Category Archives: IFC

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 ↑
Kenol ↓
Safaricom ↑
Scangroup ↓
Stanbic (Uganda) ↑
Unga ↑
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.
 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

Diamond Trust: Third Rights

Diamond Trust Bank is back to shareholders for some fund raising after two rights issues in 2006 and 2007. 
Since venturing into  Uganda and Burundi in  2008, it has become a pan-African bank growing from assets Kshs 45 billion and Kshs 1.6 billion in profits to 2011 assets of  Kshs. 107 billion and profits of Kshs 4.3 billion. The additional  funding will be invested in Tanzanian Uganda and Burundi as well as alternative channel categories.

Like the previous issues, this one closing on Friday August 10, is likely to exceed full subscription. All the large investors – Aga Khan Group (AK fund for economic development fund  (owns 17%), Habib Bank (11%), Jubilee Insurance (10%), and the International Finance Corporation (IFC owns 10%) have committed to take up their rights.
The above commitments are for 51%, and with the minimum target is 60%, there’s a rump option in in case other shares are not taken up but it’s expected that most of the 11, 242 shareholders will pay up (there was little trade in rights when it opened).

Contrasting Rights
Year – Nov-06 ; Nov-07 ;  Jul-12
Target (Kshs M) – 735 ; 1,600 ; 1,809
New shares (M) – 15.5 ; 23.3 ; 24.4
Price (Kshs)  – 50 ; 70 ; 74
Ratio  –  1:8 ; 1;6 ; 1;8
Budget (Kshs M) 41.6 ;  54.7 ; 57.6

– IFC has also provided funding of about $65 million for the banks operations.
– All the arms of the company are profitable; Kenya profit after tax of Kshs 2.2 billion in 2011, Tanzania (own 55%) Kshs. 398 million, Uganda (own 54%) Kshs. 315 million and Burundi  (own 67%) Kshs. 31 million
 – Diamond Trust only owns 3 of their branches in Kenya (out of 38) , and none of the 22 in Uganda, 14 in Tanzania or 4 in Burundi.
– There’s no indication of interest to venture into Rwanda or South Sudan as with many other Kenyan banks.

Reading the Kenya Airways Tea Leaves

Today is the last day of the Kenya Airways  rights issue in which they are seeking to raise Kshs 20 billion ($240 million) from shareholders.  The 35 year old company is  one of the most talked about companies in Kenya mainly as as a model of privatization gone right. 
The airline which dubs itself The Pride of Africa, has set out to branch out across Africa and cover every African capital, but has also had to fight a rear guard action from a handful of local airlines and Gulf carrier.

The information memorandum is about 236 pages, but with most of the data in it one year old, relating for the financial year that ended in March 2011. Also, there have been no stockbroker reports about this rights issue.

