Category Archives: NSE investments

President pledges NSE Revival through IPOs

President William Ruto visited the Nairobi Securities Exchange (NSE) and rang the opening bell, then listened to financial and government leaders explain the situation in the financial markets.

  • NSE Chairman, Kiprono Kittony lamented that there had been no new government listings in 13 years. This stems from challenges and long procedures in the privatization process and they have had talks with Moses Kuria, the designated Cabinet Secretary for Trade, Investment and Industry,.
  • James Mwangi CEO of the Equity Bank CEO said his group was the ultimate hustler fund that grew from being a Nyagatugu village mutual fund, owned by 2,500 farmers. In 2005 and 2006 it converted into a bank and listed on the NSE which enabled them to then raise $185 million (Kshs 11 billion) from Helios. Today, the original investors have seen a 159,000% return on their investment and Equity, with Kshs 1.4 trillion of assets, has the sovereign fund of Norway (Norfund) and the World Bank Group as its largest shareholders.  
  • Lengthy Privations: Engineer Kinyanjui of the PPP said privatization as currently structured has 16-17 steps and each takes 5 months. The government owns Kshs 426 billion of investments (at the NSE) and can’t sell one share without going through a privatization law process. Entities like ICDC (now under KDC) have mature investments they are ready to exit from and support the government program and the delay in privatization means that when they divest, there is an erosion of value. 
  • Pension Opportunity: Hosea Kili, the Managing Director of Laptrust said the Lamu Port, SGR and Nairobi Expressway could have been financed by the local pension industry if they had been structured for them and lamented that they are unable to deploy funds as there are no new listings. He added that Laptrust plans to list Kshs 7 billion of their Kshs 17 billion property portfolio as an I-REIT. 
  • The National Social Security Fund (NSSF) boss said that 15 million Kenyans are not in any pension schemes. At the same time the NSSF, which has shares in 29 listed companies, is 3% of the NSE, has reached the limits of what it can invest in some counters.  

After listening to leaders, President Ruto said the government would revive the capital markets by privatizing and listing 5-10 state enterprises in the next 12 months and that the government would also seek to float a domestic dollar-denominated bond.

He directed that the government review of privatization law to review sections that inhibit the process, or he would move to repeal it. He also asked private companies to step forward and list and said the government was willing to remove some impediments including forgiveness of some tax sins. 

In his closing remarks, the President: 

  • Announced that Bio Foods and Credit Bank have obtained approvals to list at the NSE.
  • Invited the pension companies to a meeting at State House a few days later. 
  • He also put a fire under the boards of Nairobi International Financial Centre and the Privatization Commission for not delivering.

Here’s a stream of the launch of the enhanced NSE Market Place event

New unquoted board for company listings at Nairobi

The Nairobi Securities Exchange (NSE) has launched a new push to increase the number of listed companies. Rather than wait for companies to get ready for listing, they had set out to seek and groom companies under the Ibuka program and have now launched an unquoted securities platform (USP) to woo more companies.  

At an event organized by the Bob Collymore Foundation to connect small and medium businesses seeking capital with potential investors, NSE CEO Geoffrey Odundo said there are 498 private equity funds in Africa with 238 are active in Kenya where there was Kshs 2 trillion available to invest in well-run businesses. He said the new NSE programs are designed at improving the transparency, governance, and chances of business survival after a founder hands off, not just raising capital.  

The USP is an information and infrastructure solution to promote the issuing and trading securities by unquoted companies who can list corporate bonds, ordinary or preference shares, REIT’s, private offers, rights issues and secondary listings of any amount. It targets the many companies whose shares trade over-the-counter (OTC), but whose owners are seeking liquidity, clearer valuations and maybe later to raise capital.

Companies can apply by sending a prospectus to the CMA and NSE, one year of audited accounts, board resolution, incorporation documents and a fee of Kshs 5,000. It takes 21 days for a decision to be made if all documents are sent and the cost of listing is 0.03% of the value of the securities.

The NSE’s USP board has two listings, both from Acorn Holdings. As part of the conclusion of its green bond program, Acorn has transferred the student accommodations it is building into an Acorn D-REIT (real estate development trust), and once they are complete, they will be sold to an Acorn I-REIT (income real estate investment trust) that will manage the properties. A few weeks ago, on July 9, the USP board had its first trades as one million shares of Acorn worth Kshs 20 million (Kshs 6M of the D-REIT, and Kshs 14M of the I-REIT) were traded.

