Category Archives: carbon credits

Kenya Green Bonds Launched

A few days ago saw the launch of green bonds in Kenya with the signing of a memorandum of understanding between the Kenya Bankers Association, Nairobi Securities Exchange (NSE) and Financial Sector Deepening Africa (not FSD Kenya). Through this, they hope to deliver lower cost funds through capital markets to finance green projects. China is actually the leader in this along with India, but Kenya, as part of a climate bonds initiative, will be the flagship for green bonds in Africa.

NSE CEO Geoffery Odundo NSE Odundo said green bond listings at the NSE would attract impact investors while Kenya Bankers Chairman, Lamin Manjang said they hoped the first green bond would list at the NSE this year. FSD Africa has committed $600,000 to this and the IFC will partner with KBA to determine green portfolio i.e. projects that quality for such finance, from sectors such as energy, agriculture, infrastructure, transport, manufacturing. Other actives to be undertaken include and enabling small banks to take part in financing the pipeline, extending green bonds across East Africa, creating a pool of Kenya green finance experts, and promoting green Islamic finance.

More on renewable energy project finance in Kenya.

East African Portland Cement 2009 AGM

The 2009 East African Portland Cement Company (EAPC) annual general meeting (AGM) was held at the company’s sports club in Athi River on November 19. The company is the second-largest cement producer in the country, but has one of the smallest shareholding pools, with just 996 shareholders. One of its largest shareholders is rival cement company Lafarge who were evicted from the board of Athi River Mining (ARM), another cement company, earlier this year.

What would have been a tough year for the company was smoothened over by an ‘other income’ boost

Shareholder questions:

How will Portland compete with the many new opening cement companies in the country? – Mombasa Cement has launched plant in Athi River, while ARM is building a new large cement plant in Tanzania?

  • By externally increasing sales in the region –  to Uganda, South Sudan, Burundi, and the Democratic Republic of Congo (DRC)
  • More media advertising to promote their cement brand (Blue Triangle) and they are relocating sales & marketing department from Athi River to Nairobi.
  • Internally improving processes e.g. use cheaper fuel, apply cheaper distribution methods. Also plan to install a new kiln to produce clinker for the company’s operations and sell the excess as exports to other cement companies (they have appointed consultants to begin the process of commissioning the 5,000 metric tons per day plant).
  • By Going Green initiatives: while cement companies not associated with environmental causes, but rival Bamburi (Lafarge) was able to create a beautiful Wildlife park (Haller Park) from a depleted quarry. Now Portland has signed up with the JP Morgan climate care program, and by reducing fuel oil they use in operations and carbon emissions, the company earns about 80 million per year (~$1 million). Also for some of their exhausted land in Athi River, they have applied for a Kshs. 250 million environmental grant from the (Kenya) Prime Minister’s office towards the planting of 4 million jatropha trees whose seed oil will be used in kiln operations and earn more carbon credits.

What will happen to idle plant/asset/farm?

  • Farm animals were sold as it was a loss-making venture and animals would have died of drought if they had been kept. The idle farm will be planted with jatropha forest, to prevent squatter encroachment.
  • Useable old mill machinery will be shifted to other countries to reduce the cost of production of some cement. Unusable plant parts (old technology) were to be sold, but global economic crunch meant that steel prices plummeted and so they have halted this until prices pick up later.

Poor dividend and share price: DPS is always 1.30, while EAPC shares rarely trade/move up or down

  • Shareholding structure is Government of Kenya – 50%, and Lafarge (France) – 42% and what is traded is from the small 6% owned by the public. The Board did not answer if they would emulate ARM and boot Lafarge/Bamburi (more difficult to do here)
  • Reserves are there but some can’t be paid out i.e. asset evaluation reserves.

Yen-denominated Japan loan: Portland received a 20 year 2.5% loan from Government of Japan that has now become a burden to pay as the Japanese Yen has gotten stronger over the years (the company lost them 921 million in 2008, and still has 10 years to go with the loan). The Board is aware of constraints and shareholder concerns and so the company will look at hedging to resolve the costly loan issue by next year.

Sticky Issues: Shareholders asked why they were being asked to re-elect directors who skipped AGM’s – Titus Naikuni (CEO of Kenya Airways) and Joseph Kinyua (Permanent Secretary, Ministry of Finance), and why the Government’s Controller & Auditor General was listed as the Portland auditor and gave an opinion, yet contracted the audit function to audit firms (this year’s done was by Ernst & Young, and the previous one by Deloitte).

Goodies: Buffet lunch, umbrella, tote bag (with cap, polo shirt).

Odd moment: Prayer by famous shareholder Mr. Chami before and after the meeting.

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.

