Category Archives: NSSF Kenya

East Africa M&A Moment: June 2015

Recent stuff in the newspapers (mainly the Business Daily), Kenya Gazette  (some of the just-approved deals were first announced two years ago) and press releases. $1 is about 95 Kenya shillings (and about 90 when deals were formulated)

Overall

Earlier this month, the Financial Times (FT) reported that mergers and acquisition (M&A) activity in Africa has fallen to its lowest level in more than a decade, as a result of collapsing commodity prices, political volatility and an anticipated rise in US interest rates. The value of African deals so far this year stands at $9.2 billionn — 23% lower than the same period 12 months ago and the lowest level recorded since 2004, according to data from Dealogic.

– Burbidge Capital also found that Kenya’s merger & acquisition deals slowed down in 2015 – with 11 M&A deals so far compared to 17 in the first four months of 2014. This year, the largest concluded deals have seen Helios sell a stake in Equity Bank to Norwegian funds and and Old Mutual’s purchase of a 60.7% in UAP Holdings.

Banking/Finance

More mergers are expected in the Kenyan banking sector as the Treasury Secretary announced that an increase in the minimum capital to strengthen banks’ capital base and increase competition…progressively from the current Kshs 1 billion to Kshs 5 billion (~52 million) by 2018. 20 banks are below the Kshs 2 billion mark.

–  Helios cashing out;  Norfund & Norwegian private investors are acquiring 50% of Helios partners investment in Kenya’ Equity Bank Group and will now own 12%. And today, Uganda’s National Social Security Fund has bought a 2.44% stake in Equity Bank Group from Helios Investors at Kshs 50 per share – and the new deal is worth ~$50 million.

– National Bank management said it has not been briefed on any merger plans with its State-owned rival Consolidated Bank. Treasury secretary Henry Rotich said National Bank would be merged with another bank before it’s planned rights issue. The government is the biggest shareholder of National Bank controlling about 79% shares consisting of Treasury and NSSF stakes. As part of a rights issue it is expected that NBK will retire its preference shares (held by the Treasury and NSSF) by converting them into ordinary shares.

– High-level talks regarding a merger between NIC Bank and Commercial Bank of Africa are  reportedly taking place but Mshwari may be spun out of any resulting entity. Both are mid-tier banks with quite a focus on corporate and high-end clients.

– While Mwalimu SACCO is acquiring 51% of Equatorial Commercial Bank (ECB), the Society is not converting into a bank nor merging with ECB.

– Kenya’s Nairobi Securities Exchange is acquiring the 77% of their associate company CDSC, which they own with stockbrokers, in a deal worth~Kshs 260 million.

– Barclays Africa advised on the largest sale of an African Bank in 2014 – a deal, in which Nigeria state-owned Asset Management Corporation of Nigeria (AMCON) sold Mainstreet Bank to Skye Bank.

Equity Group Holdings agreed to acquire 79% of ProCredit Bank Congo, the 7th largest bank (by assets) in DRC. ProCredit has total assets of $200 million, a customer base of over 170,000, and has KfW (12%) and IFC (9%) amongst its shareholders.

 Liaison Financial Services who have just been approved as an investment advisor in Kenya recently acquired the African business of Knutson Global who were involved in asset-backed securities, municipal development bonds and consumer lending.

Insurance

Oxford Business Group expects strong Kenya insurance M&A as companies merge to increase market share & meet higher capital requirements.

– The Mauritian Minister for Financial Services, Roshi Bhadain, said the State Insurance Company of Mauritius (SICOM), would take over the 23.9% stake (valued at more than Kshs 13 billion) held by Businessman, Mr. Dawood Rawat, in financial services firm British-American Investments Company (Kenya)  – a.k.a. Britam. This comes after the government of Mauritius placed Rawat’s firms in receivership over alleged financial impropriety charges.

UAP and Old Mutual agreed on a merger ahead of listing. This comes after Old Mutual raised its shareholding to 60% from 23% after buying 37% from private equity (PE) firms Aureos, Africinvest and Swedfund for around Kshs 14 billion. Old Mutual will not buy out the other 1,000 minority shareholders (who are staff & agents).

