Monthly Archives: October 2009

M-Pesa as a low cost bank account

Safaricom have extended the registration deadline for m-pesa divided payments via cell phone to today – October 15. Over 465,000 of their shareholders own less than 1,000 shares, and will get a dividend payment of less than 100 shillings ($1.31), with most in this category likely to get about shillings, assuming they have not bought any shares since the IPO allocations.

M-Pesa’s latest offering
During the dividend registration process, Safaricom has clarified that shareholders receiving dividends of less than 100 shillings will only be able to buy airtime with this, while those with larger dividends will be able to withdraw the cash, pay bills, send it to other people etc.

All this brings up the question that has been asked several times, most recently by research group – CGAP in the blog post cell phone bank accounts as an incentive to save money. If you compare holding cash in an m-pesa account, you are able to gain comparable benefits to low cost bank accounts offered at several leading local banks – and can use banks for those services that M-pesa or Zap (from Zain) don’t have e.g. withdraw cash via m-pesa, and go to Equity Bank and buy a banker’s cheque for 50/=

Benefits of m-pesa banking
– 24 hour banking: More reach & access than any bank or ATM network
– Mobile banking with operator tends to be cheaper then mobile banking via bank provided services
– Saving in transport costs and banking transaction costs
– Can pay a variety of bills for utilities at a low cost
Challenges of m-pesa banking
– Lack of float at dealers to transact/occasional mpesa system downtime
– No credit history; and the clumsy expensive statement from Safaricom not useful yet
– Calls for discipline to build savings
– Funds are not insured, and are more prone to crime. And dealing with a stolen phone in Kenya is not a pleasant experience.

Anyone tried to use m-pesa as their main bank a/c?

This Time Around

1. Sustaining Pastoralists: Three years ago, in January 2006, there was a government plan to assist pastoralists by encouraging farmers with abundant pasture and water to buy animals from pastoralists and keep the alive during the prolonged dry season.

In September 2009, Kenyan TV screens have had, images of dying cattle being rushed to the slaughter houses where they will be bought by the government from ranchers at a cost of almost $105 each. But with cattle dying before they can be properly certified for consumption, the government of Kenya through the agriculture finance corporation; now decided to revive the program (details here); the livestock- off-take program targets private ranch owners with surplus land capacity to purchase animals from 22 drought-hit districts.

2. Compensating Investors Nyaga Stockbrokers eventually collapsed in September 2008, despite an earlier bailout that was intended to keep the stockbroker alive when news of its troubled reach the front pages of local newspapers.

The last time a stockbroker collapsed, investors had been compensated from the sale of stockbrokers seat which yielded about $3.5 million. But in 2009, the value of a seat is not considered to be much, hence the need to dip into the investor compensation fund – and late in September 2009, we got the final tally from the capital markets authority – spelling that it would (and teh CMA has paid out 90%) to 27,829 investors a total of Kshs. 302 million shillings ($4 million) from the investor compensation fund (said t have 426 million)
– Payments below 50,000 shillings will be made to a total of 25,135 investors
– Payments of above 50,000 will be made to a total of 2,744 investors

3. Reviving Uchumi In June 2007, Uchumi Supermarkets set out to tap investors for funds through a shareholders debenture loan that was not too successful.
They are now back in 2009, asking for the same funds this time, with much improved performance and the prospects of the company getting out of receivership and being re-listed at the Nairobi stock exchange much better.

Banking on Other Income

It’s crunch time in Kenya’s economy and many companies are feeling the pinch. While operations may be hurting, listed (and unlisted) companies still strive to report (increasing) profits to shareholders and they will look to unconventional, or other income opportunities to deliver by year-end:

some examples; 

East African Portland Cement: Went from a profit warning issued at their ½ year to a full-year profit increase thanks to a property revaluation exercise.

Mumias Sugar: Full-year profits were attained due to a tax credit they gained from investing in electricity co-generation.

Scangroup: Profit in the ½ year was credited to income from their investment in Government bonds.

Access Kenya: Profit growth in the ½ year was attributed to the strengthening of the US$ against the Kenya shillings – and most of their revenue is dollar-denominated.

Counting on Other Income: Going forward, other companies can also employ similar measures to plug income gaps e.g.

  • Tax breaks from listing – Safaricom.
  • Green energy – carbon credits, co-generation – Kengen, Safaricom.
  • Fibre cable/IT investment writebacks.
  • Property and investment revaluations.
  • Forex: a weak shilling is usually good for Kenya Airways and tea companies.

