Category Archives: Kenya privatization

KQ Restructuring extended to Banks and Shareholders

This week Kenya Airways (KQ) announced the next phase of their restructuring, with a focus on their balance sheet.

While shareholders have been aware of the erosion of their equity at the airline, the reality may still be a shock.  A Business Daily story quotes a Genghis Capital report which projects that the airlines 78,000 shareholders will be several diluted as the airline has to put some equity back on its balance sheet. In the process of conversion and providing guarantees,  the airline’s largest shareholder, the Government of Kenya, will increase its stake to 41% as that of KLM will reduce to 19%.

The support confirmed by the Cabinet included conversion of the Government of Kenya loans into equity, and provision of contingent guarantees subject to parliamentary approval in exchange for material concessions to be provided as part of the financial restructuring, which would secure future funding of the company and would more importantly NOT require Government to provide CASH as part of the restructuring.

And coming on board as new shareholders will be several commercial banks (possibly as many as 11 banks) who will own 34% of the airline after they swap some loans for equity. Kenya Airways principal bankers are Citibank, Standard Chartered, Barclays, Equity and National Bank. Some of the main facilities are aircraft loans secured from Citibank NA, Citi/JP Morgan, African Export – Import Bank/ Standard Chartered Bank as well as an engine loan from Co-operative Bank. Some banks who had advanced different short-term facilities to the airline, up through their 2015 financial year include Equity Bank, Jamii Bora, KCB, CBA, I & M, Chase, National Bank, Diamond Trust, Co-operative, NIC and Ecobank.

See also: An investor asks if it the right time to buy KQ shares? 

Telkom Kenya is Back

  • Telkom Kenya has relaunched almost 12 months after the exit of the immediate former majority shareholder, the Orange Group (formerly France Telecom), – who sold its majority stake to private equity firm, Helios Investment Partners. The Kenyan Government owns 40% of Telkom. 
  • “We are committed to gradually restoring Telkom’s relevance in Kenya’s social and economic dynamic to transform it into a viable market player in the telecommunications sector and a profitable national asset,” says Company Chair, Eddy Njoroge.
  • Telkom also launched a 4G network with free daily data in all major towns and also  entered the home broadband market offering 4G to homes in an offer dubbed ‘Home Plan’..

edit February 15, 2023

The Kenya Government bought back 60% of Telkom Kenya from Helios in August 2022 for Kshs 6.09 billion (~$51 million) reversing a privatization plan. The deal, which was not authorized by the Controller of Budget or the country’s legislature which was on recess, was done just days before the August 2022 election.

The payment to Jamhuri Holdings, a Mauritius subsidiary of Helios was first reported in October 2022, a few days after the Supreme Court decision on the presidential results.

Kenya’s Money in the Past: Digital Kenya

Digital Kenya, by Bitange Ndemo and Tim Weiss, charts the rapid emergence of Kenya in the world of technology. Through stories and interviews with people in the sector, you learn about risk-taking and making policy from humble beginnings back in the mid-1990’s when the whole country shared 32 kbps, and the then telecom Kenya Posts & Telecommunications (KPTC) monopoly declared internet services as being illegal. At the time, KPTC was connecting about 10,000 users to the phone network, and with 77,000 potential customers waiting, they envisioned a 5% tele-density in Kenya by the year 2015. The tele-density in 2015 turned out to be 88% thanks to rapid changes that came after fibre cables and the cheaper mobile phones emerged.

One story is a narration of how, as a peace agreement was being signed in February 2008 to end the post-election violence in Kenya, the ICT Ministry managed to secure a guarantee to enable the laying of the TEAMS fibre cable that ultimately changed the face of ICT in Kenya. This came after the ministry had stepped back from another long-discussed bureaucratic cable project – one called EASSY. This was one of the examples of government officials circumventing red tape for a good outcome. Another was the roll-out of M-Pesa which is also cited here, ahead of regulations and thanks to some individuals in government giving it their cautious blessing. Not all of them turned out well, and one case cited is of officials at the Postal Corporation sabotaging a land deal that would have led to the establishment in Nairobi of the headquarters of a multinational telecommunications organization.

There are many other stories that show issues of privatization, race, the lack of vision & finance, tech startups, the need for skills to scale, and the disconnect between local capital & the tech sector. It also shows the disconnect of ICT with both formal banking and also with the agricultural sector, two crucial links yet to be adequately bridged in Kenya.

Thanks to the Ford Foundation, the Digital Kenya book is available free of charge and a book download can be obtained from a dedicated site.