Reading the Kenya Airways Tea Leaves

excerpts from the 2009 Kenya Airways annual report

pic from

Investor performance: – Annus horribilis – airline industry performance has been bad with over 40 airlines suspended from the IATA settlement system in the last 15 months for non payments
– Turnover of Kshs. 71.829 billion (~$945 million), and operating profit of 4.04 billion, but the year ended with a pre-tax shocking loss of 5.66 billion ($74.5 million) owing for fuel hedging. In 2008 turnover was 60.47 billion and a pre-tax profit of 6.52 billion
Have 76,703 shareholders, 35 243 who have immobilized their accounts
– KQ has become more sensitive to fuel price changes and less sensitive to currency fluctuations – a 1% increase/decrease in fuel impact the profit by 269 million ($3.5 million). Report does not mention who fuel hedge partners, but hedges ran up to December 2010
– Their investment in Tanzania’s Precision Air is good. Their 49% stake brought in 62 million in profit
– As a result of currency restrictions, KQ has 58 million ($763,000) in Seychelles that they could not repatriate, but the government there has allowed them to utilize it to procure services
– Have loans of 32 billion (with 23 billion or ~$303 million) owed to Barclays, also from ABN Amro and EXIM Bank USA – all at rates between 4.5% and 6.6%

Routes: – fly to 37 African cities, 5 Asian and 3 European destinations
– Revenue comes from Kenya (4%), Africa (46%), Middle East & Asia (22%), and Europe (29%)
– Stopped Lamu because they don’t have a plane that can land there (after they sold turbo-prop)
– Paris is back on, but KQ scrapped Nairobi – Guangzhou direct because of poor traffic. Guangzhou now served through Bangkok
– Aim to offer more night flights to Nairobi for easier connections
– Have run some enticing promotions to celebrate new routes new routes – $43 to gabarone (Botswana) and $44 to Ndola (Zambia)

Embraces new media : – website has 230,000 visits per month and sales have passed $10 million (that’s about 1% of a year sales)
– No. 7767 is an SMS alert number that passengers can use to get information of flight status, delays, cancellations etc.
– About 3% check in via web, and booking for hotel and cars is also at a good rate
– have installed wireless network for staff to serve passengers, for baggage crew, engineering teams to coordinate flights why not wi fi for passengers?
no mention of twitter @kenyaairways

Passenger services: – Busiest passenger months are July -August (~270,000 passengers p.m.) while lowest are February (~200,000)
– On time flights have gone up as a result of a zero tolerance policy on delays
– Airline report again laments that the Jomo Kenyatta international airport (JKIA) – their hub- has not kept up with their rapid growth in passenger numbers – and transit facilities inadequate
– Report also again appeal to the Kenya government to grant transit visas to their west African passengers flying to the far east via Nairobi
– KQ bought 3 buses to ease passengers’ convenience, long walks to flights and protect them from weather
– KQ still runs Bombay Ambulance that provided discounted tickets to airlift needy patients traveling for medial operations overseas (donated 20 tickets last year)

Employee relations: pre-strike – Has 4,240 employees
– KQ sold land in Embakasi to a developer who will put up 332 houses, in which preference will be given to KQ staff
– Have 340 pilots and 850 cabin crew. Plan to hire 68 pilots this year (48 direct, 20 ab initio) and another 23 over the next 5 years to replace retiring pilots

Fleet: – KQ owns Boeing 777-200, 737-300, 737-700 aircraft
– KQ leases Boeing 737-800s and 767s, as well as Embraer 170s (paid 4.9 billion in leases in the year)
– SAAB turbo-props were sold to a European buyer in May, so now have an all jet fleet now
– Paid deposits of 1.65 billion ($21.7 million) to Boeing for the yet to fly 787 whose deliveries they expect between 2013 and 2015

Green airline: – planted 450,000 tress in Ngong forest with other corporate partners, costing KQ $220,000
– will map their carbon foot-print in 2009, though they cite a report that global aviation contributes only 2% to carbon emissions

AGM – their annual general meeting is coming up at the end of the month
-shareholders will vote for a dividend despite the (non-cash fuel hedge) loss for the year, and as is the norm this year with Kenyan listed companies, also for electronic mailing of reports or their publication of account sin the newspapers to replace expensive mailings through the post office to each shareholder
– KQ director elections are usually interesting affairs shareholders will be asked to (i) re-elect Chairman Evans Mwaniki and Denis Afande who must be re-elected each year because they are over 70 years old. (ii) Also new to the board is group finance director Alex Mbugua, and (iii) there will be a new director since a government re-shuffle will bring new transportation permanent secretary Cyrus Njiru on board as the main government representative replacing adan ali. (iv) There is also a vacancy as KLM nominee Micah Cheserem resigned during the year when he was appointed chairman of Kenya’s Capital Markets Authority.