Category Archives: NSE investor awareness

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. 

Barclays Kenya unveils AFMI 2018 – the Absa Africa Financial Markets Index

Barclays Kenya launched the second edition of AFMI 2018 – the Absa Africa Financial Markets Index, revealing performance improvements at a time of economic turmoil on the continent and also the addition of new countries to the index that now tracks twenty African economies.

In the time since Barclays launched the initial Africa Financial Markets Index in 2017, they have seen good engagement from policymakers striving to improve their appeal to investors through the AFMI 2018 index which measures countries across six pillars of market depth, access to foreign exchange, market transparency/regulations, capacity of local investors, macroeconomic opportunity, and enforceability of legal agreements. This year, three new countries – Angola, Cameroon and Senegal joined the index bringing the countries tracked to 20 and the country measures were also tweaked to include elements of financial inclusions and levels of investor education

The AFMI 2018 was again topped by South Africa, the most advanced financial market in Africa, followed by Botswana, Kenya, Mauritius and Nigeria. Kenya, Morocco and Seychelles all improved in the rankings while Mauritius and Namibia slipped slightly. Nigeria was credited for improving in its administrative efficiency and tax reforms. 

Jeremy Awori, Managing Director of Barclays Kenya said that emerging markets were under great pressure with currencies dropping, interest rates rising, political instability, falling commodities etc. and these highlighted how strong domestic financial markets could be used to cushion African economies from headwinds. He said that while  Kenya topped the access to foreign exchange pillar of the index, and had improved in the enforcement of  legal agreements, showing it was on a path to be a regional financial hub, there was still need to need to improve capacity of local investors, and grow the diversity of investor products. He added that Barclays Kenya was the first institution to list an ETF – an exchange-traded fund at the Nairobi Securities Exchange (NSE) and was also providing thought leadership on international swops and global master repurchase agreements.

Guests at the launch included Geoffrey Odundo, CEO of the NSE, and Paul Muthaura, CEO of Kenya’s Capital Markets Authority (CMA). Odundo said that while the 2006-08 IPO era unlocked retail investor capital, there was much more opportunity for investors to get good returns in the secondary markets including through REIT’s and that the NSE was currently piloting on offering derivatives. Muthaura spoke of initiatives to connect investors across African investors including a pilot exchange partnership between Kenya and Nigeria, and the African Securities Exchanges Association which was looking to enable trading links between the six largest exchanges on the continent.

Anthony Kirui, Head of Markets at Barclays Kenya said the country had an array of fixed income securities, but attention needed to shift to re-opening bonds as opposed to issuing new paper. He added that there was a need to create a primary dealership and a true OTC market and to also address the reluctance from local owners to list on stock markets. Muthaura said that one factor in the lack of new listings at the NSE was due to companies, who may have been candidates for listing to get new capital, now opting for the abundant and cheap funding from banks that were flush with cash in the era of interest rate caps

In East Africa, Uganda was stable (at No. 10) on the index while Rwanda and Tanzania dropped slightly, the former due to discrepancies in the implementation of rules and the latter due to lack of capacity of local investors. Ethiopia was at the tail end of the Index due to not having a security exchange and corporate bond markets, but that is likely to change as the country pursues reforms such as freeing the foreign currency exchange rate and planning for privatization of Ethiopian enterprises.

The AFMI 2018 report was done with the Official Monetary and Financial Institutions Forum (OMFIF) and can be downloaded from the Absa site.

Britam vs Cytonn Executives

A dispute between insurance giant Britam and some of its former executives who left the firm and set up a rival investment management firm called Cytonn has been on and off for the last four years. Recently a judge ruled that a criminal case would continue in the courts.

After that decision, Cytonn CEO Edwin Dande issued a personal statement on the long-running case as he set out to absolve Cytonn, which is known for its real estate property developments and financial industry reports, from the case against its four executives who had been at Britam. He writes on the reasons behind the dispute and their departure  which he says was due to insider attempts to destroy a Kshs 5 billion portfolio of client funds that they had brought to Britam (excerpts) :

  • .. the resignation was due to an operating environment that was fraught with illegalities and unethical business practices that we did not agree with…
  • we could not agree to be part of actions such as illegally using client insurance funds to purchase shares of Britam to rescue a failed IPO, we objected to using insurance funds under our management to purchase a failing bank – a transaction that has now led to loss of billions of shillings of investors’ funds..  
  • ..following our resignation, Britam launched a full-scale assault in an attempt to ruin our careers by filing 7 different suits claiming up to Kshs. 9.8 billion in stolen funds… 
  • The suits were obviously malicious and designed to achieve only two objectives: first was to punish the former team for daring to leave as a team, and second was to deter competition.

