Category Archives: China

Kenya Eurobond 2021 A to Z

Kenya’s 12-year Eurobond, in which the Government sought to raise $1 billion, attracted offers worth $5.4 billion after a three-day virtual roadshow with European investors.

Here’s a peek at a draft 223-page prospectus

Advisors to the National Treasury were Citigroup and J.P. Morgan Securities as book runners, co-managers were NCBA and I&M banks, Citi was also the paying agent and registrar, while legal advisors were Dentons, White & Case, Dentons Hamilton Harrison & Matthews and Coulson Harney.

Banking: The Central Bank regulates all mobile phone-based banking products offered by banks.

The government will not participate in the recapitalization of the National Bank of Kenya and plans to divest from commercial banking.

Debt rescheduling: During Covid, Kenya secured debt suspension relief from eight out of its 10 Paris Club member creditors, and China for a total of Kshs 38 billion of 68 billion requested, to free up liquidity for Covid-19 pandemic-related expenditures.

Default: Is non-payment of the principal for 15 days after it falls due or interest for 30 days after the due date. Also if Kenya ceases to be a member of the IMF or default on another security by $25 million.

Litigation: Any disputes shall be resolved under arbitration rules of the London Court of International Arbitration and shall be lodged through the High Commissioner of Kenya in London.

London Bond Listing: An application has been made to list and trade the notes on the London Stock Exchange. Notes are in denominations of $200,000

Past Eurobonds: In 2014, Kenya raised an aggregate $2.75 billion through dual-tranche 5- and 10- year Eurobonds. In 2015, Kenya had $750 million syndicated loan with a consortium of banks and in February 2018, Kenya issued its last Eurobond, a $2.0 billion one comprising a 10-year tranche and a 30-year tranche.

In April 2019, the Auditor General issued a special audit report on the 2014 Eurobond and found the funds were fungible utilized but some were spent outside the Government’s IFMIS.

Purpose: The Kenya Government intends to use the funds for general budgetary expenditures.

Repayments are made in US dollars.

SGR: In January 2021, Kenya secured a debt suspension from China of a loan by Eximbank to fund Kenya’s SGR. US$378 million, will be repaid over five years, after a grace period of one year, in ten equal, semi-annual installments.

The Kenya Electricity Transmission Company recently signed a contract with China Electric Power Equipment and Technology Company for the electrification of this section of the Mombasa-Nairobi railway.

Subscription: In case, the bond was under-subscribed, Citigroup, J.P. Morgan, I&M and NCBA would have filled the gap.

Taxes: All payments are made, without deducting withholding tax. Also, interest payable on the notes has been exempted from income tax and capital gains tax in Kenya.

Ant Group IPO

Tuesday should have seen the listing of shares of Ant Global in the largest IPO in history but it was cancelled at the last minute. This came after Jack Ma, the founder of the company, the Executive Chairman and the Chief Executive Officer were all summoned to a meeting with regulators a few hours before the launch. 

Later the Shanghai Exchange announced that it had cancelled the listing of Ant Group’s A-shares on the STAR Market and published the suspension decision which stated it was due to material matters.

Reasons varied from capital controls to politics around Jack Ma who is currently China’s second-richest man and now a global philanthropist who donated medical testing and protective equipment to different countries around the world as they battled Covid-19. 

The company was to raise $34 billion from the IPO, valuing it at $313 billion, but by the time of the cancellation, they had a staggering $3 trillion in bids from investors. The company had allocated 1.67 billion shares each for Shanghai and for Hong Kong to raise 115 billion Yuan ($17.23 billion) from each location, but Shanghai investors bid $2.8 trillion, 872 times the number of shares allocated, while those in Hong Kong bid $168 billion or 389 times their allocation.

This came after a book building done by Citi, JP Morgan, Morgan Stanley and CICC who were the joint global coordinators and book-runners. Also participating was Credit Suisse, Barclays, Deutsche Bank, ING, Goldman Sachs, ICBC, BNP Paribas and Mizuho, among other banks, while the Bank of China (Hong Kong) was the receiving bank.

Ant was started within the Alibaba Group in 2004 as a company offering online escrow services. It was spun off from Alibaba in 2011, which itself reported a 30% rise in quarterly revenue today to reach $23 billion. Earlier this year Ant had 711 million active users, just behind 800 million on Tencent’s WeChat Pay. It now serves 1 billion users and 80 million small businesses in China, and recently provided billions of dollars in loans to Chinese companies impacted by Covid-19 and also waived fees, subsidized logistics, and offered free streaming and work from home tools.

