Category Archives: Kenya privatization

President pledges NSE Revival through IPOs

President William Ruto visited the Nairobi Securities Exchange (NSE) and rang the opening bell, then listened to financial and government leaders explain the situation in the financial markets.

  • NSE Chairman, Kiprono Kittony lamented that there had been no new government listings in 13 years. This stems from challenges and long procedures in the privatization process and they have had talks with Moses Kuria, the designated Cabinet Secretary for Trade, Investment and Industry,.
  • James Mwangi CEO of the Equity Bank CEO said his group was the ultimate hustler fund that grew from being a Nyagatugu village mutual fund, owned by 2,500 farmers. In 2005 and 2006 it converted into a bank and listed on the NSE which enabled them to then raise $185 million (Kshs 11 billion) from Helios. Today, the original investors have seen a 159,000% return on their investment and Equity, with Kshs 1.4 trillion of assets, has the sovereign fund of Norway (Norfund) and the World Bank Group as its largest shareholders.  
  • Lengthy Privations: Engineer Kinyanjui of the PPP said privatization as currently structured has 16-17 steps and each takes 5 months. The government owns Kshs 426 billion of investments (at the NSE) and can’t sell one share without going through a privatization law process. Entities like ICDC (now under KDC) have mature investments they are ready to exit from and support the government program and the delay in privatization means that when they divest, there is an erosion of value. 
  • Pension Opportunity: Hosea Kili, the Managing Director of Laptrust said the Lamu Port, SGR and Nairobi Expressway could have been financed by the local pension industry if they had been structured for them and lamented that they are unable to deploy funds as there are no new listings. He added that Laptrust plans to list Kshs 7 billion of their Kshs 17 billion property portfolio as an I-REIT. 
  • The National Social Security Fund (NSSF) boss said that 15 million Kenyans are not in any pension schemes. At the same time the NSSF, which has shares in 29 listed companies, is 3% of the NSE, has reached the limits of what it can invest in some counters.  

After listening to leaders, President Ruto said the government would revive the capital markets by privatizing and listing 5-10 state enterprises in the next 12 months and that the government would also seek to float a domestic dollar-denominated bond.

He directed that the government review of privatization law to review sections that inhibit the process, or he would move to repeal it. He also asked private companies to step forward and list and said the government was willing to remove some impediments including forgiveness of some tax sins. 

In his closing remarks, the President: 

  • Announced that Bio Foods and Credit Bank have obtained approvals to list at the NSE.
  • Invited the pension companies to a meeting at State House a few days later. 
  • He also put a fire under the boards of Nairobi International Financial Centre and the Privatization Commission for not delivering.

Here’s a stream of the launch of the enhanced NSE Market Place event

Safaricom’s Ethiopia License

This week marked the deadline for bids for two new Ethiopia telecommunication licenses on April 26. Two offers were received in Addis Ababa; one by MTN (Mauritius) and the other for a “Global Partnership for Ethiopia”, a consortium by Vodafone, Vodacom, Sumitomo and Safaricom.

This is part of an overdue privatization push by Ethiopia that has continued even as political tensions have flared up in different parts of the country. The licenses do not include mobile money, but that is something that currently monopoly, Ethio Telecom has been granted and hopes to launch soon. It is expected that others who did not bid for mobile licenses such as Orange may bid for the partial privatization of Ethio Telecom which has 50 million subscribers.

Can Safaricom grow in this market 110 million population strong-market? That has been a goal of Safaricom’s management for the last few years. But a January 2021 report by Citi Bank was negative on the “high risk, high return” venture which will impact Safaricom’s earnings in the short to medium term. This was due to the impact of Covid-19 on the risk profile of all potential investors in Ethiopia, but also as, by taking a controlling stake in the consortium, the Ethiopia operations will be consolidated in Safaricom’s financials. Citi expects that Safaricom would raise half a billion dollars of debt to contribute to the consortium which would put an end to special dividends paid by the firm.

After technical and financial evaluations of the two qualified bids, a decision is expected by mid-May 2021.

Also, see more about MTN, from their Nigeria listing.

EDIT May 24, 2021:

  • The Global Partnership for Ethiopia welcomed the award of a license to operate telecom services in Ethiopia. Safaricom is the lead partner in the consortium which will establish a new company in Ethiopia that aims to start providing telecommunications services from 2022. The country has 112 million people and is introducing competition as part of economic reforms supported by the International Finance Corporation.

