Category Archives: NSE investor awareness

KPMG on Kenya Taxes in 2021

KPMG East Africa has a summary of some tax proposals in the Finance Bill that will be used to plug the country’s ambitious Kshs 3.6 trillion 2021/22 budget.

Here are some excerpts

For investors

  • Depositories are to enhance the identity of investors i.e buyers and sellers of securities.
  • Creation of post-retirement medical funds in retirement benefits schemes.
  • Clarifies the definition of an infrastructure bond.
  • A capital markets tribunal shall deal with matters before it within 90 days.
  • Moving from 16% to exempt after July 1, 2021, are the transfer of assets into real estate investment trust (REIT’s) and asset-backed securities.

Competition

  • Opens up reinsurance to players other than Kenya Re to certify reinsurance contracts.
  • Opens the door to private electricity companies; no longer required to offer their supply to the national grid and they are eligible for investment deductions. Also, if government licenses them, they can compete with KPLC.

Prosecutions

  • Tax cases will not stop where there is an ongoing criminal or civil case.
  • Abolishes the amnesty on rental income tax before 2013 (which had since expired).
  • Rewards for informing on tax dodgers; The Kenya Revenue Authority (KRA) can reward up to Kshs 500,000 (up from 100,000) for information and up to 5% or Kshs 5 million of taxes recovered.
  • Taxpayers are to keep records for 7 years and KRA can assess claims of up to 7 years from the date of a taxpayer’s last return.

Digital Taxes and market

  • PIN’s required for digital marketplace transactions.
  • Digital service tax is removed from residents (only applies to non-residents).
  • Non-resident businesses can maintain records in convertible currencies (not necessarily Kenya shillings).

Large investors

  • To stop base erosion and profit shifting, multinationals / ultimate parent companies are required to file a report on their activities (revenue, profit, taxes paid, employees, assets, cash) in Kenya within 12 months of their financial year-end.
  • Ends group VAT registration for groups of companies; each entity will report its own VAT on transactions.
  • To encourage large investments, there is an exemption for import declaration fee (IDF) and railway development levy (RDL) for investments over Kshs 5 billion or with the approval of the Treasury Cabinet Secretary.

Value Added Tax

  • Introduces VAT on bread.
  • Several items move from 16% to exempt, which means the Treasury CS can exempt them on request. These include infants foods, medical ventilators, lab reagents, gas masks, x-ray equipment, anti-malaria kits and doses, and artificial body parts.
  • Also moving from 16% to exempt, are vehicles for oil & mining companies, and equipment for solar & wind generation.

Other

  • A 20% betting tax returns after being briefly for a year.
  • Bank loan fees no longer incur excise duty.
  • Remove a requirement for VAT regulations to be approved ahead by Parliament; instead they will be shared with legislators under the statutory instruments Act.
  • Withholding tax in oil and mining sectors will be 10%
  • Removes the 10 year limit on carrying tax losses
  • Excise tax goes up on motorcycles and is introduced on jewellery and nicotine substitutes.
  • Reintroduces excise duty on locally-manufactured sugar confectionery and white chocolate that was removed in 2019.

M&A Moment: May 2021

Various merger/acquisition (M&A) deals in the last few months in East Africa since the last update.

(1 US dollar equals 110 Kenya shillings)

Banking and Finance: Finance, Law, & Insurance M&A

Kenyan Banks

  • The Competition Authority approved the acquisition of 24.9% of the Montessori Learning Centre by Victoria Commercial Bank.
  • Stanbic Africa gets an extension to the end of 2021 to increase its Stanbic Kenya stake to 75%, by acquiring 14.8M shares from other shareholders through the NSE
  • Mwalimu National Sacco has acquired 100% ownership of the trouble-ridden Spire Bank from business tycoon, Naushad Merali – via @moneyacademyKE

Regional Banks

  • Equity Bank to merge BCDC_RDC & Equity Bank Congo which are its subsidiaries in DRC.
  • I&M Holdings PLC has completed the acquisition of 90% of Orient Bank Limited from 8 miles LLP and Morka Holdings Limited. OBL is the 12th largest bank and a licensed and established commercial bank in Uganda. with 70,000 customers and a network of 14 branches. 
  • KCB Group to acquire 62% of BPR, Rwanda’s second-largest bank, and 100% of Bank ABC in Tanzania – two banks that Atlas Mara had offered to Equity Group.
  • Atlas Mara to sell its Botswana bank, BancABC, and its subsidiary’s BancABC Mozambique to Access Bank.
  • Atlas Mara denies receiving offers from a Nigerian or any other bank to acquire its stake in UBN – the Union Bank of Nigeria.
  • Atlas Mara has completed the sale of BancABC, its Mozambique bank to Access Bank.

