Category Archives: NSE investor awareness

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.

7th BAFM – Building African Financial Markets – Day One

The 7th BAFM – Building African Financial Markets seminar was officially opened by Kenya’s Deputy President William Ruto with a joke that it was important that the organizers, who were the African Securities Exchange Association with the Nairobi Securities Exchange go out and clarify the difference “stock exchanges” and “stock theft” which is a big menace in Kenya. He then mentioned that securities exchanges provided assets protection and wealth creation and that some companies that the government had divested from like Kengen, Safaricom, and KCB were now among the leading institutions in Africa.

He asked the capital markets to help revive the agricultural sector and urged them to work on a commodities exchange and use block chain to create a ledger for collateral, and that he hoped the summit would redirect shareholders attention to the opportunities that reward vigilant, flexible and innovative investors.

One of the highlights of the day was a talk by Terry Adembesa who explained the complex processes and long steps that the Nairobi Securities Exchange has to go through to introduce new products and to persuade companies to list on the exchange. He explained how they had passed regulations to allow derivatives trading and short selling (which they plan to introduce later in 2018 for selected equities_ and to also allow market making by selected firms for stocks and bonds. They had made strides get pension and insurance funds to recognize their new products like Real Estate Investment Trust’s (REIT’s) and lobbied alongside Barclays to get Exchanged Traded Funds as an accepted class of equities that local funds could buy into. They had also lobbied the Kenya Revenue Authority to waive taxes on development REIT’s.

He added that African exchanges like Kenya’s have low volumes compared to Johannesburg and Mauritius; they mainly trade equities, with low participation from local investors (Trading at the Nairobi Exchange is 35% by local investors compared to 100% in many Asian markets) and later this meshed well with a nice presentation on the African Financial Markets Index by George Asante of Barclays Africa. It was a nice illustration of the maturity levels of stock exchanges in 17 countries that constitute 60% of GDP of Africa, with a startling finding that there was a significant cost borne by African countries by them not having effective capital markets.

Sallianne Taylor explained how Bloomberg  collects data and showcases African companies and exchanges to the wider world, facilitating financial leaders and exchanges to meet investors and financial journalists, while Nora Owako traced the evolution of Safaricom’s M-Pesa which has changed over the years to match the needs of consumers and now encompasses international remittances, savings, loans, utility payments, and merchant finance.

Another striking revelation was by David Waithaka of Cellulant during one of the afternoon panels on fintech as an enabler. The company, which was founded in Kenya, had run a platform in Nigeria that had connected 15 million farmers to 6,000 agro-dealers for farmers to get inputs and with commercial banks providing bridging finance to agro-dealers as they awaited reimbursements from the government. The program had a redemption rate of 59% and through it, farmer incomes improved from $700 to $1,800. It was later extended to rice and saw $2.4 million worth of commodity trades in two months. It is being rolled out in Liberia and event participants asked” Why not Kenya?”!

One of the shocks of the first day of the BAFM was from Joseph Tegbe of KPMG Nigeria who gave a talk on cybersecurity and warned that there was a real possibility that countries could use cyber attacks to target and destabilize the stock exchanges of other countries.

NSE Chairman Samuel Kimani thanked the BAFM gold sponsors – Bloomberg and Barclays, silver ones – CMA Kenya, Safaricom, Kengen, EFG Hermes, and others. The day ended with news during a panel on fintech as an enabler, that Barclays launched a green mortgage product, offering cheaper financing for energy-efficient homes

Day one of the 7th BAFM – Building African Financial Markets seminar was held at the Villa Rosa Kempinski Hotel in Nairobi Kenya on April 19, 2018. 

Nairobi hosts the 7th BAFM – Building African Financial Markets seminar

This week sees Nairobi host the 7th Building African Financial Markets (BAFM) seminar with the theme of “adaptive innovation as a lever for growth and sustainable development of financial markets”. 

News of the seminar was unveiled by Nairobi Securities Exchange (NSE) CEO, Geoffrey Odundo in January 2018 when Barclays launched its Africa Financial Markets Index (AFMI) report in Nairobi. The Barclays AFMI measured African stock exchanges by six pillars of market depth, access to foreign exchange, market transparency, macro-opportunity, enforceability of agreements and capacity of local investors, and it ranked South Africa on top, with Kenya in fifth place.

The NSE and the African Securities Exchanges Association are organizers of the BAFM event with  Bloomberg and Barclays as gold sponsors. The ASEA, which was founded in 1993 with the Nairobi Stock Exchange as the first member, now has a membership of 40 African stock exchanges.

The BAFM will be officially opened by William Ruto, the Deputy President of the Republic of Kenya. It will feature leaders and speakers from organizations such as Nasdaq, the Johannesburg Stock Exchange, EFG-Hermes – a Cairo-based investment bank that is new to Nairobi, and Safaricom, while some of the sessions of great interest are likely to include “a blueprint for orderly markets in Africa”, M-Akiba; the $30 mobile-phone government bond as a disruptive technology reshaping African financial markets, “building new markets in frontier economies”, a guide for managing cyber risk, linking African exchanges organically, and “is blockchain the future of finance or a flash in the pan?”.