The invitation to invest noted that financial systems that have been in place for the last 200 years were designed to serve 20% of the population and that better products have to be designed for the other 80% through digital payments, digital finance, and digital daily life services. The company has 26,000 patents and patent applications.  

One of the risks cited in the listing documents is possible action by US President Donald Trump to restrict the use of payment services of Ant.

Refunds to investors started on Wednesday, November 4, and it is now expected that the IPO could be delayed by at least six months.

Edit

November 6, 2020.

January 1, 2021.

Continues

Black Panther vs. Wolf Warrior

How do you write about a movie without giving away parts of it to anyone who has not seen it? I was spurred to see the movie “The Black Panther” after attending a networking dinner where half the guests had seen it and eagerly wanted to talk about it across the table while some of us pleaded that there not be any discussion until the rest of us had seen it.  

As I write this, Black Panther has crossed the $1 billion revenue mark. When I saw a preview of the movie sometime in December it looked like another mindless action movie set in an American city. But the film with a predominantly black cast is set in Los Angeles, Seoul, and primarily in a fictional African country called Wakanda. 

The movie has been well received in many markets due to its positive portrayal of Wakanda which has massive mineral wealth reserves that the residents have harnessed to develop an advanced technological economy while remaining hidden and portraying themselves to the world, as another poor African country.

It has a mix of new and-well established stars, as familiar faces like award-winning Angela Bassett, Forest Whitaker, and Lupita Nyongo have meshed well with several upcoming stars who have worked hard in their careers to get to their big break in the Black Panther. Fred Swaniker, the co-founder of the Africa Leadership Academy, recently wrote about Danai Gurira, a Zimbabwean college-friend of his, who he advised not to study theatre, as it was a waste of time; but she ignored his advice and now portrays the scene-stealing female general in the Black Panther. 

Black Panther is directed by young black director Ryan Coogler who has a knack for turning small movie budgets into large paybacks. And Black Panther is now the 20th highest-grossing movie of all time on a list dominated by comic and children themed movies. Films get on this list when audiences enjoy, re-watch, and tell others to see them. And local entrepreneurs and celebrities have offered to pay for whole groups and classrooms in cities like Atlanta and Kisumu to watch the Black Panther. 

For Kenyans, the film has been well received, and one report that it is probably one of the largest-grossing local films due to Lupita’s appearance.  I got in touch with my friend Chris Foot, Chairman of the Kenya Film Commission to ask if Black Panther could have been shot in Nairobi and he mentioned that Coogler had actually visited Kenya for research but ultimately the producers decided that the movie would be primarily filmed in the US. 

What’s remarkable about the Black Panthers’ billion-dollar haul is that it was achieved before the movie was shown in the large China movie market. In reading about expectations ahead of Black Panther’s opening in China I came across this article which looks at if the Black Panther movie would change the views of Chinese citizens about Africa.

The article mentions a movie, called Wolf Warrior II, which was released in July 2017 and became the best-selling Chinese movie in history, grossing $874 million. Wu Jing directed and stars in it as an indestructible Chinese soldier who foils rebels in a fictional African country where senseless wars break out that have soldiers shooting at each other and killing civilians even as an Ebola-like disease decimates communities. In it, the Chinese are revered as do-gooders in medicine and industry who are not to be harmed in Africa, except by the white mercenaries who are orchestrating the wars. 

Finally, the imagery of Africa in Wolf Warrior II, which was filmed in present-day South Africa, is more realistic than Black Panther’s futuristic utopia of Wakanda. And the global success of the Black Panther movie will not change American or Chinese views about Africa but it may inspire more interest in African countries, stories, and projects.

This was written in March 2018 but not approved for publication as my regular column on financial issues.

Edit: Reading “The Ride of a Lifetime”, Robert Iger’s autobiography of his time as Disney CEO, during which he made three huge acquisitions – of Pixar, the Star Wars franchise and Marvel comics for the Disney empire, he writes that one of the proudest creations of his tenure was the Black Panther movie. 

It defied the notion that a black-led superhero movie could not perform at the box office, on top of challenging a prevailing view in Hollywood that movies with predominantly black casts and black leads struggled in international markets. This had, in the past, resulted in fewer black-led films being produced, with fewer actors, and smaller budgets to mitigate the box-office risks. 

KPMG on Geopolitical Risks and Opportunities

KPMG’s Audit Committee Institute series organized a breakfast session in Nairobi today that assessed the risks posed by global events & trends and the potential opportunities that could emerge. The session took place at a time when countries and industries around the world are gripped by concerns and efforts to contain the spread and impact of the Coronavirus.