He writes that his statement was released was to reassure Cytonn’s 500 employees and 3,000 clients who had invested over Kshs 20 billion in various investment products.

Britam has been silent on the dispute other than their 2014 annual report which mentions the litigation; The British-American Asset Managers Limited is the Fund manager of a Limited Liability Partnership (LLP) which has been mandated to invest in property. The LLP loaned Shs 3.9 billion to various third parties to purchase property. The company on behalf of the LLP has instituted legal suits to recover the above amounts plus costs. The court cases are ongoing and we expect that the outcome will be favourable

Both Cytonn’s managers and Britam have separately settled with Acorn that was a partner in the fund-raising plan before the dispute.

EDIT/ Update October 12: The Court of Appeal granted stay orders on October 11, meaning there is no prosecution action against the four Cytonn executives for now.

CMA Kenya launches University Financial Literacy Competition

The Capital Markets Authority of Kenya formally launched the 2018 Universities Challenge at KICC in Nairobi on September 25, which aims to equip young people with investment skills and nurture a culture of financial literacy and investing and saving for the future through participation in capital markets.

The 2018 edition of the Universities Challenge, which runs from September 25 to December 31, will feature 6,015 participating students from 37 local universities. They will go through five stages of elimination through testing their financial literacy and knowledge, starting with an online exam, followed by a stage dubbed a “scavenger hunt”, then they will make presentations at universities followed by presentations to CMA staff. There will then be a grand finale event in Nairobi where twelve top students will get to pitch to investment stakeholders, CMA staff and representatives of all universities in the challenge.

Speaking at the launch, CMA CEO Paul Muthaura, said that the average age of entrants was 23 years and that this was as a result of them targeting ongoing students and make them young investors because of the long-term nature of capital markets investments. Also that the use of technology was part of the CMA’s engagement process of expanding financial literacy as well as to transform the visibility of the authority through social media. He added that the CMA was in the middle of implementing a ten-year master plan and had won several awards for being among the most innovative market regulators in Africa.

The winner of the 2018 inter-university competition will get a grand prize of a Kshs 150,000 (~$1,500) portfolio of listed securities of their choice and the university where the student comes from will get investment textbooks worth Kshs 75,000 for its library. Three other winners will get fully paid 3-day educational trips to observe a securities exchange and capital markets regulator in Africa.

Individual Pension Schemes – Zamara Vuna AGM

Members of the Vuna pension scheme by Zamara met at their annual general meeting (AGM) in Nairobi this week to get updates of the previous year during which the fund grew by 10% to Kshs 2.37 billion. It was a year in which they rebranded from Alexander Forbes Kenya and one in which, the Nairobi Securities Exchange, which had its last good year in 2013 (when it was up 44%), managed to rebound in 2017 to 28% after dipping in the years in-between.

Zamara’s Vuna takes the view that saving for retirement is not a priority among many Kenyans who are juggling many financial requirements every day – so they have designed products for people to save what they can, when they want – people such as the self-employed, small business owners, individuals, overseas workers, and those  who work in organizations that don’t have formal retirement pensions plans. They also accept lump sum contributions and M-Pesa payments.

Vuna has over 5,000 individuals and 180 small companies as members and they give different options for savers according to their risk tolerance, for them to be pooled in the conservative, moderate or aggressive investor portfolios and members can switch their investor profiles once a year. They added an online portal for members to track their contributions and an app that helps members do projections about their retirement savings. This year they are adding a new group life assurance scheme.

They updated members on changes to their schemes, tax rule and answered questions  such as on how to deal with employers who don’t remit deductions and how they decided on making payments to families  of members who have not updated their beneficiary list-  and they cited a study that showed a higher proportion of women do not list their husbands as their beneficiaries, compared to husbands who list their wives. The meeting ended with an advisory caution to members that the only person you’re 100% sure will take care of an “older you” is a “younger you”.