Olympia Capital 2009 AGM

excerpts from the last ½ of the meeting

Q&A leading into the 2009 AGM, Olympia shareholders had many questions revolving around the companies investment strategy, governance issues, disastrous foray into South Africa and prospects of escaping an Uchumi like future as the AGM was postponed, and happened a week later than scheduled.

Governance: – the AGM was delayed, the Board said, because the annual accounts were late coming out; one shareholder urged them to do better, not aim for the minimum corporate of 21 days only to avoid being late and incurring regulator penalties. CEO (Michael Matu) said they had noted this and had improved to the extent that the ½ year accounts were released in September, just over month after completion of period.
(lacking) corporate governance (missed this part where the auditor read out a statement that the company had no corporate governance in place. The auditor apparently made a similar remark last AGM, but that was omitted from the minutes of the meeting presented today – the directors mentioned they have engaged consultants and were embarking on corporate governance measures. One shareholder noted that the board had promised the same last year and no piece meal measures have been implemented to which the directors said they were doing this now and would brief shareholder in about two months
director loans increasing each year amount to 18.3 million – who, for what, what terms? CEO said he’s the only director and he has borrowed to buy house and car. Loan interest is paid and assets are charged to the company
insider board: One shareholder complained that 5 of the 7 directors had links to the parent company, so board was not truly independent
investor briefing -one shareholder presented the directors with a list of 35 detailed questions. The chairman suggested they have an investor briefing in about two months where all these and other shareholder questions can be exhaustively answered it will not be an EGM. CEO also promised to reply to all these questions via e-mail to the shareholder and copy his replies to the Capital Markets Authority whose representatives were in attendance
– at that time, the directors all also explain what measures they have taken in the area of corporate governance

Strategy Going Forward – For SADC (southern Africa) Olympia is still keen on the building materials market which is still strong. Even plan to go back into South Africa but without a link to Builders Warehouse – who handled 75% of their sales. They hope to revive and relocate the Natwood business to Botswana (Gaborone) from South Africa from where it will be easier and cheaper to supply their core markets in the Gauteng region (transport distances will halve from 600km to 300km)
– now going into Zambia on a smaller scale, and will look at Zimbabwe since economy is more attractive after dollarization
– part of problem was they did not make the management changes that they hoped to make; hire right people

Investments – Dunlop is profitable this half year, though had not yet installed new plant they bought to replace their exiting 1970’s plant. However with what they know from the Botswana tiles operation, they know how they can multiply their products & sales in Kenya with Dunlop once new plant is installed. From Botswana they supply South Africa, Zimbabwe, Angola Nigeria and Mozambique. Answering a separate shareholder question, mentioned that factory land had been given to Dunlop to support their balance sheet, but transfer had not been effected since they were awaiting confirmation that there would be no stamp duty to be paid on deal
– Mather & Platt, they bought out centum’s shareholding, but are yet to beef up the management there
– A shareholder (who was transaction adviser on the rights issue of 2007) said he was surprised to see how share transfers were disclosed in 2009 accounts. CEO said that at the time of rights issue, shares were allocated pending investments later made. E.g. Olympia had no cash to take up Heri rights issue, but Avon advanced Olympia cash against balance sheet . In answering a similar question CEO said of their strategy – when they see opportunities, but have no cash they arrange for third party to buy shares and agree to re-sell them to Olympia at later date
– No due diligence in describing Natwood investment, CEO had mentioned that they paid ½ the funds but later their due diligence showed that there were come issues within the company and a shareholder questioned if any initial due diligence was done at all. CEO explained that if company went after blue chip companies, they would pay premium prices, but they chose to go after viable but distressed companies and in this case they had consulted advisers and lawyers before natwood deal.

Shareholder votes – One director was re-elected, but COO Mwangi Wamae opted out of re-election to the board.
– ESOP though directors said employee share options plan (ESOP) will be a key tool to attract top managers for the various companies, shareholders voiced concern that this was the wrong time to bring up an ESOP, with the board governance not in place. Directors argue that the ESOP approval was separate from the implementation noting that – they have had an ESOP in Botswana for 3 years with no shares issued, and that the CMA (Kenya) would not be discuss and approve an ESOP unless shareholders had approved it. Since this was a formality it was approved.
– A dividend of 10 cents was approved. Chairman joked that this was the same as Safaricom was paying

Summary: Olympia CEO and Board pulled it off (again) – reassuring shareholders that the company was sound, strategy & governance would improve, they had a plan to take it forward and that the worst (of the SA foray) was behind them now.