Category Archives: NSE insiders

Unga Seaboard Deal Details

EDIT June 14: Seaboard Corporation has received regulatory approval from the Capital Markets Authority (CMA) to extend its offer to buy the minority shares in Unga Plc by another 10 days.. to 5.00pm, Thursday 28th June. “During the offer period, Seaboard received numerous queries from Unga Plc shareholders with requests for resubmission of the offer documents that were originally dispatched to them via post by the Registrars. This is primarily attributed to the change in postal addresses and/or relocation of shareholders whose new details are not updated with the Central Depository and Settlement Corporation”.

May 30: Today sees the start of an offer period by Seaboard Corporation, acting in conjunction with Victus Limited, to buy out other shareholders of Unga Group PLC and to de-list the company from the Nairobi Securities Exchange.

From reading the various offer documents relating to the Seaboard proposal that includes the public notice, circular to Unga  UGL) shareholders, offer terms, and a public FAQ…

  • Seaboard: The company which states it is on the Fortune 500 list, was incorporated in 1908,  and is registered in Delaware and headquartered in Kansas. It had $5.8 billion revenue and $427 million profit in 2017 and is involved in marine, pork, commodity trading and milling (where Unga is), sugar and power industries. Seaboard owns 2.92% of Unga and also 35% of Unga Holdings, a subsidiary of Unga (who own the other 65%) and which comprises the flour milling and animal feed operations of Unga. Seaboard is joined in the Unga buyout deal by Victus which owns 50.93% of Unga shares.
  • Delisting:  the memorandum notes that: “It is Seaboard’s intention that UGL retains its position as the preferred our producer in Kenya… ( but that ) as a publicly listed entity, UGL is disadvantaged because this status requires public disclosure of otherwise confidential business information relating to its business strategies … (also that) in addition, the present public structure makes it difficult to attract additional strategic investors.

  • Offer Price: Over the last year, Unga’s shares have traded at between Kshs 30 and Kshs 32 and they briefly rose to Kshs 60 after the offer was announced in February but are now settled at ~Kshs 42 per share. Contained in the documents to shareholders, CBA Capital confirms that Seaboard has enough funds at Citi (bank) to complete the offer and to pay all shareholders in full at the offered price – which will amount to a cash payment of Kshs 1.4 billion (~ $14 million). Payments will be by M-pesa, cheque, or bank RTGS/EFT (for amounts over Kshs 1 million). 
  • From publicly listed to privately held:  Their target is to get 90% acceptance, but if they get 75% they may push on with the plan toward delisting, as they caution that any shareholders who hold out and don’t sell their shares, may find it harder to trade them in future. The offer to Unga shareholders opens 30 May and runs through to 13 June, after which the shares will be suspended till the end of June, ahead of a results announcement on July 2.
  • Firm Price? They have reached out to other large shareholders in Unga who own about 15% of the company shares. June 6 is the final day for Seaboard to vary the offer and if they do so all shareholders will benefit from the new price. But already there is a report that they have ruled out increasing their bid, saying they will be no change to the offered price unless a competing bid arises. Of note is that one of the large investors at Unga is a company which emerged to mount one of the competing bids at Rea Vipingo that resulted in the initial buyout promoter raising their eventual payment to Vipingo shareholders.
  • Board recommendation: The offer documents value the shares using the income approach at Kshs 39.82 per share, at  Kshs 39.01 using the market approach and at Kshs 62.04 using the asset approach. Seaboard is offering Kshs 40 and the members of the Unga board not linked with the promoters (3 of the 8 directors recused themselves) have recommended that Unga shareholders accept this price which is based on independence advice from Faida Investment Bank.
  • Transaction Advisors: Besides CBA Capital which are the fiscal advisors and sponsoring stockbrokers, CBA is the paying bank, while other local firms in the Seaboard deal are Kaplan & Stratton (legal advisors), Oxygene for public relations and CRS are still the share registrars. The promoters hope to conclude the deal by September 30.

Reading the Tea Leaves at Chase Bank: Part I

24 hours in the life of a bank:

  • In the April 6, 2016 Standard newspaper, Chase Bank republished their FY 2015 accounts, but with some fine print added.
  • Mid-day: At a press conference, the Central Bank of Kenya (CBK) governor said he would not comment on rumors about any bank.
  • In the afternoon, Chase Bank announced the Chairman and Group Managing Director would step down from the board. This first appeared in a blog, then in an official tweet, from the Bank.
  • In the April 7 newspapers, Chase Bank had an advertisement about the board changes..but
  • On the same morning of April 7, 2016, the bank didn’t open. Customers instead found a notice from the CBK placing Chase Bank in receivership for a year.