Investment Markets and Deal Makers

  • The Johannesburg Stock Exchange to acquire a majority stake in South Africa’s second-largest share registry.

Insurance

  • Allianz will acquire a controlling stake in Jubilee Insurance’s property & casualty business in Kenya, Tanzania & Uganda and the short-term insurance in Burundi and Mauritius for USD 100 million. In the deal, Jubilee will acquire the business of Allianz in Kenya to draw on its global expertise in retail, digital insurance, and micro-insurance.
  • The Competition Authority approved the acquisition of 56% of Agriculture and Climate Risk Enterprise (ACRE Africa) by Zep Re (PTA Insurance Company)
  • The Competition Authority approved the proposed acquisition of 100% of Resolution Leapfrog Holding by Linkham Services.
  • Liberty Holdings to buy out the Coronation (Hilton, Vanderbilt) and Kimberlite fund shares in @LibertyLifeKe in a private deal. Liberty shareholding increases from 57% to 73%, but no plans for a buy out offer and shares will remain listed on the NSE.
  • Monarch Insurance to sell a majority stake (51%) of the company to the Holmarcom Group of Morocco through its holding company “Holmarcom Insurance Activities.” The Kamu Group and Maisha Bank will remain as minority shareholders.
  • Minet Group and Africa Lighthouse Capital have acquired Aon’s shareholding in Aon Botswana, and will now operate as Minet Botswana.
  • Old Mutual Life Assurance has been acquired by UAP Life Assurance for Kshs 2.59 billion.

Remittances

  • The proposed merger involving ECP Africa Fund IV LLC and ECP Africa Fund IV A LLC and Remitix Holdings (Mauritius). Remitix is a Mauritius-based holding company, which holds the business known as the “Mukuru,” a cash remittance technology platform that allows users to send or receive money across various countries in Sub- Saharan Africa and provides foreign exchange services.
  • WorldRemit to acquire Sendwave .. in the last 12 months, the two companies have sent $7.5 billion in transfers (mainly to West and East Africa), generating $280 million in revenue
  • Stripe acquires Nigeria’s Paystack for $200M+ to expand into the African continent.
  • Ghana’s remittance firm Zeepay acquires Mangwee Mobile Money in Zambia – via @SamWakoba

Other

  • The Competition Authority approved the acquisition of 85% of Century Microfinance Bank by Branch International on condition that they each maintain terms agreed with existing borrowers until they expire.
  • South African law firm Cliffe Dekker Hofmeyr (CDH) and Nairobi-based corporate law boutique Kieti Law have agreed to a merger, established under CDH’s name.
  • Kenyan agency banking startup Tanda is expanding its operations regionally after closing a funding round and has secured key strategic partnerships with Mastercard & Interswitch. Tanda’s platform and network supports 58 banks and saccos, 4 telecoms, 12,000 merchants and agents and has served over 300,000 customers.
  • The business of Altima Africa has been transferred to Stratostaff EA Ltd.

Agri-Business, Food & Beverage M&A

  • The Competition Authority approved the proposed acquisition of 50% of Bidco Land 0′ Lakes limited by Aaryan Investments.
  • The Competition Authority approved the proposed acquisition of control of the bakery business of Kenblest Ltd by Kenblest Foods, the proposed acquisition of the maize milling business of Kenblest Ltd by Max Grains and the proposed acquisition of control of the wheat milling business of Mcneel Millers by Kenblest Processors. Kenblest once owned 12.5% of Imperial Bank before it shut down.
  • The Competition Authority approved the proposed acquisition of Glacier Products by ExEo Capital through their Agri-Vie Fund II
  • Eat’N’Go acquires the Domino’s Pizza and Cold Stone Creamery franchises in Kenya – and aims to grow from running 147 stores in Nigeria and Kenya to 180 across Africa by year-end.
  • Certain assets of the manufacturing, production, processing and dealing in agricultural and farm products business carried on by DNC Foods will be transferred to Bigcold Kenya.
  • The assets of the meat processing and food distribution business carried on by Alpha Fine Foods Limited will be transferred to Bigcold Kenya.
  • Coca-Cola European Partners has acquired a 25% stake in Innovative Tap Solutions (PourMyBeer) whose technology allows consumers to pour and pay for drinks themselves, cutting queues, reducing unnecessary contact & wait times, and freeing up staff.
  • The Kenya Ministry of Defense is doing public participation to facilitate the transfer of the Kenya Meat Commission from the Ministry of Livestock to the Department of Defense.
  • The Competition Authority has approved the acquisition of 50% of Propack Kenya by Jaiminia Patel. Propack had a turnover of Kshs 711 million in 2019.
  • EDIT: Tana Africa Capital has acquired a minority stake in Kensington Distillers & Vintners (KDV) that owns majority stakes in Monument Distillers Kenya, Monument Distillers Nigeria and Truman & Orange South Africa. KDV offers high-quality wine and spirit brands and plans to grow its footprint into other high-growth African markets. Tana, a JV between the Oppenheimer Family and Temasek Holdings, has raised $600 million and invested in a diverse portfolio across 20 African countries.