Old Mutual first bought into UAP in January by acquiring a 23.3% stake from Centum Investments and businessman Chris Kirubi. Centum sold its stake to get funding needed for its massive real estate, financial services and power projects.

– Also, the competition authority approved the acquisition 60% of UAP Holdings by Old Mutual Holdings and Old Mutual Life Assurance.

Barclays Africa will acquire 63% of First Assurance, Kenya’s No. 10 insurer, for Kshs 2.8 billion (~$30 million).

KCB Group is said to be considering a takeover of Madison Insurance.

– Pan Africa Insurance shareholders approved the acquisition of at least 51% percent of Gateway insurance. Through this acquisition, the company will enter into the general insurance business.

– Kenya’s competition authority approved the acquisition of 61.2% of Resolution Health East Africa by Leapfrog II Holdings.

Hotels/Tourism

– The Heron Portico, which is managed by Indian hospitality group Sarovar Hotels & Resorts, says the acquisition of rival Zehneria Hotel in Nairobi’s Westlands in a Kshs 1 billion buyout to expand its market share in conference tourism and hospitality industry in Kenya. The Heron Portico financed 80% of the purchase price using debt while the rest is self-financed.

– Minor Hotel Group of Thailand, and Elewana Afrika, are acquiring 6 camps spread across national parks in Meru, Samburu and Narok counties. Stefano and Liz Cheli (Cheli and Peacock Group), the founders of the camps, will continue to run the resorts and focus on business development.

– Kenya’s Competition Authority approved the acquisition by Fortune Hotels of Paradise Safari Park and 85% of Paradise Investments and Development Kenya held by Paradise Company.

– TPSEA (Serena) acquires 25.1% of TPS (D) that was set up to run the Movenpick Hotel in Dar, now known as the Dar es Salaam Serena Hotel in Tanzania.

Logistics/Transport

Frontier Services Group (FSG), a Nairobi-based logistics firm, has completed its purchase of Cheetah Logistics SARL – Congolese transport company as part of central and western Africa expansion plan. Kenya’s competition authority also approved the acquisition of Phoenix Aviation by Frontier Services Group as well as the acquisition of 55% of Tradewinds Aviation Services by NAS Africa Aviation.

– UK logistics and engineering firm Atlas Development says it is in advanced stages of discussions with potential takeover targets in Kenya, Tanzania and Ethiopia.

– Part of Best Wing Cargo operations at JKIA have been transferred to Suppercare Freight Services.

–  Part of  Fastlane Freight Forwarders  operations at JKIA have been transferred to Airwagon Cargo Movers.

Energy

Norfund to acquire a stake in Globeleq Africa from Actis for $225M and partner with CDC to pursue power generation opportunities.

UAE’s Gulf Petrochem Group acquires Essar Petroleum East Africa and renames it as Aspam Energy (Kenya) in a deal to enhance the group’s integrated services and products for the downstream supply chain in the oil and gas sector in East Africa.

Media/PR

Scangroup dropped a bid to acquire 80% of Experiential Marketing, as approvals were not granted in time. Scangroup shareholders later renamed the company WPP Scangroup signifying that WPP Scangroup and WPP plc. are now fully together, with a shared vision for developing marketing communications across Sub Saharan Africa.

Hill+Knowlton Strategies (H+K), and Buchanan, one of the world’s leading financial communications consultancies, joined forces to launch H+K Financial, a specialist financial communications division dedicated to the Middle East and Africa.

Telecommunications/ICT

Millicom is to acquire 85% of Zanzibar’s Zantel for $1 and take over $74 million of its debts. Zantel is the leading Telco in Zanzibar (but just 5% to Tanzania’s total) with $82m in revenue and 1.7m customers.

– Kenyan innovation, Wezatele, was acquired for $1.7 million by AFB Kenya.

Techno Brain acquired the trips™ suite of integrated customs &revenue software from Crown Agents to provide tax and customs solutions that target the broader financial management needs of government.

Akvo Kenya transfers the business of building open source intemet and mobile software to support international development partnerships to Akvo Kenya Foundation.

