Category Archives: pension schemes

President pledges NSE Revival through IPOs

President William Ruto visited the Nairobi Securities Exchange (NSE) and rang the opening bell, then listened to financial and government leaders explain the situation in the financial markets.

  • NSE Chairman, Kiprono Kittony lamented that there had been no new government listings in 13 years. This stems from challenges and long procedures in the privatization process and they have had talks with Moses Kuria, the designated Cabinet Secretary for Trade, Investment and Industry,.
  • James Mwangi CEO of the Equity Bank CEO said his group was the ultimate hustler fund that grew from being a Nyagatugu village mutual fund, owned by 2,500 farmers. In 2005 and 2006 it converted into a bank and listed on the NSE which enabled them to then raise $185 million (Kshs 11 billion) from Helios. Today, the original investors have seen a 159,000% return on their investment and Equity, with Kshs 1.4 trillion of assets, has the sovereign fund of Norway (Norfund) and the World Bank Group as its largest shareholders.  
  • Lengthy Privations: Engineer Kinyanjui of the PPP said privatization as currently structured has 16-17 steps and each takes 5 months. The government owns Kshs 426 billion of investments (at the NSE) and can’t sell one share without going through a privatization law process. Entities like ICDC (now under KDC) have mature investments they are ready to exit from and support the government program and the delay in privatization means that when they divest, there is an erosion of value. 
  • Pension Opportunity: Hosea Kili, the Managing Director of Laptrust said the Lamu Port, SGR and Nairobi Expressway could have been financed by the local pension industry if they had been structured for them and lamented that they are unable to deploy funds as there are no new listings. He added that Laptrust plans to list Kshs 7 billion of their Kshs 17 billion property portfolio as an I-REIT. 
  • The National Social Security Fund (NSSF) boss said that 15 million Kenyans are not in any pension schemes. At the same time the NSSF, which has shares in 29 listed companies, is 3% of the NSE, has reached the limits of what it can invest in some counters.  

After listening to leaders, President Ruto said the government would revive the capital markets by privatizing and listing 5-10 state enterprises in the next 12 months and that the government would also seek to float a domestic dollar-denominated bond.

He directed that the government review of privatization law to review sections that inhibit the process, or he would move to repeal it. He also asked private companies to step forward and list and said the government was willing to remove some impediments including forgiveness of some tax sins. 

In his closing remarks, the President: 

  • Announced that Bio Foods and Credit Bank have obtained approvals to list at the NSE.
  • Invited the pension companies to a meeting at State House a few days later. 
  • He also put a fire under the boards of Nairobi International Financial Centre and the Privatization Commission for not delivering.

Here’s a stream of the launch of the enhanced NSE Market Place event

Private Equity investment guide for East Africa

This week in Nairobi saw the launch by  EAVCA, FSD Africa and IFC Africa of a new private equity (PE) investment guide for East Africa.

The PE investing guide is a tool to enable pension funds across East Africa to assess and invest in private equity assets by raising knowledge among pension fund managers who are primarily invested in stocks and bonds.

It is a simple guide that can be read in just thirty minutes to gain an understanding of private equity assets. It has a checklist of useful information to look for before investing in PE, and after to manage portfolios, and roles for general and limited partners.

Also, EAVCA released a market report on the current status of private equity investments in the region following a survey of pension schemes and PE general partners. It found that, while five Eastern African countries have generous provisions for pension funds to invest in private equity, led by Rwanda at 20%, Uganda at 15% and Kenya at 10%, the uptake has been low with Uganda attaining 2.2% investments in PE funds followed by Kenya at 0.08%.

Nzomo Mutuku of Kenya’s Retirement Benefits Authority (RBA), who officiated the launch,  said that while pushed for pension schemes to diversify and explore alternative investments to grow returns for members, many still had huge investments in one company (i.e Safaricom) and stocks and bonds of banks in which they held their deposit funds. (Later it came up the concentration in a few NSE stocks is not unusual among sub-Saharan markets- Nigeria’s largest firm commands 35% of the market while in Ghana, the top three firms have an 80% share).

Other Insights from the Q & A after the launch:

• Excluding South Africa, there is about $100 billion of funds held by pension and insurance funds and collective investment schemes (CIS). Of that East Africa, has about $30 billion with  Kenya at $20 billion.

• The IFC has been in private equity for over 20 years and is invested in 300 funds globally, with 50 of them active in this region.

• One pension manager cited their investments in I&M bank before it listed at the NSE, UAP, and invested in an energy IPP that gave attractive returns of 13% on a Euro investment.