Shareholders: – The company 73,612 shareholders (old data)
–  The authorized share capital of the airline  is Kshs 10 billion (102) comprising 2  billion shares with a  par value of Kshs 5. 461 million have been issued and in 2011 shareholders had a return on equity of 15%
– Approval has been obtained from the stock exchanges in Tanzania (page 130) and Uganda  (page 127) where KQ” share are cross listed
– The directors’ shareholding is listed (98) and they don’t own much in the airline while the CEO does not own any shares in the airline (odd as the marketing camping exhorts Kenyans to invest in the pride of Africa) and this does not bind the CEO to improve the share performance of the airline.
– For any KQ shareholder who does not participate in their shareholding will mean a substantial dilution in their shareholding (93) and this has been enumerate in a court case where a shareholder sued the airline to stop the rights issue
Rights issue: – Proceeds of the rights issue will be used to make pre-delivery payments (28) for aircraft  between June 2012 and March 2013  and pay down some unsecured loans
– The success level of the rights issue is to raise Kshs 14.4 billion ($173 million) (26)  and KQ will lower its risk profile (and maybe borrowing costs) by having a higher equity (23)
–  Kenyans have to own at least 50% of the shares and the transaction advisors may refuse transfer of shares to foreigners that will violate that (p37)
– Shareholders are being offered 16 new shares for every 5 held. They were priced at a discount when the offer was announced, but the market price is now the same as the rights price was at a discount, but now trades (Kshs 14.9) at  about the offer price
– The  rights issue will cost Kshs 620 million ($7.4 million) (p38) -comprising commissions of Kshs 310 million, advertising 66M , CMA Kenya fees 51M, underwriting (up to 47M), and lead transaction advisor 15M  ($180,000)
–  The issue is underwritten for only up to Kshs 420 million (93) and they are aiming to raise Kshs 20 billion
Rump allotment: Qualified institutional investors (33) will be invited to buy shares at the discounted price concurrent with the rights issue , and these social security funds of Rwanda, Uganda, Tanzania, Burundi, pension & insurance companies in east Africa, financial forms in south Africa and other foreign institutional investors(230). Yesterday’s paper had a story that the IFC will own 7.4% of KQ after the rights issue.
Performance: – Despite revenue increasing from Kshs 41 billion to Kshs 55 billion  ($662 million) in the first six months of their 2012 year, operating profit for the 6 months was Kshs as 1 billion ($12 million), down from 2.4 billion  the year before. This was attributed to increased employee costs and new routes and the airline issued a profit warning in January 2012 profit wanting in January 2012 (68) citing the rising fuel costs which will impact full year profits for 2012
– For the full year to march 2011 revenue of Kshs 85 billion( comprising passenger 75, freight 6.5, handing 1.4)  and had direct costs of Kshs 54 billion (comprising fuel of 25 billion, landing 8 billion, maintenance 7, sales commission 2.7), fleet ownership of 9 billion, 13 billion on administration (11 billion on staff)
– Of the revenue, 54% is from African routes, 27% Europe, and 19% Mid-East & Asia (68)
– Their hedging policy is to hedge 80% of their fuel requirements for the next one year hedged and 50% for following months  (70)
–  Their debt equity ratio in 2010 was 111% (borrowings of Kshs 20 billion against equity of Kshs 17 billion) and this improved to 88% in 2011.
–  Deferred income – includes compensation from manufacturer (204 -likely Boeing)  of Kshs 2.5 billion and they also have deferred tax liabilities of Kshs 8 billion (203)
Banking: KQ has borrowing of Kshs 25 billion ($301 million) (201)  from Private Export Funding (PEFCO), Barclays and ABN Amro at rates of 4-6%  over 12 years and lien of credit for Kshs 20 billion (202) . The loans are route through Simba Finance, Swara aircraft Finance, Chui aircraft finance, and  Kifaru aircraft who are registered as owners of the aircraft  (81) (these are not subsidiaries) and will transfer their titles once the loans (secured through Eximbank) are repaid (201). KQ also drew new loan facilities in 2011 from standard bank, KCB and Barclays to pay for pre-delivery payments (87) . KQ also earns rates of 4 -6% on their deposits (198)
Staff: – KQ has 4,355 staff who earned Kshs 11 billion ($132 million) in 2011 (numbers in December are 4,672 (61)
–  KLM appoints the CEO, finance director and one director for each 10% they own (106)
– Directors and key management were paid 223 million in 2011, with directors earning 78 million of that (175 )
– KQ is recruiting expatriate pilots to meet a shortage (65)
– Have an Ab Initio pilot training program (pilots who had no previous flight experience)  that now has 87 pilots pilots getting training in south Africa (61). KQ has an arrangement with Co-Op bank in which these students can borrow and pay to for their expensive training of pilots and they have drawn have drawn Kshs 500 million ($6 million) (112)
– KQ will hire a director for a new fleet delivery department and separate that from the technical department (61)
Fleet: – KQ operates 33 aircraft, 20 under lease (108) and has 7 spare engines
– Have Kshs 20 billion worth of leases (213)  and commitments to buy about Kshs 100 billion ($1.2 billion) worth of aircraft (212)
– Paid deposits of Kshs 2.1 billion to Boeing (192) and Kshs 631 million for leases of Boeing and Embraer planes & engines
– Have signed purchase agreements for 10 Embraer 190, three 777-300ER,  and 9 Boeing 787 Dreamliner’s with options for 4 more (111)
– Future fleet will comprise Embraers (for domestic/short routes), Boeing 737 (NG) next generation (for medium/Africa routs), and Boeing 787/777 for inter-continental routes) . They also have board approval to acquire 12 freighters (53)
– Sold 2 Saab 340 aircraft to Alandia as well as land in Nairobi and Lusaka, (108)
Customers & Passengers: – Flew 3.1 million passengers in 2011 and 1.8 million in the first half of 2012
– All KQ ground staff participated in customer service training at the end of 2011  (65)
– The airline seeks to maintain & improve on on on-time performance but this has been hampered by airport congestion, traffic jams unavailability of equipment and a lack of captains (65)
– KQ plans to re-design their network to decongest JKIA by having more mid-day flight blocks, in addition to the current morning  & evening ones (58)
– Passenger meals are by KLM catering and NAS (111)
Risks: – Risks to the company include adverse publicity from terror alerts or attacks ,  aircraft crashes (91)  fuel prices (90) and the slow pace of Jomo Kenyatta Airport (JKIA) expansion (90) which impacts on time performance. They need the airport authorities to complete terminal 4 which will be exclusive for KQ with 7 parking bays nose in , and also construct multi-level terminals ,  have a separate domestic terminal, and (later) construct a new (greenfield) airport and second runway.
On-going construction at Jomo Kenyatta International Airport, Nairobi
But they also note in risk <i>mitigation</i> that:
Support from the Government of Kenya for the airline is another important positive factor, which allows the airline to compete successfully. Lenders’ and investors’ experiences with flag carriers and airlines in general across the world create an expectation that carriers tend to find some way to keep operating in difficult circumstances, and this usually involves the state in some form or another (63)
Litigation: KQ has suffered two fatal crashes and there are  still cases and investigations that stems from those in two in Cameroon (2007)  and ivory coast (2000) . there are minor passenger and staff cases, but also a long running claim by Kenya revenue authority for indirect taxes (page 107)
Competition: – KQ is largest in Africa with 42 African destinations compared to Ethiopian 40, south Africa (22) (p47)
– Comparing airline traffic (62) between Africa to the world, top is South Africa, Egypt air, Air France, and KQ is 8th , just behind Ethiopian and Emirates while for traffic between Africa and Asia, KQ  is 6th  behind  Emirates, Ethiopian, Qatar, Egypt air) .
– KQ enjoys some advantages by having a young aircraft fleet, while other countries don’t have working airlines. It competes in the region with Ethiopian & South Africa, but these airlines have distant hubs in Johannesburg and Addis, while gulf carriers pull traffic away from the region with their long haul aircraft and cheap tickets (64)
– KLM owns 26% of KQ and KQ owns 41.23% of Precision Air in Tanzania (72) after their own rights issue which reduced KQ’s shareholding from 49%.