Industry

– A Paris-based PE fund bought 30% of Ramco Plexus, a subsidiary of Ramco Group that has an annual turnover of Kshs 5.5 billion. The Ramco Group was started in 1948 as a hardware store, and has grown into a 34-subsidiary strong business, which employs 3,000 people.

– The competition authority approved the acquisition of 51% of Bullpark by Nampak Holdings.

 Pharmaceuticals

Business transfer:  Antipest Kenya Limited, has transferred to Modern Ways.

Business transfer: Unicorn Pharma Kenya has been sold and transferred to Medisel (Kenya)

– The competition authority approved the acquisition of the assets of European Perfumes and Cosmetics by Charm Industries. The deal excludes the debts of Varanasi Deepak, and Chirag Savia The

 Agri Business/Food Business

–  Syngenta rejected Monsanto’s $45 billion merger offer. An eventual agreement will have an impact on Kenya’s agricultural sector.

– Shareholders of REA Vipingo Plantations approved sale of the firm’s land at Vipingo to Centum Investments as agreed upon in a settlement with R.E.A Trading.

– Giant milk processor Brookside Dairy has bought out Sameer Agriculture & Livestock business in Uganda for Sh3.5 billion (~$38 million). The government of Uganda, which owns 49% (of Sameer) confirmed this on March 25.

Business transfer: Pure Imported (formerly European Foods E.A. Limited) (which was in the business of importing & selling deep frozen foods and supplying fresh juices) to European Foods Africa

– The Competition Authority exempted the production, bottling supply and distribution business between Distell and Kenya Wine Agencies Business transfer: for 5 years.

Business transfer: The ice cream production & trading business of Alpha Dairy Products is being transferred to Razco.

The Tanzania’s competition commission may reverse it’s decision approving for EABL to merge with Serengeti Breweries, as Serengeti’s performance failed to meet expectations.

– The competition authority approved the acquisition of an additional 30% in Largo Investments by NAS Holdings

– The competition authority approved the acquisition of the brands and assets of Chirag (Kenya) by Chirag Africa. Elsewhere these were acquired by newly-listed Flame Tree.

– The competition authority approved the acquisition of 52% of Ennsvalley Bakery by Unga Holdings.

– Norwegian private equity fund, Norfund, has bought shares in agriculture firm Vertical Agro in a Kshs 476 million (38.7 million Norwegian krone) deal. Vertical Agro is the parent company of Sunripe and Serengeti Fresh which makes it the largest exporter of organic vegetables in the country. The company produces 6,500 tonnes of fruits and vegetables annually from its farms in Kenya, Tanzania and Ethiopia.

Property

– Kenya’s competition Authority has approved (i) The acquisition of 50% of Equatorial Commercial Bank Centre by Fidelity Shield Insurance  (ii)  The acquisition of Parkway Investments by Mt. Kenya University Trustees (iii) The acquisition of Endebees Estate (Kilifi Holdings) by Balloobhoni Chhotabhai Patel.

M&A Moment: BritAm, Centum, other East Africa deals

Britam and Centum have had a busy few weeks.

BritAmEA (i) Had an oversubscribed bond at the NSE that saw them raise Kshs 6 billion (ii) Completed the acquisition of 99% Real Insurance – giving them access to Mozambique, Malawi and Tanzania (the Competition Authority approved this deal with a caveat that they retain at least 85 of the 105 employees of Real) (iii) Established an office in Rwanda (IV) Britam will also pay about Kshs 2 billion for Equity’s 25% in Housing Finance.

Centum (i) Are proposing to acquire an additional 66% shares in K-Rep Bank (ii) Are seeking shareholder approval to create a Mauritius company, set up Kings Beverage, Bakki, Shefa subsidiaries, and also ratify the acquisition of 73% of Genesis & 30% of Broll (real estate) (iii) Ceded 42% of Two Rivers venture to investors at Kshs 6 billion, (iv) Are still in the running for Rea Vipingo offering Kshs 75 per share, over the Rea bid of Kshs 70 per share to other shareholders (v) Key Centum shareholder, Chris Kirubi said he wants to be a dollar billionaire