• Another mentioned that they had participated in 40 bonds offers in 17 African countries with decent returns and no defaults.

• Speakers cautioned about Kenya’s move to raise the capital gains tax on private equity from 5% to 12%, a move that the country’s parliament has since set aside thanks to concerted lobbying.

The teams will next move to market the assets class to trustees in Botswana and Nigeria.

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”. 

UFAA: Snooze and Lose Your Investments: Part III

Kenya’s Unclaimed Financial Assets Authority (UFAA) is reminding companies that there is a  deadline of November 1 to surrender all unclaimed financial assets to the authority, and that failure to remit them will attract a penalty of 1% above prime rate per month per annum.

Earlier, there was a report that as at August 8.73 billion worth of assets had been surrounded, but that the UFAA was having difficulty finding the owners. 

An asset will be declared unclaimed where one or more of the following requirements are met:

  • The records of the holder do not reflect the identity of the person entitled to the assets;
  • The holder has not previously paid or delivered the assets to the apparent owner or other person entitled to the assets;
  • The last known address of the apparent owner is in a country that does not provide by law for passage of property to the State where there is no owner or is not applicable to the assets and the holder is a permanent resident in Kenya.

Some unclaimed assets include items left in safe deposit boxes (after two years), unclaimed salary (after one year), ownership interest, dividends (3 years) and deposits after utilities (like Kenya Power after 2 years). Some unclaimed assets are created by red tape by stubborn custodians who have made it difficult for people or companies to rightfully claim their own assets.

 

State of Kenya’s NSSF

Kenya’s National Social Security Fund (NSSF) published their financial accounts in the newspapers last week after they were earlier gazetted.

The Kshs 174 billion statutory fund, had income in the year to June 2016 of  Kshs 10.7 billion which was down from 19.3 billion the year before. The was after the fund received 12.8 billion of contributions from members (up from 11.7 billion) and paid out 3.1 billion. They had investment income of Kshs 12.8 billion, and paid administrative expenses of Kshs 5.5 billion leaving a surplus for the year of  Kshs 5.2 billion, and which was down from 13.2 billion in 2015.

In terms of assets, they have quoted shares of Kshs 49 billion (down from 57 billion in 2015), treasury/infrastructure bonds of 52 billion, 8.9 billion of corporate bonds, undeveloped land of 9 billion and buildings/ land of Kshs 19.9 billion.

Top shares in the NSSF Kshs 49 billion quoted investments portfolio include 25 million EABL shares (worth 6.9 billion shillings), 320 million Safaricom shares worth 5.6B, 116 million Britam worth 5.6B, 185 million KCB shares worth 6.2 billion, 88 million Equity Bank worth 3.4 billion, 3.2 million BAT worth 2.6 billion and 56 million Bamburi Cement shares worth 9.6 billion. NSSF also owns 24 million EAPCC shares worth Kshs 868 million and 148 million National Bank (NBK) shares worth 1.4 billion.

In the 1990’s the fund was sold illiquid plots at inflated prices and in the 2000’s, it deposited some funds in shaky banks that collapsed soon after. They still have a few issues with land, and the undeveloped land assets of the NSSF include 3.2 billion worth of plots at Mavoko and a Kshs 3.5 billion plot on Kenyatta Avenue in Nairobi.

The NSSF accounts were audited, by the Office of the Auditor General of Kenya (OAG) who qualified the accounts of the fund owing to some issue including

  • Unremitted contributions; A sample of 20 employers found that they had not remitted Kshs 755 million of deductions to the NSSF.
  • Another 764 million of contributions were held in suspense accounts.
  • Hazina Plaza/Polana Hotel Mombasa had rent owed to the NSSF of 239 million.
  • Milimani Plots at Kisumu where a Kshs 178 million estate that brings no income.

Other issues flagged included:

  • The stalled Hazina Trade Centre in Nairobi, which remains 38% complete with construction having been halted after Nakumatt Supermarkets who have a branch in the building had refused to give the contractor (China Jiangxi) access to the basement where they were to provide reinforcement to pillars of the building. The OAG recommended that the NSSF take legal action against Nakumatt in order to complete the Kshs 6.7 billion construction.
  • NSSF new rates

    NSSF budgeted income for the year was  Kshs 44 billion, but only 10.8 billion was raised; This was partly due to poor performance of the portfolio of shares listed at the NSE, but also due to non-implementation of changes to the NSSF act which would have seen increased contributions from members into the scheme.

  • Illegal transfer of a plot of land from the NSSF to Kenya’s Judiciary, and works at Nyayo estate at Embakasi.

$1 = ~Kshs 100