Category Archives: NSE investments

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. 

ARM Cement goes into Insolvency

The appointment last Friday of joint administrators for ARM Cement was a surprise for the shareholders of the cement company that is listed on the NSE. But by ARM going into insolvency, this will give the company an opportunity to continue operations while organizing its debt position.

ARM Cement had loans with Stanbic Bank Kenya, African Finance Corporation and overdrafts with  Barclays, Stanbic, Guaranty Trust and UBA banks. Maweni, its Tanzanian subsidiary, had loans with Eastern and Southern African Trade and Development Bank (PTA Bank), and Development Bank of South Africa and overdrafts with Stanbic and Standard Bank (Mauritius). The financial statements for the year prior to the ARM insolvency noted that the company was not in compliance with financial covenants  with AFC, Stanbic, and Aureos

The ARM Insolvency move comes two years after Britain’s CDC invested in the company and became its largest shareholder, while earlier this year the company insisted a process to sell its non-cement businesses to further reduce its debt position.

But the moves appear to have not been completely successful and there have been a raft of board changes this year that has seen the exit of Pradeep Paunrana the company CEO and founding family representative and other longtime directors of the company and the arrival  last week of Linus Gitahi (former CEO of the Nation Media Group), as the new Chairman alongside other directors from CDC . The ARM insolvency move apparently has the support of CDC.

EDIT August 19: Official  Statement: ARM CEMENT PLC (In Administration) 9 TH FLOOR, THE WESTWOOD, RING ROAD, WESTLANDS P.O. BOX 41908 – 00100 NAIROBI, KENYA

To all shareholders and Stakeholders,
ARM CEMENT PLC (IN ADMINISTRATION) -PRESS RELEASE. _____________________________________________
As the Board, we acknowledge that on 17 August 2018, ARM Cement PLC was placed under administration following an application by the secured lenders. The running of the Company has now been placed in the hands of PwC’s Muniu Thoithi and George Weru, who have been named the Joint Administrators of ARM Cement Plc.

According to the Kenyan Insolvency Act, Administration is a proceeding intended to maintain the company as a going concern. The powers of the Board transfer to the Administrator who owes its duties to the company, and to the court. This is in contrast with receivership, where the Administrator owes duty to creditors.

We support any orderly process that secures the long-term viability of the company and the future of employees, suppliers and other stakeholders and shall lend our support where called upon to ensure that this goal is realized.

By Order of the Board
LINUS GITAHI (Kenyan), PRADEEP H PAUNRANA (Kenyan), JOHN NGUMI (Kenyan), ROHIT ANAND (British) KONSTANTIN MAKAROV (American), SOFIA BIANCHI (Italian),ALIYA SHARIFF (Canadian),THIERRY METRO (French).
TEL: +254 202 692 978 (PILOT LINE) + 254 202 667 675/6 MOB: + 254 733 636 456 EMAIL: INFO@ARMCEMENT.COM WEBSITE: WWW.ARMCEMENT.COM

 

Unga Seaboard Deal Details

EDIT July 27: Seaboard announced they are waiving the minimum acceptance threshold and will proceed to complete the acquisition of shares for which acceptances had been received  and those shareholders will be paid Kshs 40 per share in cash. Seaboard still intends to seek a de-listing of Unga from the NSE and will convene an extraordinary general meeting “in due course”.

EDIT July 20: Official results of the offer, saw Seaboard increase its shareholding from 2.92% to 18.97%, and combined with the 50.93% of Victus, they now control 69.9% of Unga’s shareholding. Other shareholders own 30.1% but 8.16% of them did not respond to the offer and Seaboard who had a target to attain 75% in order to push for a de-listing of Unga from the Nairobi Securities Exchange will make further announcements.

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.

Scangroup and Russell in Kshs 926M Mauritius Share Swap Deal

WPP Scangroup and its subsidiary Russell Square Holdings (Russell) and have entered an agreement for the purchase of Russell’s 3,660 shares in Research &  Marketing Group – a market research firm in Mauritius, that is owned by Russell. The shares represent 70% of the shares of the target firm and payment will be by way of 53.29 million shares of Scangroup which Russell Square Holdings (Russell BV) has subscribed for. 

It’s been a decade since the WPP deal to buy Scangroup and the new deal with Russell is meant to improve on client services at one of the largest marketing and communication groups in Sub-Saharan Africa.

WPP owns 50.1% of Scangroup, and after the share deal valued at Kshs 926 million (~$9.26 million), will own 56.25% of the company. Scangroup shareholders must approve the deal and WPP will also seek an exemption from being required to make a formal takeover offer as their increased equity position is the result of the strategic investment in Mauritius restructuring  their balance sheet. They also intend for the shares of Scangroup to remain listed at the Nairobi Securities Exchange (NSE).