Other recent deals include

Airlines
  • Kenya Airways to give Tanzania’s Precision Air a $10 million bailout. 
  • Waiting to see who will officially be FastJet’s partner will be for their renewed push to enter the Kenyan aviation market.
  • Hong Kong listed Frontier Services Group completed acquisition of 49% of Phoenix Aviation for $14 million (Kshs.1.2 billion).
Autos
  • Al Futtaim Auto to compulsorily acquire the remaining 8.4% of CMC shares from minority shareholders
Banking & Finance
  • Actis to acquire Compuscan, the largest independent credit bureau in Africa & run it as Credit Service Holdings with Michael Jordaan as chair.
  • Diamond Trust has an ongoing rights issue to raise Kshs 3.2B ($42 million) from shareholders at Kshs 165 per share.
  • Ecobank got investment bank approval in Kenya following their buyout of Iroko buyout and will target oil & gas, infrastructure & commodity deals. 
  • KCB is now holding company, and is said to be interested in buying an insurance entity
  • (edit) Kenyan Women Holdings will sell 25% of the shareholding of Kenya Women’s Finance Trust to their 600,000 members between September and October 2014. 
  • NIC Bank to have a corporate bond and rights issue during 2014
  • Atlas Mara to buy 77% of Development Bank of Rwanda 
  • National Bank shareholders to vote on if money from their upcoming rights issue can go to pay off preference shareholders
  • Western Kenya politicians have support the creation of a new Mulembe Investment MFI bank, that will be part-funded by counties to serve 5 million people. 
Building & Cement
  • Holcim is set to acquire effective control of Kenya’s Bamburi Cement as part of the planned merger between Holcim and Lafarge. “The parties do not wish to see any change to the status of Bamburi as one of Kenya’s leading industrial companies listed on the NSE.”
Food & Beverage 

  • Danone bought 40%of Kenya’s dairy processing company Brookside which had revenue of Kshs15.4 billion (€130 million) i in 2013. It was previously 90% owned by the Kenyatta family with Abraaj owning 10%. Brookside collects milk from 140,000 farmers and has 3,000 employees.
  • Distell of Stellenbosch South Africa got privatization approval from the Kenya government to acquire of 26% of KWA Holdings E.A. that was previously owned by ICDC  for Kshs 860 million (about $10 million)
  • Kenya Wines will also their Kshs126 millionUchumi Supermarket stake.

  • See Centum (above)
  • South African food company, Tiger Brands has dropped plans to acquire Kenya firms Rafiki Millers for $25m.

Health & Beauty

  • Procter & Gamble merged India, the Middle East and Africa into one IMEA region to improve execution 

Hotels & Tourism
  • The Kenya Competition Authority approved the acquisition of 100% of Fairview Hotel by City Lodge Hotels.
  • Kempinski Hotels, Europe’s oldest luxury hotel group has officially taken over Hôtel Des Milles Collines in Rwanda.

Insurance 
  • See Britam above
  • CIC had dropped plans for a rights issue in favour of a corporate bond
  • Liberty Kenya proposed to pay a Kshs 1/= scrip dividend, but shareholders can opt for cash.  
  • UAP had an oversubscribed bond that raised Kshs 3.1 billion against a target of 2B. 
  • Africa Report magazine listed insurance companies as the top performers at the NSE in 2014 (see table).
Legal
  • Kenyan firms Hamilton Harrison & Matthews (HHM) and Oraro & Company have announced they are to merge pending regulatory approvals.
Media & Communications
#RIPCareyEaton

