Category Archives: Kengen

Kengen & other Nairobi Bonds

Lots of questions abound about whether its time to invest in bonds at the Nairobi stock exchange. From late last year when Mabati Rolling Mills launched a bond, 2009 has really been the year of the bond with the clincher being the successful Kenya government infrastructure bond of February 2009.

Now ongoing now is the Kengen PIBO for which Kainvestor reviews the prospectus. It offers a 12.5% and the minimum subscription is 100,000 shillings (~$1,316)

Next expected next is a Safaricom bond, a Centum bond ( 2 billion), and more tranches from CFC Stanbic and Barclays. It’s quite a turnaround from 2007 when companies like Athi River Mining, Safaricom and Celtel Kenya (now Zain) all redeemed /repaid bond investors at a time of low-interest rates.

Track all the corporate bonds at the NSE daily bond report and these include East African development Bank, Barclays, Faulu Kenya, Mabati, PTA Bank, Athi River Mining, Sasini and CFC Stanbic

Buy bonds directly from stockbroker agents, but if still unsure of the process, consider investing through bonds funds such as those from Old Mutual Kenya and Dyer & Blair Investment Bank – Kachwanya reports that investors can even access the Kengen Bond at ½ the prescribed price – paying just Kshs 50,000 (~$650) instead of the subscription minimum of 100,000.

Stocks versus bonds? in the long run, as shown by this stockskenya thread, shares are likely to outperform bonds – even the generous 12% Kengen bond.

EDIT also on offer is Uchumi Bond 10% convertible shareholders’ debenture is on. Press reports say it was valued at 12 shillings each by KPMG and is available at a discount of 10/= to shareholders of the company. The funds raised will be used to restructure the balance sheet, which should lead to the end the receivership, and re-listing of the company’s shares at the NSE.

Uchumi Financial Results

published by Specialized Receiver Manager – September 2009

Share Portfolio February 2009

Quarterly portfolio review after last snapshot in November 2008

The Stable
Diamond Trust ↓
Safaricom ↓
Scangroup ↓
Stanbic (Uganda) ↓

– Best performer: Diamond Trust -8%
– Worst performer Stanbic – 33%, Safaricom -23%
– In: none
– Out: none, but sold a little KCB in January

Events & Outlook
– Performance: Portfolio is down 20% in the last three months while the NSE Index is down 25%
– Did not buy KQ and Kengen as expected, but that should happen in the next few weeks as prices continue to drop
– Sat out the Co-OP IPO and made just one trade in three months (sold some KCB in January). Are brokers generating enough income to stay afloat? I hope they don’t try and introduce new charges levied on dormant investor accounts
Money markets: Got started in money markets by signing up with a CBA Unit Trust
Bond markets: The Government of Kenya has lowered the minimum investment for GoK treasury bonds to just Kshs. 50,000 (~600)
Investor awareness: The CDSC started sending out monthly statements by e-mail to investors, cutting out the postal service, and alerting investors each time shares are bought/sold using their account.

Electric Slide

Kengen: the Kenya electricity generating company will have its third AGM later this week – and while shareholders may be happy with a Kshs. 0.90 dividend they will also be asked to approve (i) 30% investment in a geothermal development company to be created by the Government of Kenya (ii) invest in a coal plant (iii) participate in other ventures – (perhaps buy into another IPP independent power producer?)

The proposals to shareholders are vague and without any spending amounts attached, they should not be presented to a vote. When the Access Kenya board got shareholder authority to make other investments, they capped them at Kshs. 200 million each – this one has none, and the third proposal doesn’t even limit Kengen from investing within the energy sector so it could probably buy a sugar company or tea company (for cogeneration?) with that mandate.

Anyway, Kengen has undertaken a lot of geothermal work with three Olkaria plants and is it really necessary for the Government with strained recourses to create another parastatal at this time? Shareholders who were also spooked by plans of a secondary listing of shares and plans to hive off a geothermal company from their assets two years ago will also not be happy to see that the plans are. still active.