Private Equity investment guide for East Africa

This week in Nairobi saw the launch by  EAVCA, FSD Africa and IFC Africa of a new private equity (PE) investment guide for East Africa.

The PE investing guide is a tool to enable pension funds across East Africa to assess and invest in private equity assets by raising knowledge among pension fund managers who are primarily invested in stocks and bonds.

It is a simple guide that can be read in just thirty minutes to gain an understanding of private equity assets. It has a checklist of useful information to look for before investing in PE, and after to manage portfolios, and roles for general and limited partners.

Also, EAVCA released a market report on the current status of private equity investments in the region following a survey of pension schemes and PE general partners. It found that, while five Eastern African countries have generous provisions for pension funds to invest in private equity, led by Rwanda at 20%, Uganda at 15% and Kenya at 10%, the uptake has been low with Uganda attaining 2.2% investments in PE funds followed by Kenya at 0.08%.

Nzomo Mutuku of Kenya’s Retirement Benefits Authority (RBA), who officiated the launch,  said that while pushed for pension schemes to diversify and explore alternative investments to grow returns for members, many still had huge investments in one company (i.e Safaricom) and stocks and bonds of banks in which they held their deposit funds. (Later it came up the concentration in a few NSE stocks is not unusual among sub-Saharan markets- Nigeria’s largest firm commands 35% of the market while in Ghana, the top three firms have an 80% share).

Other Insights from the Q & A after the launch:

• Excluding South Africa, there is about $100 billion of funds held by pension and insurance funds and collective investment schemes (CIS). Of that East Africa, has about $30 billion with  Kenya at $20 billion.

• The IFC has been in private equity for over 20 years and is invested in 300 funds globally, with 50 of them active in this region.

• One pension manager cited their investments in I&M bank before it listed at the NSE, UAP, and invested in an energy IPP that gave attractive returns of 13% on a Euro investment.

• Another mentioned that they had participated in 40 bonds offers in 17 African countries with decent returns and no defaults.

• Speakers cautioned about Kenya’s move to raise the capital gains tax on private equity from 5% to 12%, a move that the country’s parliament has since set aside thanks to concerted lobbying.

The teams will next move to market the assets class to trustees in Botswana and Nigeria.

Kenya launches futures derivatives markets

The Nairobi Securities Exchange (NSE) has gone live with NEXT – futures derivatives trading in a move to enhance risk management and becoming the second exchange in Africa to offer exchange-traded derivatives.

The NSE will offer two types of derivatives; equity single stock futures (SSF) starting with shares of five listed firms that met specific criteria such as high daily trading volumes (British American Tobacco, East Africa Breweries, Equity Group Holdings, Kenya Commercial Bank Group, and Safaricom Plc) as well as an NSE 25 Share Index futures (EIF) that provides investors with a benchmark to track the performance of the Kenyan securities market. The introduction of NEXT futures will also increase trading activity and liquidity at the NSE as investors will have the potential for greater returns, even when share prices are going down (short selling), as they only have to put up a small amount of money as leverage.

This comes after a successful six-month pilot test in which end-to-end derivative transactions were done in a live environment, and which tested the capabilities of market players. Kenya’s Capital Markets Authority (CMA) then granted approval in May 2019 for the NSE to launch and operate the derivatives exchange market.

The CMA has also licensed several entities to undertake derivative services.  The stockbrokers that will offer derivatives futures to investors from today will be African Alliance Securities, AIB Capital, Apex Africa Capital, CBA Capital, Dyer & Blair Investment Bank, Faida Investment Bank, Genghis Capital, Kestrel Capital,  Kingdom Securities, NIC Securities, SBG Securities, Standard Investment Bank and Sterling Capital. Also, two banks, Stanbic and Cooperative, will provide clearing and settlement services, collecting margins and generating data and reports on futures trading activities.

The launch of NEXT derivatives trading comes after a series of other innovations at the NSE including the introductions of the M-Akiba mobile phone bond, Real Estate Investment Trusts (REIT’s), asset-backed securities and exchange traded funds (ETF’s). If the uptake and performance of stock futures are successful, next at the NSE will be currency derivatives and interest rate derivatives.