EDIT May 25, 2021:

  • The consortium bid $850 million and will get a 15-year license, with the possibility of one extension of the same duration. Safaricom has incorporated an SPV, the Vodafone Ethiopia Holding Company in the UK, in which it owns 90% and Vodacom 10% – which will own a company in the Netherlands, that it intends to move to Kenya, and get shareholder approval at their upcoming AGM, to operate it as a subsidiary. The SPV will own 61.9% (Safaricom 55.7%, Vodacom 6.2%), and other shareholders will be Sumitomo (27.2%) and CDC (10.9%).

EDIT June 8, 2021:

  • Vodacom CEO Shameel Joosub said their group serves 180 million in Africa with 58 million accessing financial services on M-Pesa, Africa’s largest mobile money platform that processes $24.5 billion a month. It has now expanded to international money transfers, loans, savings and lifestyles ad lifestyle and could be used to enable small Ethiopian businesses to access e-commerce. Also, the launch of mobile money services in 2022 will ensure financial inclusion and close the gender gap.
  • Prime Minister Abiy Ahmed Ali said Ethiopia will next offer 40% of Ethio Telecom to a foreign investor with another 5% to the Ethiopian public. Also, they will adjust policy (mobile money) and re-tender the second national telco license as he called on all the telco players to coordinate to connect everyone.

EDIT July 5, 2021

  • Safaricom appointed a new Managing Director for Ethiopia, Anwar Soussa.
  • Safaricom released the notice for the AGM on July 30 where shareholders will be asked ratify the Ethiopia deals.

EDIT July 15: The Ethiopian Communications Authority (ECA) issued a fifteen-year telecommunications operator license to “Safaricom Ethiopia PLC,” a newly incorporated local company.

EDIT: October 6 2022: Safaricom Ethiopia launched its mobile telecommunications network and services in Addis Ababa, Ethiopia, with 2G, 3G and 4G mobile services in 11 towns. While it builds a network to span 25 towns by April 2023, it also has infrastructure sharing and interconnection agreements with Ethio Telecom.

Also comes with a mobile money license for M-Pesa:

Continues

Kenya Airways 2020 results

Kenya Airways (KQ) recorded an unsurprising record loss for a year in which Covid-19 saw grounded aircraft and closed airspaces. After the worst year for aviation since 1999, KQ’s Chairman Michael Joseph said he expects that the airline will not recover to pre-Covid growth and revenue levels till about 2023 and will use the period to right-size its fleet, and deal with legacy issues & contracts. A bill currently in Kenya’s Parliament will place the airline in an aviation holding company with the Kenya Airports Authority.

KQ flew 1.8 million passengers, down 66% from 2019, and they were grounded by Covid-19 through the summer which is usually their most-profitable period. For the year, revenue was down 60% to Kshs 52 billion, and while operating costs were down 39%, it still resulted in a loss of Kshs 36.2 billion. 

KQ Group MD Allan Kilavuka said the airline has resume flying to routes that are safe and which provide steady revenue (China is their best route but all airlines are restricted to two flights a week). They have also revived cargo, delivering more flowers, food and pharmaceuticals. They added a new cold storage facility (300-ton capacity) and converted a 787 Dreamliner into a preighter (adding 50 tons of capacity). The airline also started a Mombasa – Sharjah cargo flight, resumed weekly cargo ones to Delhi, and in Southern Africa, they obtained 5th freedom rights to operate cargo flights between Johannesburg, Harare, Lilongwe, Dar es Salaam and Maputo.

This year, they will explore partnerships with other airlines (in Africa and Europe) as their joint-venture with KLM comes to an end, by mutual consent, in September 2021. They also plan to convert another aircraft into a preighter and will explore commercial drone operations, after having bought four for training.  

Sugar Privatization in Kenya

Kenya has floated an international expression of interest for the privatization of five sugar companies.

The Government through the giant Agriculture and Food Authority (AFA), manages the sugar sector. The five are Chemelil Sugar Company, South Nyanza Sugar Company (SONY), Nzoia Sugar Company, Miwani Sugar Company (under receivership) and Muhoroni Sugar Company (under receivership).

The Government is seeking investors who will redevelop the factories into sugar complexes and manage them on lease for 25 years, turning them to profitability through modernization and efficient management. Investors, as individual or consortiums, will have to demonstrate familiarity with the sugar industry, submit regulatory documents (PIN, incorporation certificates, factory operation licenses), and prove their experiencing managing sugar plantations for at least 5 years, and their available financing.