  • The $35 billion Publicis-Omnicom merger fell apart. The deal to combine the world’s largest advertising company was foiled by myriad difficulties, including who would run the new firm. The collapse of the deal is a win for WPP CEO Martin Sorrell, who campaigned aggressively against the merger of two of his biggest rivals.
  • A few months after his big deal with One Africa Media consolidating operations in Kenya, Uganda and South Africa, co-founder, Carey Eaton, was killed in Nairobi. See some tributes to Carey Eaton. The Economist also ranked the largest internet companies in Africa and One Africa Media topped this at $80 million, followed by Mobile Planet ($15 million) and Kopo Kopo ($10 million) 
  • passed away – some tributes 
  • Scangroup agreed to acquire a majority stake in a pan-African firm – the Experiential Marketing Group (EXP) 
  • The  Safaricom and Airtel buy out of (and split of) Yu appears to have stalled. 
Oil & Mining
  • In the last year, Tullow Oil and Base Resources have paid the Kenya government $22 million and $16 million respectively . 
  • Tullow received a  judgment in its favour over capital gains tax payments that Tullow had made onHeritage’s behalf to the Uganda Revenue Authority. In August 2013, Tullow received $345.8 million from Heritage in satisfaction of this High Court judgment.
  • Swala Oil & Gas completed their Tanzania IPO which was oversubscribed and will now proceed to list on the Dar es Salaam Stock Exchange (“DSE”). The placement of 13.3 million shares with 1,869 new and existing shareholders also allowed Swala to keep excess funds from Dar IPO.
Transportation & Utilities
  • Transcentury sold their 34% in Rift Valley Railways to Citadel Capital for $43.7M recovering their cash, but below fair value..they cited the delayed turnaround of the railway consortium as reason for the sale
  • Actis confirmed sale of its stake in Umeme for $85.5 million to 20 institutional investors including Investec and Uganda’s NSSF
  • Kone Kenya acquired the business of Marryat & Scott, an elevator installation company.
Other Peoples Money
  • The Australian Navy seized heroin worth $296 million from a wooden boat off  the Kenyan coast.
  • The Karen Blixen house was put up for sale for $9.5 million 
  • Kenya’s NSSF had $600 million (Kshs 51 billion) in quoted securities as at June 2013 topped by Bamburi EABL and KCB.
  • The Competition Authority fined Tusker Mattresses (Tuskys) and Ukwala supermarkets Kshs 5.3 million while allowing them to continue pursuing a supermarket consolidation deal.

NSSF and SME’s Part II

This weekend, the National Social Security Fund ran an advertisement in the newspapers clarifying amounts that employers and employees will pay now that  changes to the NSSF act are legal.
Earlier media, and social media, reports had NSSF taking as much as 12% of an employees earnings. But the NSSF ad introduced the phrase pensionable salary on which the deduction is based – so it’s a percent of Kshs. 18,000 (pensionable salary) and so if someone earns Kshs. 100,000 ($1,175 per month) and their employer has no current pension scheme, their deductions are: 

Tier 1
Kshs 360 from employer
Kshs 360 from employee

Tier 2
Kshs 720 from employer 
Kshs 720 from employee

So total payment for that employee, that an employer will remit to the NSSF is Kshs 2,160 – and not Kshs 12,000. This still amounts to a payment that is five times what a typical company was making to the NSSF last year (Kshs 400 per month, per employee)  

From a note at Alexander Forbes Financial Services: The effective date (of the NSSF Act) was 10 January 2014, literally giving employers no time to apply for the opt out. They thus will have to remit both Tier 1 and Tier 2 contributions to NSSF until the opt out is granted…also that these amounts  will increase each year for the next 5 years.

EDIT – Jan 21: The Government has deferred the commencement of the new NSSF Act to the end of May 2014. This means that the contributions to the fund will be made at the old rate.  Read more.

Kenya SME Options after the 2013 NSSF Bill

The new NSSF Bill enhances the level of mandatory retirement savings to be made by, and on behalf of, an employee. It classifies the contributions made towards retirement savings into various tiers for which each tier has a different treatment. For instance, the first tier must be contributed into the National Social Security Fund (NSSF) while the second tier may be contributed to a private retirement fund if certain requirements are met.
To illustrate, in year 1, the contributions to NSSF will increase from Kshs 400 (Kshs 200 each done by the employer and the employee) to Kshs 720 (Kshs 360 each done by the employer and the employee).
The balance of the 12% of earnings (6% each done by the employer and the employee) may be contributed to a private retirement fund subject to conditions detailed therein.
Thus, there are various options available for an employer seeking a retirement solution. E.g. for an employer with a staff base of 10, setting up one’s own retirement fund may not be prudent due to time and cost considerations. It is instead advisable that they consider joining an already existing retirement fund under an umbrella arrangement or under a personal pension plan. They are further encouraged to use a fund that is registered by both the Retirement Benefits Authority and approved by the Kenya Revenue Authority. A list of umbrella funds and personal pension plans registered by the RBA can be found at their website.
Lastly, Alexander Forbes has a wealth of experience in structuring retirement solutions that are customized to suit the needs of an SME – and that between our umbrella fund (the Alexander Forbes Retirement Fund) and our personal pension plan (the Alexander Forbes Vuna Pension Plan), we can find an exciting solution for SME’s. We are also pleased to meet with companies and talk further through the changes to the NSSF Act and its impact.
Adapted from Angela Okinda of Alexander Forbes