Scangroup reported revenue of Kshs 4.1 billion (from billings of Kshs 14.1 billion) compared to 2016’s revenue of Kshs 4.8 billion (from billings of Kshs 16.3 billion) and a pre-tax profit of Kshs 696 million (compared to Kshs 725 million in 2016). The decline was attributed to the economic crunch and prolonged electioneering period in Kenya. Revenue from outside Kenya also declined due to cutbacks by clients, while digital and public relations were bright spots,  providing the greatest growth for Scangroup in 2017.

WPP Scangroup was trading at Kshs 16.95 per share on the NSE today and the deal comes a few years after the group also bought into Ogilvy across Africa. Scangroup has a Mauritius company that is the holding company for other subsidiaries incorporated outside Kenya including STE Scanad DRC, Scanad Burundi SPRL, Scanad Rwanda, JWT Uganda, Scangroup (Malawi),  Scangroup (Zambia), and Scangroup Mozambique.

$1 = Kshs 100

7th BAFM – Building African Financial Markets – Day Two

Summary of day one of the BAFM.  

The second day of the 7th BAFM – Building African Financial Markets seminar continued with more explanations on changes in the global scene and how they could affect African exchanges.

Michele Carlsson of Nasdaq said immediate top compliance concerns were the need to fully understanding regulations and how they affect exchanges, and the inability of technology to meet current market requirements. She said it was important for exchanges to have market surveillance systems that could look at several assets classes, do powerful visualizations, have flexible alerting, and enable real-time controls as well as being scalable and resilient.

Anne Clayton of the Johannesburg Stock Exchange spoke on the impact that various new European Union regulations that could have on African capital markets. These include rules on general data protection (GDPR, May 2018), benchmark regulation (BMR – Jan 2018), financial instruments regulations (MiFID II –  Jan 2018) and others on derivatives trading. She explained that data on GDPR, EU citizens had to be notified of data breaches and they also the right to be forgotten if they requested it i.e. to have all their data wiped out from a system  – .but that is in conflict with “know your customer” (KYC) and “anti-money laundering” (AML) laws, which require that financial data, is kept for seven years.  African exchanges have low liquidity and the costs of compliance keep going up, now estimated at 5-10% of turnover, even where there is no uptake of products or use of some of the new rules. Many of them have low liquidity and are heavily dependent on foreign investors to provide liquidity, but such investors are sensitive to any policy or taxes which can make them shift to other markets. But non-compliance could result in heavy penalties for companies.

Dr. Anthony Miller spoke of new opportunities from linking exchanges to the United Nations Sustainable Development Goals (SDGs) through new products. Last week Fiji launched a green bond at the London Stock Exchange while there was a gender bond floated in Asia to support women funded entrepreneurs. This is at a time that companies like Bloomberg are tracking the growth of green funds around the world, while many other investors are eliminating carbon investments, like coal, from their portfolios.

Block chain and bitcoin were top topics of discussion on day two of the BAFM. One talk was an explanation on the different aspects of block chain technology, which could offer African institutions the ability for Africa to leapfrog old hurdles. Sofie Blakstad spoke of using block chain to provide cheaper rural financing that is much cheaper than from commercial banks, and that the technology also enabled an unprecedented level of validation of the impacts of targeted funding programs such as micro-finance institutions  e.g. how ethical or green their funding programs are, by looking at data from the beneficiaries.

(Away from the BAFM, on the same day, Juliani, a popular Kenyan gospel musician launched Juliani “Hela” a loyalty point-based currency earned by customers on every purchase of an official Juliani event ticket, a T-shirt, or album).

David Wagemma spoke about M-Akiba which was the first mobile-traded government bond in the world that cost Kenyan investors just $30 and which took five minutes to sign up and pay for, all via their mobile phones.

Later in a panel on block-chain as a disruptive technology for markets, Abubakar Mayanja said that progressive regulators should have sandbox licensing so that regulation goes on even as new ideas are developed, while Reggie Middleton, said the 1,500 cryptocurrencies in existence could grow on their own without needing each other and they did not need to concern central bankers and regulators in Africa as they had nothing to do with currencies.

In their remarks to close the event, Geoffrey Odundo, CEO of the Nairobi Securities Exchange (NSE), thanked organizers, saying that the BAFM had trended for two days and he saw that even the Deputy President was still following the conversation, while Oscar Onyema, President of African Securities Exchanges Association (ASEA)  said that this had been the best event in the BAFM series, with the next one to be hosted by the BRVM in Ivory Coast in April 2019 – who would be challenged to excel of the Nairobi event

Day two of the 7th Building African Financial Markets seminar was held at the Villa Rosa Kempinski Hotel in Nairobi Kenya on April 20, 2018.