the requisite home system. This is the biggest reason for customer unhappiness with the performance of solar energy.
* Don’t try to talk to all and sundry and make up a list of components yourself. This is another major reason for inadequate systems that fail to meet customer needs.
* Do your homework, however.  Nairobi’s CBD is the heart of the solar power industry for the entire country and the latest products are seen here first.
 * Don’t go window shopping without a list of minimum requirements on what you wish your SHS to be able to power and for how long.
* Do have an idea of your estimated budget. For a 3-bedroom house in  Nairobi, it’s possible to start as low as $500.
* Don’t let the salesman confuse you until you simply give up and plunk down the money for the nearest panel.  Take the time to think over what you really need to purchase.
* Do keep in mind that SHS are modular and an experienced fundi can help you figure out your starter kit on which you can keep adding over time as budget permits.
Photo and market research courtesy of @nitibhan