Urban Inflation Index: July 2013

There is much debate about an upcoming VAT bill and the current government budget deficit, separation of powers, and transfer of funding responsibilities to devolved governments (even as some entities like road contractors, and teaching & health unions prefer to deal with the central government. This weekend, County Governors floated a proposal for the country to hold a new referendum, which will be the 6th Kenyan public vote in 12 years, to decide on an increase in the allocation of funds to counties from the current 15% to 40%.
The  VAT Tax Bill (PDF) seems to tax everything at 16% with only a few exemptions. Exclusions from the tax will include;  
  • Supplies to the red cross, emergency relief, personal goods brought in by travelers, supplies to international and regional organizations, supplies to multilateral and bilateral donors, supplies of to diplomats and governments, oil prospecting, international air travel, and bottled water makers. 
  • Services in sectors like banking, insurance, education, medical, agriculture, local transport, residential, stock brokerage, sports, arts & plays, mobile airtime, and gambling. Even though they are exempted here, banks are passing on a new tax to their customers amounting to 10% per transaction while Kenya Airways management has said that the airline will shut down if the bill is passed as it will affect operations by increasing the cost of jet fuel, aircraft purchase/leasing and landing/ parking fees.
  •  Petrol, Kerosene and Natural gas are exempt but only for the next 3 years.  

On to the index that compares prices to a year ago and three years ago. 
Gotten Cheaper
None really 
About the Same 
Mobile Communications:
Communication costs are largely unchanged with slight variations in promotions for voice and data usage. The big moves are in mobile and card payments with companies seeking to increase their awareness and become the preferred payment platforms for ordinary Kenyans such as by using Safaricom’s Lipa Na M-pesa and Equity Bank’s Beba Pay and PayPal channeles. 
More Expensive
Staple Food: A 2kg pack of (Unga) Maize flour, which is used to make Ugali that is eaten by a majority of Kenyans daily, costs Kshs. 104 compared to 118, a year ago. But this is 46% more than the Kshs. 71 price of three years ago.
Beer/Entertainment: A bottle of Tusker beer is Kshs 200 (~$2.3) at a local pub, up from 180 last year and 160 three years ago. There have been two recent price hikes, but this may have more to do with EABL’s management and procurement outlook, and the price may go up more with future taxes. 
  
Fuel: At Kshs 109.52 per litre (~$5.73/gallon), petrol prices in Nairobi are slightly cheaper than the Kshs 117.6 per litre a year ago but about 20% more than the Kshs 90.9/litre  of three years ago. Petrol, Kerosene and diesel prices are set by the government and even with the prospect of oil discovery, the major retailers are going through some turbulent times with both listed Total and Kenol reporting losses. 
Foreign Exchange: 1 US$ equals Kshs 87.15 compared to 84.25 last June and  80.6 three years ago  in March.
Other food item: A 2 kg. Mumias Sugar pack is Kshs 250, which is up from Kshs. 237 a year ago, and Kshs 200 three years ago.
Others
Factors likely to affect the the cost of living include:
– Consumers are likely to see an electricity cost increase due to debts for generation of hydro power.
– The National Social Security Fund is proposing  a 4400% increase  in monthly contributions (for the highest earners) from Kshs 400 per month to 18,000 (~$210)

 – A new 1.5% levy on all imports was effected on July 1, to fund a future standard gauge railway between Mombasa and Kisumu.