Logistics, Engineering, Manufacturing & Agri-Biz M&A

  • The business and assets of Mindtrac Ltd carrying out the business of e-commerce software development will be transferred to Dukaree Innovations Ltd which will carry on the business of e-commerce software development.
  • Amethis acquired a minority stake in Nouvelle Minoterie Africaine (NMA), a leading FMCG company in Sénégal, which produces and distributes poultry and livestock feed, pasta and wheat flour.
  • Carbacid shareholders vote on the Kshs 1.24 billion buyout of BOC Gases at the end of January and may de-list the acquired company in future. Carbacid set out to acquire 100% of BOC Kenya and BOC accepted the offer and agreed to retire directors, transfer trademarks, and rebrand as all employees will be retained. Carbacid and Aksaya are confident that minority BOC shareholders will accept an offer to buy 100% of the firm at Shs 63.50/share by 6 April. BOC’s board, having sold its 65%, says the deal is willing buyer, willing seller and will not make a recommendation to fellow shareholders.
  • Logistics platform Amitruck and ecommerce platform Sky.Garden announced a partnership to form an end-to-end digital chain for goods pick-up and deliveries to the last mile.
  • The Competition Authority has approved the acquisition of certain assets of Orbit Enterprises by R. K. Sanghani. Orbit had a turnover of Kshs 97 million in 2019.
  • The Competition Authority has approved the proposed joint venture between Elopak AS and Nampak Southern Africa Holdings.

Airline/ Oil/Energy/Mining M&A

  • Heirs Holdings and its affiliate, Transnational Corporation of Nigeria Plc have acquired 45% participating interest in Nigerian oil licence OML 17 (that can produce 27,000 barrels of oil per day) and related assets from Shell Nigeria, Total Nigeria and ENI and have sole operatorship of the asset. The deal involves financing of US$1.1 billion from a consortium of global and regional banks and investors (Afreximbank, ABSA, Africa Finance Corporation, Union Bank of Nigeria, Hybrid Capital, and Amundi).
  • The Competition Authority approved the acquisition of control of Quantum Power East Africa GT Menengai limited by Globeleq, CDC’s energy firm. QPEA is among three firms that were awarded contracts by the Geothermal Development Company (GDC) to develop power plants in Menengai.
  • The Nairobi Securities Exchange suspended trading in Kenya Airways shares following a request from the airline in anticipation of a government buy-out.
  • Express Kenya CEO Hector Diniz gets approval to buy another 5% and increase his combined shareholding to nearly 77%, but with no intention to make a take-over offer or delist the company from the NSE.
  • Transcorp acquired Afam Power Plc and Afam Three Fast Power in a $300 million deal in November 2020.  
  • Amitruck has secured an ‘undisclosed’ investment from Dynamo Ventures and other angel investors after completing the Google for Startups Accelerator Africa.
  • The Competition Authority has approved the acquisition of 60% of Raysut Cement by Zou Fengqi. Raysut had a turnover of Kshs 877 million in 2019.
  • The Competition Authority has approved the acquisition of 100% of Kilimapesa Gold by Mayflower Capital Investments. Kilimapesa had assets of Kshs 742 million in 2019.
  • The Competition Authority has approved the acquisition of (i) Solutions East Africa and (ii) Seagas Kenya by Proto Energy East Africa on condition that 80% of staff at the target companies are retained after the merger.

