Monthly Archives: October 2011

Guide to Cairo

A guest post by @g33kmate who made a recent visit to Cairo, Egypt for the Maker Faire Africa 2011 event.

Getting There: Several airlines fly to Egypt from Nairobi including Egypt Air, and Kenya Airways at a cost of ~Kshs. 70,000 (~$700) for a return ticket, as well as others, that may be cheaper, but not direct such as Gulf carriers and Ethiopian Airlines.

At Cairo Airport, clearing at the airport was pretty fast, there was no hassle; in fact it took less than 15 minutes from disembarking from the plane to being out of the airport.

Getting Around: There are two main types of taxis – those with meters (painted white with checked stripes on the side), and those without (usually painted black with a white line). The taxis with meters are cheaper, costing about 5 Egyptian Pounds (~Kshs. 125) for 4 KM. The ones without meters tend to be more expensive as the drivers decide on the pricing. Other transport options include government buses, as well as hotel taxis, which are very expensive (not the buses), mostly ranging from US$20 (~Kshs. 2000) and prefer to be paid in dollars.

Cairo scene

Cab drivers will try to convince you that the streets are insecure just so you can take their cab service but having walked around, I did not feel any sense of insecurity, apart from the evenings when all you find in the streets are crowds of men, but everything else looked calm, with no incidents.

The local language is Arabic with just a handful of English speakers. Most if not all of the printed press I saw was in Arabic.

Keeping in Touch: For communication, I was able to use my roaming service on both Safaricom and Airtel but ended up getting a local SIM card as it was cheaper to use. With a local provider, Mobinil, local calls cost me 90 Piastre per minute, an equivalent of ~Kshs. 22 and for international costs, there was a day I called Kenya for 4 minutes and spent about 50 pounds which is an equivalent of ~Kshs. 1,100.

As most people use their Blackberrys for internet, there are a few cyber cafes, unlike like the hundreds in the streets of Nairobi.

Where to Stay At the Baron Hotel, which is a really nice hotel that costs $150 per night. There was also Wi-Fi at the hotel.

Shopping & Sight-Seeing: Getting around each day cost about 20 pounds (equivalent of about Kshs 500). The main shopping area is downtown Cairo was at the mosques and the Pyramids and the other site to see besides the Pyramids, was at Alexandria City.

Business & Infrastructure: Electricity is reliable, and it was there every single day with most parts of the city well lit. I hear it’s cheap too and solar is not very popular!

Most of the architecture is very amazing and very old ancient Egyptian. Also, it’s amazing that the tallest building I saw was about ten storeys.

Food & Bars: The Local dish is Koshary, which is a very interesting dish of pasta, rice, macaroni, peas and a few other ingredients mixed and served with tomato, garlic and vinegar sauce. Beer is not very popular especially being a Muslim community but they take bitter tea and smoke cigarettes a whole load! The talk now is about the revolution and the life that is going to come or what is expected after Mubarak.

Local legends are everyone who was in the revolution!
Shockers: The separation of the sexes. Men are more open to hanging out and working with men, but you hardly find any women in the midst of men. Men hug and kiss on the cheek every so often before and after a conversation and the best they give with women is a handshake. This also applies to the women.

The other big surprise is how friendly everyone is. Egypt is depicted as a very unfriendly country especially as most of them don’t believe they are in Africa, but the people in Egypt are all very nice and welcoming. One word AMAZING!

Reading the Precision Air Tea Leaves

Precision Air (now a PLC with a 126-page prospectus at their site) was incorporated as an LLC in 1991. It flies to all major towns in Tanzania Mwanza, Tabora, Musoma, Shinyanga, Kigoma, Kilimanjaro, Zanzibar, Mtwara, Arusha and Dar es Salaam) and internationally to Kenya, Uganda, South Africa, and Comoros. Kenya Airways (KQ) became a strategic investor in 2003, acquiring a 49% stake.