So What happened? The bank was in the midst of celebrating their 20 year anniversary – dubbed #Chaseat20 , but all that changed in 24 hours. Throughout the day, there was an active discussion online, on what the changes at the bank meant. And offline, it seems people acted and, went to the bank and withdrew cash in droves.

FY 2015

The bank accounts published last month last week, and and again in the April 6 newspapers, are the same, but there were a few differences:

  1. No auditor was mentioned last week, but in the new notice, there was a mention that Deloitte had qualified the Chase Bank accounts. What does ‘qualified mean? Investopedia notes that this may mean the financial statements are materially misstated due to misstatement in one particular account balance, class of transaction or disclosure that does not have pervasive effect on the financial statements. or that the auditor is unable to obtain audit evidence regarding particular account balance, class of transaction or disclosure that does not have pervasive effect on the financial statements.
  2. While there was no difference in major items likes assets (Kshs 142 billion), deposit, loans, and profits (Kshs -1.1 billion) in both the newspapers, there were a changes in one item; Insider lending which was Kshs 5.2 billion last week, was now Kshs 13 billion in the Standard this week.  It’s doubtful that insider lending went up by Kshs 9 billion in a week, but it’s more likely that the money had been borrowed by directors/shareholders/associate firms before,  and that the auditors just discovered that the borrowers were related to directors of the bank.  (A material matter which may have led to the board changes?)
  3. There was no change in provisions and non performing loans. While the amounts jumped from by a staggering amount, between 2014 and 2015, with non-performing loans going from Kshs 3 billion to Kshs 11 billion and provisions  from Kshs 757 million to Kshs 2.1 billion, this has been the norm with (it seems) a stricter regime at the Central Bank of Kenya, requiring  banks to be stricter on provisions in 2015, compared to 2014.

Social Media

While twitter usage may be considered small, Whatapp is very active. There are messages I saw,  and, I can imagine,  many more that  I didn’t see, on WhatsApp, but it’s clear that social media had an impact on the run at the bank.

Bank Runs:

A bank run can happen, any time, to any bank. Banks only keep only so much money at their branches for everyday use. If they have a panic, and they only have Kshs 10 million or Kshs 100 million at the bank, and 1,000 customers all come to the bank to send instructions, or to withdraw all their cash, then even the strongest bank will have no recourse. Chase Bank was a darling of big investors, and SME’s funds, and you can imagine how the panic withdrawals exhausted the banks reserves.

Note:  I’m a Chase Bank customer.

CRS frustrating NSE Investors

There’s a fascinating banking book called Blood Money about how Swiss banks collaborated to with German army to rob Jewish citizens during World War II – and after the war they made it very difficult for survivors to claim money or assets in their vaults, denying it was there it was in their custody or by asking survivors to provide documentary evidence that their (deceased) relatives were even customers of those banks etc.

I’ve had a few unpleasant encounters with custody registrar services custody registrar services (CRS) of late that need to be vented out. (Note they haven’t harmed anyone as far as I know )

CRS are registrars they handled registry matters for several Nairobi Stock Exchange companies like blue chip Bamburi, BAT, East African Breweries (EABL), Kenya Airways (KQ) Nation Media Group (NMG), Barclays (BBK) and others like Centum, Express, EA Cables, Crown, Sameer Africa, Olympia, Rea Vipingo, Kakuzi etc.
CRS has a tortured history. It was formerly a unit of Barclays bank, known as Barclays Registrars (BARS), but BARS got embroiled in what was massive insider fraud case ( chronicled here) a few years before stockbrokers become the no. 1 villain. Barclays then sold the unit to former employees and new shareholders (called CAPSEC). They remained in Barclays Building before moving to their current offices at Bruce House Nairobi, which still has a Barclays like feel.