Oil Pipeline, Economics & Politics

It’s been reported that the oil pipeline from Uganda is going to go through Tanzania, not Kenya. Two forgotten facts about the Uganda oil decision are that; (1) President Museveni of Uganda has been steadfast that he wanted to refine oil in Uganda, not export raw crude (2) Uganda’s oil has been said to be waxy or heavy. This means it would require complex heating to keep it flowing along a complex oil pipeline through the rift valleys and hills – to the coast of Kenya.

M7 poster 2

The cost, insecurity and difficulty of building infrastructure have been cited reasons that Uganda opted to go through Tanzania. Still, Kenya has several LAPSSET projects on the cards including an oil pipeline to go to Lamu where there would be a new highway, railway, coal plant and modern, deep-sea port.

Pipeline Impact

Last year at the TDS Nairobi summit, during the 10th Ministerial Conference (MC10) of the World Trade Organization (WTO), a session was held on local content in extractive (and oil) industries. Some interesting comments there included:

  • It is a legitimate objective for any resource-rich country to try to maximize the value of its resources.
  • If a country puts restrictions on raw exports, it may distort the local economy; it creates artificial demand – and if it is not efficient, local related industries will not survive.
  • Kenya energy expert Patrick Obath suggested that Kenya, Uganda and South Sudan have to talk together and implement projects together for projects like the oil pipeline to be viable. That would also have to happen to get more value-addition from the oil in the countries e.g. can the countries plan to get fertilizer from oil?
  • With mining, you have 20 years of opportunity for local suppliers and jobs, but with an oil pipeline that’s only there in the beginning, then goes away once the pipeline is built (there won’t be many local jobs after, and communities don’t get an economic boom from having an oil pipeline passing through their land..which may lead to some local frustration).

More on Kenya Pipeline:

oil tankers

  • The Kenya Pipeline Company is charged with transporting and storing petroleum products.
  • A (presidential task force on parastatal reforms proposes the Treasury incorporate a holding company known as the Government Investment Corporation (GIC), into which Kenya Pipeline Company should be transferred to determine (its) intended privatization.
  • Meanwhile, Kenya Pipeline is continuing with its projects including replacing the current Mombasa-Nairobi Pipeline.

Kenya Companies Act 2015

This morning, a session was held by the law firm of  Anjarwalla & Khanna in Nairobi to advise stakeholders about the new Companies Act and Insolvency Act that are now law.

The Cabinet Secretary for Industrialisation, Adan Mohamed, said that the day when President Uhuru Kenyatta signed 4 bills into law – the companies act, insolvency act, special economic zones act and business registration act – was his proudest day in two years in the Cabinet.

Partners at the law firm explained various sections of the new companies act including:
  • It makes businesses easy to register and operate – and one person can form a company.
  • Memo (can be one page long) & articles are simpler
  • Role of the company secretary has been clarified. Corporate governance has been clarified with penalties for directors and management including for conflict of interest.
  • 30% local shareholding in a foreign company. Adan said this was a mistake that the government would rectify. The team from Anjarwalla & Khanna said that while the 30% rule  is probably constitutional it’s impractical, and the AG & government agree. They also explained that it is for new branches only – and does not apply to existing branches, or to any subsidiaries of foreign companies
  • It gives minority shareholders court powers if main shareholder/management are prejudicial or make bad decisions/transactions on behalf of the company
  • A new company  can do anything including borrow unless if it restricted
  • PE Investor oversight: Investors can attend board meetings as observers  and  without being directors or  legally bound by decisions
  • A company must have at least one natural person as a director (all companies have 6 months to rectify this)
  • Companies can buy back shares from other shareholders
  • Kshs. 6.75 million (~$67,500) is the minimum paid-up share capital for a public company (this will affect some land-owning companies and large property developers)
  • Public companies need to know who beneficially owns their shares (the true owners behind proxies)
  • Companies are required to have websites and to publish financial statements online
  • Share buy-backs are now allowed.
  • All shareholders have rights to preemption when companies create new shares – (and this can only be from profits, not new money)
  • MBO and LBO: Banks could not finance acquisitions, but now they can. e.g. Management can to a  bank and use the assets of the company secure financing to buy it or pay off foreign outgoing shareholders – (this opens another exit opportunity for investors)
Adan also said that the insolvency law, which previously was aimed on recoveries for secured creditors, is now focused on bringing insolvent companies back to life.
November 9, 2015.