Air Industry: There are 27 air operators in the country, and Precision Air is the second national carrier of Tanzania with a 59% market share, followed by Coastal Travel 14%, others with 21% and Air Tanzania with 6% (via TAA stats). It is also the only Tanzania carrier operating scheduled international flights and member of the IATA clearing house (ouch!)

Tanzania is a large country with a service industry that contributes 43% to GDP of the country, and id that has increasing air industry opportunities thanks to mining, tourism, but challenges include a lack of staff. Precision has been a local pioneer in e-ticketing (which cost $1 compared to $10 for paper ones), frequent flyer programs and online check-in.

On Offer: Unlike past cross-border listing like Bralirwa (Rwanda), Stanbic (Uganda) and Safaricom & Britak (Kenya) which have been available to nationals of all East African countries, the Precision Air IPO has only Tanzanian and non-Tanzanian categories for retail and corporate investors (no East African category). 51% of the shares are reserved for Tanzania nationals in the case of an over-subscription, Tanzanians can’t buy on behalf of non-Tanzanians, and 3% of the shares are reserved for staff of the airline.

If dividends are paid, they are taxed at 5% for both Tanzanians and Non-Tanzanians (shareholders of unlisted companies are charged 10%). Historically, they have paid dividend of about Kshs. 7 million and shareholders equity tumbled in 2011 thanks to a hedging reserve hit of Kshs. 615 million.

58 million new shares are on sale at a price of ~Kshs 29 (TzS 475 each), with a minimum application amount of 200 shares, then multiples of 100 thereafter. The offer runs from 7th to 28th October with results announced on November 11 and listing at the Dares Salaam exchange on December 8 2011.

The IPO has had some delays such as by a small a lawsuit and (threat of) a winding-up petition. However the only material litigation mentioned are two (lightweight ones) of a passenger who lost luggage and sued for about $50,000, and some former employees suing for overtime pay of $150,000 which the Precision lawyers note are unlikely to lead to winding up proceedings.

Valuation: With a re-worked earnings per share of 10, the price advised by NIC Capital works to a historical P/E ratio of 50, which is seen as high (see Transcentury [KE] for a similarly listed share)

Cost of Offer: The IPO will cost about Kshs 64 million including payments to Ernst & Young (transaction advisors – Kshs 5M), Orbit (stockbroking – Kshs 3.5M), Stanbic (Receiving bank- Kshs 3M) and the receiving agents (stockbrokers, branches of CRDB, and Stanbic banks all budgeted at Kshs 37M)

Use of Proceeds: hoping to raise about Kshs 1.7 billion (TzS 27 billion or ~ $16 million) and Kshs 700 million will go to fleet expansion, Kshs 400 million for ATR spare parts and the balance in systems, training, equipment and working capital.

 

Background on Transaction: Michael Shirima, the Chairman had had 1.37 million and KQ 1.32 million shares each. Their shares were split 50 times giving Michael Shirima had 51% (68m) shares and KQ had 49% (66m) and they will retain those shares, alongside the newly created 58 million shares, but which will reduce their holdings to 35.5% and 34.1% respectively

Early partners in the airline’s history include Mtengei Materu, Hillary Ngaleku, The Tanzania Venture Capital Fund and East African Development Bank, but at this stage it’s only MS and KQ. The company does not own land but has leases from Kilimanjaro Airports Development Company, Kilimanjaro Native Cooperative Union, Quality Plaza Limited and National Insurance Corporation.

Fleet: Comprises 2 ATR 42-320 (All Owned), 4 ATR 42-500 (2 Owned and 2 Leased) 5, ATR 72-500 (All Owned) and 2 Boeing 733: 2 (Leased). ART 42 (4 in the fleet) and ATR 72 (5) use 700 litres per hour, with which they fly almost 700,000 passengers and forecast flying about 1 million passengers next year. The 737’s are maintained by KQ.