My beef with CRS is this; they now are the ultimate custodians of shares, who put shareholders of KQ, BBK, and NMG etc through hoops to get anything done at their sixth floor office. CRS are supposed to do the following for their corporate clients (registration of share transfers, processing & distribution of dividend payments, share register maintenance, unclaimed dividends processing) but in doing so:

They ask for documentation that is none of their business – and which is not required by the Capital Markets authority (CMA), Nairobi stock exchange (NSE) or central depository & Settlement Corporation (CDSC).
They are not the frontline of customer service but act like they are, and yet no shareholder chooses to do business with CRS. People buy shares from stockbroker or banks and provide their documents at that point where they are comfortable providing any information that the bank or broker requests, but not to CRS with whom they have no affiliation with
They are lazy – and ask for every document to be notarized (i.e. rubber stamped) by a lawyer on their panel. In other words, they assume you’re guilty first and need to be proven innocent. Truth is any bank or government office will do business with you if you show a national ID and give them a photocopy – not CRS, they send you to the lawyers.
They are inconsistent, and any attempt to deal with them will usually require several visits back and forth in search of the extra documentation they can arbitrarily request .
• They are so risk averse in modern times. E.g. Safaricom with their registrars were able to register over 180,000 Safaricom shareholders to receive their dividends by mobile phone or m-pesa dividends – they did the registration at supermarkets and bus stations. I’m sure KQ would like to be able to do the same for their 72,000 shareholders, but if they used to CRS, shareholders would probably be asked for a blood test or fingerprints first!

The conventional wisdom for dealing with them is that you have to go and argue your case because its like being at the US Embassy and asking for a Visa – Simple for some, but not easy of you’re a student or resident living overseas (Diaspora) or a grandmother living far from Nairobi (a typical rural based, retail shareholder)

So what sill it take for CRS to shape up?
– More complaints to the over-burdened CMA or NSE held-desks?
– Appeals to the respective company secretary’s
– A shareholders petition to EABL, KQ, NMG, or BBK and others about the need for a more responsive and customer friendly registrar?

Net blamed for stock speculation

The internet (be it forums or blogs) is being blamed for rumours that drove up the price of Sameer Africa shares to 40 shillings before it again dropped to half it’s take off price.

But Sameer never confirmed, denied or commented on the rumors until now.

But would you buy shares because a stranger wrote something to a blog, or chat room? And it seems far fetched that the readers of Kenyan blogs and chat rooms have enough weight & financial muscle to drive up a share price so drastically. I’m inclined to place blame with others, perhaps brokers, who simply used the ‘internet’ as an extra forum to play around with the share price of Sameer Africa (and who probably cashed out at 40 shillings).

Informing the NSE public

Read an article from the Washington Post where the Chairman on the US Securities & Exchange Commission, Christopher Cox, is intrigued by the idea of using blogs to disseminate important corporate information.

“A 2000 rule known as fair disclosure ended a long-standing practice of companies providing significant information to stock analysts and other Wall Street insiders ahead of the public.”

Monday’s naked insider manipulation of Citi Trust shares should have been a wake up call for NSE on information and rules for prices and trades. Watch to see if there’s any recall or punishment stemming from the ill-fated trade.

This is very important because currently pension funds, Kenyans in the Diaspora, farmers and other new investors are all stepping into the market and things like the Citi Trust fiasco tend to undermine our confidence in shares. The share splits of EA Cables and ICDCI were self-fulfilling prophecies – share price shoots up about 6X in a few months, leading directors to announce splits to make them more affordable.

”when you attract foreign investors, you also attract criminals who specialise in economic crimes” – Tommy Prins of Deloitte

Related NSE needs EDGAR

New age for investors
The Nation’s Weekly Advertiser interviews the brains behind Eight.co.ke, Jijini Marketsand Stock Detective who offer financial information on activities at the Nairobi Stock Exchange. Pick up this weeks’ free copy of the newspaper around town in Nairobi and hopefully the story will appear soon on their website. (ed: none are affiliated with the NSE)

Upcoming @ NSE

Barclays Rumour: The Bank will announce a 5 for 1 share split and a 1 for 38 bonus. Note: I don’t own any Barclays shares

Riba Capital tips on the next Mumias offer.

Family Finance Building Society will offer 15 million new shares to account holders at 60 shillings each (minimum placement is 30,000 shillings). The ongoing offer runs to the end of the month and may overshadow the, rather low key, Eveready IPO (which starts next Monday) in the same way Equity Bank’s listing stole the limelight (and perhaps investor cash) from Uchumi’s re-capitalizations earlier this year.

Family Finance mimics Equity which also raised 500 million shillings in capital in August 2005. FFBS was expected to be a licensed as commercial bank by June 2006 but that has likely been delayed by the Central Bank until they shore up more share capital.