EDIT November 2019: The Capital Market Soundness Report- Q3. 2019 from the CMA showed that 349 contracts were traded between 4th July 2019 and 30th September 2019.

Of these, the market traded 248 Safaricom contracts representing a turnover of KES 6.9 million; banking contracts came in second with 58 KCB Group contracts traded at a total turnover of KES 2.3 million; and 26 Equity Bank contracts traded at KES 1.0 million. The NSE 25-Share index contract traded 12 contracts at a total turnover of 2.6M.

BK Group – Bank Kigali Rights Issue and Nairobi Listing

BK Group, the holding company for Bank of Kigali, which is the leading financial institution in Rwanda, has launched a rights issue that will end with it cross-listing its shares on the Nairobi Securities Exchange (NSE).

BK Group is floating 222.22 million new shares at Rwf 270 with a target to raise Rwf 60 billion (~$70 million or Kshs 7 billion) through a rights issue in which current shareholders are eligible to buy one new share for every three they own. All the funds will go to shore up the capital of the BK Group bank and its subsidiaries. Also, 7.2 million new shares will be allocated to an employee share ownership plan (ESOP) for eligible director and employees.

Incorporated in 1966, the bank ended 2017 with assets of Rwf 727 billion (~$830 million or Kshs 84 billion) and pretax profit of Rwf 34 billion. Its subsidiaries include an internet company (TecHouse), registrar, nominee, securities, and general insurance company. It has 79 branches and 2 million customers. It has an estimated 32% share of the Rwanda bank market, ahead of BPR 13%, Cogebanque 10%, Equity 8%, KCB 7%, Ecobank 6%, and a 4% share of assets each for both GT Bank and Access. 

In 2011, the Government had offloaded 25% of its shareholding to the public as the bank listed on the Rwanda Stock Exchange. It is still the major shareholder through two organizations, the Rwanda Social Security Board (RSSB) and Agaciro Development Fund with 32.4% and 29.4% respectively. Others are the Rock Creek Group Dunross and Co Aktiebolag, Kamau Robert Wachira, RWC Frontier Markets Equity Master Fund, Frontaura Global Frontier Fund, and The Vanderbilt University – T133. After the rights issue, the top two shareholders will have 30% and 22.1% respectively with the ESOP having 0.8%. The government is not taking part but RSSB will partially participate to ensure their shareholding remains at 30% while other shareholders who don’t participate will be diluted by 25%.

The rights issue is from October 28 to November 9. It will be followed by a rump issue that will be from November 12 to 16 November in which shares not taken up in the rights issue will be offered to through a private placement to qualified institutional investors at Nairobi’s NSE.  Results will be announced a week after and the new shares admitted on the Rwanda Stock Exchange, with a cross-listing on the Nairobi Securities Exchange, on November 30. 

The target is 70% success with the 155.56 million being taken up worth Rwf 42 billion. In the event of an over-subscription, the rights issue has no green-shoe option and refunds will be done. In a statement released today, Kenya’s Capital markets Authority confirmed approval of the listing at Nairobi with an estimate that 40% of the funds will be raised through the rump issue. 

BK Group advisors are Renaissance Capital (Rwanda) as the lead transaction advisor, BK Capital – sponsoring broker and registrars, Trust Law Chambers as legal advisors, PricewaterhouseCoopers as reporting accountants, Bank of Kigali is the receiving bank and Hope Holdings are the PR & Marketing Advisors. The rights issue will cost Rwf 1.72 billion comprising Rwf 526 million transaction advisor fees and Rwf 900 million as placement commission (1.5% payment to authorized agents who are BK Capital, CDH Capital, SBG Securities, Faida Securities,  Baraka Capital, Core Securities, African Alliance Rwanda and MBEA Brokerage). Other fees are Rwf 90 million to the RSE, 39 million legal advisory and Rwf 22 million each for reporting accountants, receiving bank, sponsoring stockbroker and also for media and advertising.

$1 = Rwf  873, 1 Kshs = Rwf  8.58

EDIT Nov 23 results : Rights issue announced uptake was 43% with 104 million of the offered 222 million shares subscribed for, raising ~$31 million. And following the rump offer, by institutional investors, who oversubscribed for the shares and took up took up 136 million shares for ~$41 million, the total issue performance has been recorded at 107% and the new shares will list on Nairobi and Kigali exchanges on November 30.