Reading the Tea Leaves at Kurwitu Ventures

Kurwitu Ventures published their 2017 accounts last month. The company listed on the

Growth Enterprises Market Segment (GEMS) of the Nairobi Securities Exchange (NSE) back in November 2014 at a premium price of Kshs 1,250 per share. The GEMS segment was created was created to give small and medium enterprises an easier route to the capital markets through lower requirements such as being in operation and audited accounts for just a year and took take steps to improve their governance
Their 2017 report notes that Kurwitu offers Shariah-compliant investments and asset management services – including Sukuk securities (Islamic bonds) – and their key focus remains on agriculture investments. The company may also invest with others persons in pass-through ventures such as REIT’s and investment notes – and such products may not appear on the group balance sheet.
 In their original listing document (PDF), the company had forecast to generate revenue through three sources; from early-stage equity investments (generated by investing Kshs 100M in in projects in 2015, up to Kshs 200M in 2017), doing three (3) pass through investments a year of about Kshs 400 M in value – out of which they would earn a 1.5% fee and finally, corporate financial advisory deals for which they would earn a minimum of Kshs 4 M per deal. But in 2017, the company lost Kshs 10 million (10 M) compared to a loss of Kshs 14 M the year before. They had revenue of Kshs 317 shillings (all interest income, and still an amazingly low amount of interest income in relation to their bank balances) while they had revenue of Kshs 20,885 in 2016.
Directors at the time of listing were Abdikadir Hussein Mohamed, Mohamed Abdirahman Hassan, Sumayya Hassan Athmani, Jamal Isaak Ibrahim, Abdikadir Mohammed Haji, and Abdirahman Abdillahi and shareholders were Abdirahman Abdillahi (51%), Mohammed A. Hassan (27%), Ali Daud Mohamed (4%), Noordin M Haji (4%) and Anas Ibrahim Hussein (4%).  Abdirahman Abdillahi and Mohammed Hassan have since reduced their stakes in Kurwitu. To date, shareholders have lent Kshs 70 million to Kurwitu (including 20M in 2017) and these loans, which have no repayment date or interest charged, can be converted to shares at a value of Kshs 1,400 per share – and the current outstanding loans are equivalent to 50,000 shares against the current 102,000 issues shares. The company is authorized to have 125,000 shares. 

A tractor at Lamu (no relation to Kurwitu)

The company created an asset management subsidiary in March 2015 that is 99.9% owned by Kurwitu Ventures and 0.01% by Abdirahman Abdillahi (the managing director). It has 3 plots of land in Lamu – Magongoni that it bought for 102 million and which it has owned since its listing, while in 2015 they bought another parcel in Lamu – Lake Kenyatta for Kshs 4 million.

In 2017, the company had Kshs 6 million (6M) in the bank, paid 5 M in salaries and another 3M in professional fees. Their accounts were audited by Abdulhamid & company. This accumulated losses at the end of  2017 were Kshs  44 million, compared to Kshs 33 M the previous year.

Other companies on the GEMS segment of the NSE include Home Afrika, Flame Tree, and Nairobi Business Ventures. Cytonn Investments, which was granted a fund manager license last month, also plans to list under GEMS later this year, while Atlas has already exited.

Kenya Airways March 2018 results

Kenya Airways (KQ) announced their full-year results in Nairobi this morning covering the nine-month period April to December 2017, as in a change for past years, they have shifted their year-end to December to be in line with their airline partners. It was tough to compare 2017 to 2016 which was a full year but it was a significant year in which the airline  completed a capital optimization to wipe out a deficit in their balance sheet which was achieved by Kenyan banks converting debt into equity, and becoming the second-largest shareholder (38.1%) after the Kenya Government who also funded their airline with cash and guarantees as their shareholding went up to 49%.

CEO Sebastian Mikosz said that fuel prices (which went up from about $52 to $62 in the year combined with elections (which included a 20% drop in East African domestic travel) had the biggest impact on the bottom line. He said that they flew 3.4 million passengers with a 76.2 average cabin factor and 8.1million revenue kilometers and increased frequencies to Cape Town, and added a  new route to Victoria Falls.  He

Acting CFO Hellen Mwariri read the results which included an operating profit Kshs 1.3 billion and a loss after tax of Kshs 6.1 billion. This was from revenue of Kshs 81 billion (compared to Kshs 106 billion in the full year before) and with assets at year-end of Kshs 140 billion (146 billion the year before) and they had also wiped out the negative equity position that went from minus Kshs 44 billion to minus 4 billion.

Mikosz spoke of the need to get more revenue from Kenya Airways corporate brands –  Jambojet, Technical (servicing their own aircraft and they gained two external customers in the year), Cargo, Pride (training), and Holidays. He also spoke of network optimization at the airline –  adding New York flights, new routes to Mauritius and Cape Town, and using more Q400 turboprops on short regional routes. Kenya Airways will also be enlarging their joint-venture with KLM to now include Air France and will KQ introduce an “economy comfort” product in all aircraft in the next 12-15 months, something that is popular with European partners customers. They have also recalled a Boeing 787, that they had sub-leased Oman Air, which they will now use on the New York route from October.

Mikosz said he was not a big fan of “open skies” that African nations were pushing for as Africa was not like Europe that regulated and policed open skies and was able to monitor the competitive space and the support availed to all airlines and the levels of state protection.