Sophie Heading, KPMG Global’s Head of Geopolitics, who is on a tour to speak in different capitals around East Africa mentioned that geopolitics now affects the developed world as much as it does for developing countries. She said that US domestic governance is the number one political risk across the world, and that while there has been a shift in leadership away from the US & Europe (G-7 nation) towards China, currently we are in a G-Zero world in which there is no clear leader.

She referenced three distinct areas of technology, trade and trust in which geopolitics could be traced along, and the opportunities they presented for different African countries.

Excerpts

  • Technology: Advances bring geopolitical power and this is likely to spread to other markets – as seen in the battle between the US and China over spectrum (5G), data, and platforms. China is looking to reshape the Sub-Saharan Africa technological space while the US wants to protect its security interests and intellectual property.
  • Trade: The US and China have decided to decouple and go separate ways and other countries will have to choose who to align with. Both are seeking new alliances, investors, partners, suppliers, staff etc. but this is also at a time that other key markets are increasing their regulations in terms of capital, policies, taxes and data, etc. Foreign aid used to be a tool that Western states used to influence economic events in Africa, but with the Chinese model of financing infrastructure being so successful, she expected that there will be a drop in aid from the West as it is no longer seen as being effective.
  • Trust: There is social discontent across the world as young populations feel that government systems are not meeting their needs. This is different in developed nations versus it is in developing ones. But because of their debt levels, most nations now have less policy flexibility to address their internal issues. Also with global growth having slowed down to about 3%, and which may reduce further to as low as 1.5% with the Coronavirus outbreak, any such interventions may widen the social wealth divides within countries.

She said that there is more need to pay more attention to environmental, social, and governance (ESG) issues. This is something that Europe, and the private sector, have championed, but which other governments have not, while the US, China and India have all stepped back on the environmental front.

She cautioned that Nairobi, which is the second-biggest hub in the region for impact investing, but without the Kenya government signalling its interest in championing of ESG issues, may lose out on future investment and client opportunities.

Stanbic economic briefing for Kenya 2020

Standard Bank (Stanbic) Group Kenya released their Macroeconomic update in which they are cautiously optimistic about Kenya’s growth through the private sector. The presentation in Nairobi was done by Jibran Qureishi, the Regional Economist – Africa at Stanbic.

Highlights:

  • Stanbic economists believe that global growth will fall in 2020 and 2021 as central banks in advanced economies are tapped out and their ability to stimulate economies is limited. Chinese growth will slow to sub 6% in 2020 and be about 5.5% in 2021. Meanwhile, the US cut its rates three times last year but investments are still falling as the trade war with China has hurt growth.  
  • For Kenya, Stanbic expects 5.9% GDP growth in 2020, up from 5.6% in 2019. Three things that held back private sector over the last two years were interest rate caps, delayed payments by government and congestion at the Inland Container Depot (ICD) Nairobi.
  • Government policies should focus on private-sector driven economic growth.
    There is growth but where are jobs? Growth in the wrong place.  90% of new jobs are the informal sector and also in the service sector but these will not create a middle-income economy.
  • Tourism was resilient, earning $1.5 billion last year, but the potential is much larger and this depends on how much private investment the sector can attract. Kenya gets 2 million arrivals but Mauritius, Morocco, Egypt and South Africa get about 10 million in bad years.
  • Ambitious tax revenue targets embolden the government to spend more and tax revenue targets are still much larger than average collections.
  • If the government does not fix fiscal issues, this will lead to unpredictable tax rules which could hamper productive sectors
  • A move back to concessionary loans and away from commercial loans for the first time since the (President) Kibaki years is a welcome step.
  • The Standard Gauge Railway (SGR) may still get extended to Uganda but the government will have to build new ICD. It is not that China does not have money, but they are asking questions they should have asked 7-8 years ago.
  • Kenya traditional manufacturing has been an import-substitution model which has not really worked around the world. Better to shift from being protectionist and instead work towards growing exports which (excluding tea and remittances) have been stagnant – at $6 billion a year
  • Don’t focus on manufacturing too much and neglect agriculture, as a big part of that will come from agro-processing and adding value to agricultural produce.

Charles Mudiwa the CEO of Stanbic Kenya spoke of how the bank has aligned to the government’s agenda. They are a shareholder in the Kenya Mortgage Refinance Company, and 20% of their lending goes to manufacturing with another 9% going to agriculture & food security.

Stanbic was the lead arranger for the Acorn green bond that was listed on London’s LSE today. The bank also has a DADA program to promote women financially (with a goal to lend Kshs 20 billion) and is also supporting financial literacy training to musicians and Uber drivers.