Banking: Their arrangements include Citibank ($127 million) who are financing the purchase of 7 ATR aircraft, Stanbic ($6 million) one aircraft and a KCB $6 million) taking over an EADB loan for hangar construction (at Nyerere International airport). They also have letters of credit and guarantee facilities with Stanbic Tanzania.

Human Resource: Precision has 657 staff, but a SWOT in the Prospectus notes that a weakness of the industry is a shortage of pilots and engineers. The Managing Director, Finance, Information Systems and Commercial directors are Kenyans, seconded from KQ who provide manpower development, and training of Precision staff who are attached to KQ. Also at Precision, 4 pilots have been trained from scratch, 12 technicians have been trained at Toulouse by ATR and 5 senior managers are also enrolled in MBA’s at Toulouse.

Ground Handling: 150 were employed after the company got approval in 2009 to do their own ground handling – and hope to employ more if they get permission to do the same for other airlines. They do self-handling at Nyerere International Airport (Dar es Salaam) and Kilimanjaro International Airport (Arusha)

Governance: Precision Air has a lean board with only one independent director and only one committee (audit & risk) that each meets four times a year. As long as they own 20% KQ must be consulted by Precision and agree on the appointment of Managing Director and Finance Director, entry into alliances, new routes, acquisition & disposal of the fleet, any issue that dilutes shares, taking on debt. same for MS who holds 20%. KQ and MS have the right to appoint one director for each 10% they have and replace their directors. The IPO also provides for some rights for a minority shareholder who ends up owing 10% shares in the company.

Investors Vs. Spenders

A guest post by Wanjiru Kamau of Capital Registrars

As I read and write about personal finance, I try to establish or cultivate an investor habit rather than the spender habit with people. Where do you fall?

First, you should understand the difference between an assets vs. flossets!. An asset creates value, while flossets makes you look like you have money! You know them – they include the latest car/TV set/clothes/expensive phones etc. Like a job interviewee with impeccable dressing and good English (well don’t hire those!), a flosser looks like he/she has money and are attractive to many!

Now, in understanding the difference between an investor and a Spender..

1. Interest: An investor earns interest. A spender pays interest. The Central Bank issues Treasury Bonds and Treasury Bills every so often. You can check their website on the Central Bank of Kenya. While investing in these are for big players with millions to spare and an eye for after tax interest , they are now available for investors with as little as Kshs. 50,000 (~$500)

However, fund managers such as Zimele, and a number of collective investment schemes licensed by the CMA pool funds from many small players and credit interest on accounts every quarter. The spender on the other hand funds his many expenses with loans, and is always paying out interest.

2. Capital Gains vs. Losses: The main aim of an investor is to make money not lose it – and he/she earns capital gains on investments like stocks, land, businesses and other investments. However, a spender quickly loses his capital every day on his flossets e.g. a car’s value, which goes down the minute it leaves the showroom.

3. Type of Phone calls: The investor receives phone calls from people who want to create more value or deals that he may make money in; while the spender receives phone calls from shops or friends that want to sell him/her the latest clothes, phones and other gadgets. While these items are not important, changing your phone every time there is a new model, is not financially healthy unless you your balance sheet allows it.

4. A Savings Culture: The investor saves money to build an emergency fund or capital for business. He knows that little by little, with a discipline, he can build a fund that is large enough to sustain him in case of income loss. In contrast, the spender hardly saves. He always has too little money to save even if he has a good income, as he is always servicing high interest loans or paying for more Flossets that his salesmen friends arranged for him.

5. Insurance policies: A smart investor maintains important insurance policies to avoid losing assets in a fire or to thieves. They have taken the time to understand, the somewhat difficult insurance jargon and marketing practices to subscribe to policies that provide some protection to their businesses and families in the event of some losses. A reckless spender may engage in unwise decision like driving a new car for a night out before arranging insurance.

Where do you fall in the Investor vs. Spender divide?