The Government’s Privatization Commission has long had plans to privatize the sugar companies as part of a COMESA arrangement and to modernize Chemelil, rehabilitate SONY, expand Nzoia, and address the debts of Miwani and Muhoroni. It’s shareholding is 96% at Chemelil, 99% at Sony, and 98% at Nzoia. It also owns 49% of Miwani and 17% of Muhoroni through the Agricultural Development Corporation. Other government agencies with shareholding include the Development Bank of Kenya with 1.4% of Chemelil and 0.3% of Muhoroni respectively, IDB with 0.3% and 0.9% of SONY and Nzoia respectively, and ICDC with 0.7% of SONY.

To prepare the companies for this exercise, the government had undertaken balance sheet restructuring, writing off debts that the five owed to it, the Kenya Sugar Board, and to growers, as at December 31, 2019. They have also written off with taxes and penalties through 30 June 2019 and accrued up to date.

Recently, two governors, Wycliffe Oparanya of Kakamega and Anyang’ Nyong’o of Kisumu, writing on behalf of the Lake Region Economic Bloc, welcomed the Government’s decision to waive Kshs 62 billion (~$580 million) of debts owed by the firms. They also asked that a bill in Kenya’s Parliament direct that millers make payments to sugar farmers within 7 days of delivering crop and with these payments based on the sucrose content, rather than the weight of cane.

They also asked for a reintroduction of the Sugar Development Levy to ensure that farmers, counties, and the factories will have steady financial flows. Chemelil, Muhoroni and Miwani are located in Kisumu County, Nzoia is Bungoma, while SONY is in Migori county.

The deadline for the expressions of interest, that are to be submitted by sealed envelopes to AFA, is August 3. The bid documents will be disinfected (it’s Covid-19 season), and opened, with the results announced on August 4, 2020, at the AFA offices.

Kenya Airways 2019 results

Kenya Airways announced their results for 2019, which its Chairman Michael Joseph described as a reasonably good year in which they opened new routes, improved on performance and flew a record number of passengers, but one in which they had to make new accounting standard adjustments and then end by looking ahead to a Coronavirus world.   

Group CFO Hellen Mwariri read the financial results starting with an explanation of IAS17 that was replaced by IFRS16. In 2019, the airline had shown improved revenue of Kshs 128 billion which was a 12% increase from the Kshs 114 billion the year before. They had flown 5.1 million passengers, a 7% increase and opened new routes to Genera and Rome with connections to Malindi.

The revenue growth of Kshs 14 billion was offset by increased direct costs from more flights of Kshs 5.8 billion, increased fleet ownership costs with the return of two Boeing 787s that were previously-leased out, resulting in a Kshs 6.4 billion expense, and increased finance costs which went up by Kshs 4.9 billion.

The main difference with the new accounting standard was that leases which were not on the balance sheet, are now included, with interest as an expense and this would affect airlines heavy on leasing. She said that mainly as a result of the 76% increase in finance costs, the airline’s loss for the year also increased by 71%, going up from Kshs 7.5 billion in 2018 to Kshs 12.9 billion in 2019. 

Much like former CEO Mbuvi Ngunze, the airline’s new Group CEO Allan Kilavuka, who recently took over from Sebastian Mikosz, was welcomed with an in-tray of increased losses and new challenges, this time brought about by Coronavirus. 

He estimated the impact of Coronavirus was a revenue loss of revenue, to date, of $150 million (~Kshs 16 billion) and that even if they start flying in June, he estimated that revenue will be $400 million (Kshs 43 billion) lower than 2019.

He said the airline was tentatively preparing to resume flights on June 8 2020. For now, they have converted three Boeing 787’s for cargo and have daily flights carrying flowers (1,200 tons to Europe so far), food (2,600 tons to Europe & the Middle East) and medical equipment (1,500 tons), while occasionally also operating occasional passenger repatriation flights.

The losses sent the airline back into negative equity territory, but the Chairman spoke of light at the end of their restructuring, which was through the planned creation of an airline holding company, that would include the Kenya Airports Authority and probably a re-nationalised Kenya Airways. A bill is with the Attorney General and should go to Parliament in a matter of weeks. Parliament has, in essence, revived an earlier plan to enable the airline to compete with its regional peers that are all state-owned.