Education, Tourism, Real Estate & Supermarkets M&A

  • The Competition Authority approved the proposed acquisition of an additional 50% in Nakuru Meadows Development by Pan African Housing Fund LLC
  • Aleph Hospitality, an independent Dubai-based hotel management company has taken over the management of three hotels – Boma Nairobi, Boma Inn Nairobi and Boma Inn Eldoret, which are owned by Red Court Hotel, a subsidiary of Kenya Red Cross Society. In Kenya, Aleph also operates the Best Western Plus Westlands in Nairobi and has been awarded the management contract for a Protea by Marriott hotel in Kisumu, as well as a business hotel to be located in Mombasa.
  • Umubano Hotel in Kigali had been acquired by Madhvani Group for $13M after years under liquidation. The main issue with previous investors has always been a failure to make the requisite investment to expand the hotel which has been managed under Laico, Novotel, Meridian and Accord.
  • Thousands of Airbnb hosts got invitations to buy shares ahead of the IPO, but some did not respond.
  • Treasury plans to merge KICC with the Bomas of Kenya.
  • The Competition Authority has approved the acquisition of control of Mpala Wildlife Foundation Inc. and Mpala Ranch Ltd by  the trustees of Princeton University

Telecommunications, Education, Media & Publishing M&A

  • The East African Safari Classic Rally announced new owners, new management and a new direction for the world’s greatest classic rally, following Minti Motorsport UK’s takeover of the EASCR and Lynn Tundo was appointed as Managing Director of the Classic. 
  • MSP Sports Capital will invest £185m into McLaren Racing (McLaren F1 & IndyCar), acquiring a15% stake that will increase to 33% in 2022, in a deal that values the team at £560m.
  • American investment firm Dorilton Capital acquires the legendary family-owned Williams #F1 team.
  • TransAtlantic Capital Inc has acquired SUREBET, a Kenya licensed sports betting and lottery company. (via Nasdaq) 
  • Multichoice invested $112 million for a 20% investment in BetKing, a high-growth sports betting group with operations in Nigeria, Kenya and Ethiopia.
  • A trip down memory lane .. serendipitous that eLimu Kenya, a digital educational content firm, that was launched in the iHub, is now being acquired by iHub (CcHUB) 8 years later. – via @AmkaKenya
  • The CcHUB Syndicate that allows angels and early-stage investors to invest alongside CcHUB in high growth technology startups in Africa has funded three startups – Taeillo, Oneport and Stears Business after a due diligence process.
  • Ajua (formerly MSurvey), has acquired WayaWaya, the Kenya-based Artificial Intelligence and Machine Learning known for its innovative Janja platform, that enables borderless banking and payments across apps and social media platforms.
  • Millicom International which trades as Tigo, has signed agreements for the sale of its operations in Tanzania and its stake in the AirtelTigo joint venture in Ghana, marking its complete exit from the African continent.

Health and Medical, Pharmaceutical M&A

  • Mastercard has invested in Kasha Global Incorporated, a purpose-driven e-commerce platform providing essential access to health and personal care products along with the information required to support everyday hygiene needs.
  • The Competition Authority had approved the proposed acquisition of control of Africa Bio Systems by Maisha Holdings.
  • The Competition Authority approved the proposed acquisition of 100% of Dudutech Integrated Pest Management by Bioline Group SAS.

Other Notes

  • The Competition Authority seeks whistleblowers who can confidentially share information on cartel-like behaviour, price-fixing, unsafe products, unauthorized mergers etc. – and they can get a reward of Shs 1 million.
  • Safaricom restructured its strategy and innovation division in FY20 and introduced a mergers & acquisitions department to support strategic acquisitions.
  • Kenya’s Parliament has complained about why the Privatization Commission has not had a substantive board for two years, after the terms of six directors lapsed in June 2019 – and that at a time when the government is engaging with the IMF on the reform of state-owned entities, the Commission only has five directors who are mostly government officials.

Absa Kenya launches Asset Management

Absa Bank Kenya has rolled out an asset management subsidiary following approval from Kenyan regulators to expand its century-old business of offering financial services in the country. 

Following approval by both the Capital Markets Authority (CMA) and the Retirement Benefits Authority (RBA), Absa Asset Management will offer advice and products for customers to invest in listed shares, treasury bonds, corporate bonds, private equity, property, offshore and other investment classes.