KPLC: The much-heralded VAT reduction in electricity bills has not amounted to much. It was effected in the November power bills, but the reduction in VAT from 16% to 12% appears to only cover the fixed charge of a Kshs. 240 per meter – so the savings amount to just Kshs. 9.6 per consumer.

Bad News Bears

Correction Window: At the beginning of the month it was Crown Berger shares that did a swan dance on some pedestrian financial results and last week it was the turn for Portland cement (EAPC) shares to take a drastic dip in value with the announcement of reduced profits.

This has generally been a tough year for manufacturing stocks and the next few days should see year end results of both Kengen and KPLC who have been battling over tariffs and leaving consumers suffering and manufacturing companies & industries threatening to shut down or decamp owing to high electrical costs.

There are some shares on the NSE that are perceived to be under-valued and some that are over-valued (don’t pay dividends, appreciate on speculation, limited trading activity) – and the announcement of financial results (with the waiver of the 10% daily share price rule) gives the market the chance to correct/adjust share prices. But will these share drop? Do they have any reason to? Their P/E ratios are already so low.

Already Safaricom CEO Michael Joseph has said that the price dip of Safaricom shares have no impact on the company’s performance (their quarterly results will also be tricking in soon)

Total 2008 AGM


Total Kenya’s Managing Director Bertrand Fontanges follows in the footsteps of previous Chairman Momar Nguer (or is it a French company thing?) to AGM to educate shareholders on the state of their company and the industry in an hour-long presentation on Wednesday.

Oil sector grew at 6.5% last year which coincided with the country’s economic growth. The market share of the companies at the end of 2007 was Kenol/Kobil 22.4%, Shell 21.8%, Total 21.2%, Chevron 13%, Oil Libya 7.3%, NOCK 2.4% and independents 11.5%.

Challenges include;

The Government; makes all oil companies tender for oil together, for which they have to pay upfront. He referred to the process as they pre-finance the government – on top of which they pay Kshs. 30 per litre of petrol (~$0.48) and 20 per diesel litre. They also pay upfront taxes for fuel they export (i.e. to other African countries) – but don’t get refunded for at least six months after the claim. As such they have reduced their export amounts as it is not viable. He’s the second CEO in a month to put the government on blast after Eveready also went after KRA and KEBS.

The Pipeline: the oil pipeline which has capacity constraints. At least expansion of the Nairobi-Mombasa pipeline expansion should be completed by year-end which should double capacity and end the constraint problem.

The Mombasa refinery; given the opportunity, none of the companies would use the refinery which is outdated, inefficient and makes products expensive – yet they have to refine about 50% of their products there. He added that independents don’t process at the refinery which gives them an ‘unfair; advantage.

LPG i.e. cooking gas. He expressed concern and they have cautioned the Government about the proliferation of illegal re-fillers in the market. These are companies who refill gas cylinders – saying there are safety issues (they can explode) and consumers cannot ascertain the quantity of gas in the tanks from these shops.

Aviation Gas margins in aviation have become so low that they have reduced their sales there and will wait till the market improves before they go back in.

Despite all, the company’s performance improved (EPS of Kshs. 2.99 from 2.7 – out of which a dividend of 2.5 will be paid) thanks to asset sales, Kengen and reduced financial costs. Of the 623KMT of sales, 21% (134KMT) are through their petrol station network while 78% (498KMT) is though bulk, general trade, big companies etc.

Finance charges: Have been an albatross at Total for years. The price of oil (Murban crude) has doubled over the last year to about $120 per barrel (even though some OPEC officials say it should be $60 – $70) and the cost of holding inventory has likewise doubled. So Total has resorted to carrying only as much inventory as is needed and requiring customers to pay upfront.

Kengen awarded a contract to Total which runs for almost another two years. It is not part of the government tender process so they are able to get supplier credit for the oil which has reduced their borrowing charges significantly. (2006 Q3 had financial costs of Kshs. 415m compared to Kshs. 287m in Q3 of 2007).