Anthony Mwithiga, the CEO of the new Absa Asset Management unit, said they would offer fund and investment management for institutions, such as pension schemes, retail solutions for the mass market, and bespoke or personalized services for high-net-worth individuals.

The retail solution will offer investment opportunities through five different unit trusts being, a money market fund for Kenya shillings or US dollars, a bond one, a balanced fund, and an equities fund that people can subscribe to for as little as Kshs 1,000. All the classes will benefit from the data-driven insights, investment professional advice and risk management of Absa that is guided by three pillars of value growth, income generation and value preservation.

The CEO of the RBA Nzomo Mutuku said that that investment management, now with Kshs 1.4 trillion of assets under management, still has great potential to grow and that the performance of these investments is what drives pension benefits in Kenya, not pension contributions.

He said that being diverse had sustained growth even during Covid-19. While there has been a decline in interest for corporate bonds, private equity has gone up (from 0.07% to 0.12% as a share of portfolios) and good returns had also been got from ETF‘s that are about to get a boost from a new class for fixed income, and REIT‘s from new tax laws. He added that, when the shilling depreciates, offshore investments deliver good performance. Another new class is now infrastructure in which funds can invest 10% of assets and they are waiting to see which Public-private-partnership (PPP) projects come online.

Kenya Airways 2020 results

Kenya Airways (KQ) recorded an unsurprising record loss for a year in which Covid-19 saw grounded aircraft and closed airspaces. After the worst year for aviation since 1999, KQ’s Chairman Michael Joseph said he expects that the airline will not recover to pre-Covid growth and revenue levels till about 2023 and will use the period to right-size its fleet, and deal with legacy issues & contracts. A bill currently in Kenya’s Parliament will place the airline in an aviation holding company with the Kenya Airports Authority.

KQ flew 1.8 million passengers, down 66% from 2019, and they were grounded by Covid-19 through the summer which is usually their most-profitable period. For the year, revenue was down 60% to Kshs 52 billion, and while operating costs were down 39%, it still resulted in a loss of Kshs 36.2 billion. 

KQ Group MD Allan Kilavuka said the airline has resume flying to routes that are safe and which provide steady revenue (China is their best route but all airlines are restricted to two flights a week). They have also revived cargo, delivering more flowers, food and pharmaceuticals. They added a new cold storage facility (300-ton capacity) and converted a 787 Dreamliner into a preighter (adding 50 tons of capacity). The airline also started a Mombasa – Sharjah cargo flight, resumed weekly cargo ones to Delhi, and in Southern Africa, they obtained 5th freedom rights to operate cargo flights between Johannesburg, Harare, Lilongwe, Dar es Salaam and Maputo.

This year, they will explore partnerships with other airlines (in Africa and Europe) as their joint-venture with KLM comes to an end, by mutual consent, in September 2021. They also plan to convert another aircraft into a preighter and will explore commercial drone operations, after having bought four for training.  

Stanbic Kenya to pay dividends after Corona-hit year

Stanbic Kenya bucked the expected trend that banks will by dividend-shy after a year of the Covid-19 and became the first bank to announce their full-year 2020 results, and with an unexpected dividend for shareholders.

During the year, the bank, part of the largest financial group in Africa, set out to support the resilience of their customers, staff and the community. 60% of staff now work from home, and 80% of transactions are done on mobile phones. For customers, they extended moratoriums on Kshs 40 billion of loans, that benefited 7,200 customers, and that included Kshs 3.1 billion to SME’s. They also waived charges on digital transactions and paid out 400 retrenchment insurance policy claims. While the banking industry repayment moratoriums that were set in March 2020 lapsed this month, management, led by Kenya Chief Executive, Charles Mudiwa, said that 80% of Stanbic’s customers had reorganized themselves and resumed repaying their loans by December 2020.

Also, the second half of the year was one of recovery of growth and overall, they managed to grow deposits by 12% to Kshs 217 billion and loans by 4% to Kshs 158 billion, while reducing their cost to income ratio, from 56% to 52%.

Stanbic Kenya’s profit after tax was Kshs 5.2 billion, down 19% from the previous year, but the pre-provision profit was up 2%. The bank will pay shareholders Kshs 3.8 per share for a total payout of Kshs 1.5 billion. This is equivalent to 29% of their earnings, and the bank’s management said that, with its strong capital and liquidity, they should also support Stanbic Kenya’s shareholders. They retain a positive outlook for 2021 even as Covid-19 continues, amid the ongoing distribution of vaccines worldwide.