Category Archives: KPLC

NSE Moment: Britak, Transcentury, Kigali Bank, Stima SACC0

This week we were reminded that there’s been no IPO at the Nairobi Stock Exchange (NSE) since 2008 (Co-Op Bank) and the events in the last few days were the fulfillment of initiatives that companies like Britak and Transcentury had initiated earlier in the year.

Britak: The British American Investments Company Kenya kicked off their IPO this week. The group had Kshs 9 billion in income, and pre-tax profit of Kshs 2.8 billion in 2010. With group assets of Kshs 25 billion, it is second only to the ICEA at 27 billion.

They are being sold at Kshs 9 with an allocation criteria of 30% East Africa retail, 30% foreign, 37% institutions, 3% employees, agents, and individual policy holders and can be obtained at British American branches, Equity bank , Standard Chartered (and partner Postbank), NIC, CBA banks and stockbrokers.

The minimum for retail investors is 2,000 shares (Kshs 18,000 while for institutions it’s 10,000 shares (Kshs 90,000 or ~$1,000). The IPO is budgeted to cost Kshs 320m ($3.5M) with estimated payments to transaction advisor 24M, sponsoring broker 6M, legal costs 9M, selling commission 87M, CMA 9M, NSE 1.5M, PR 67M, and advertising 90M.

Of the Kshs 5.9 billion to be raised, 1 billion will be for regional expansion (Tanzania, South Sudan, Rwanda), 1.2 billion will be for Kenyan operations (set up a frontier investment fund, new branches), 2.5 billion for the housing & mortgage sector aimed at affordable housing models, and 750 million will go to pay off a loan at CBA bank that was used to purchase shares in Equity Bank (Britak own 11% of equity and 16% of housing finance banks).

The Britak IPO runs from 12 July to 5 August and they have also reached out to bloggers, with forums and their own blog posts such as this tale of their CEO’s initial investment.

However, there are some concerns that with their 45-year history and strong brand name (-pay Kshs 18 million a year to British American), this is a retail magnet IPO and the sale of 650 million shares (30% of the company) is likely to be over-subscribed, and the dividend paid (Kshs 200m in 2010) is likely to be safaricom-ish (small)

The company has also called for the Government to extend current tax incentive for newly listed operating companies to also include holding companies (like Britak)

Transcentury: The investment group which has had a spectacular climb and string of investments, most notably with East African Cables listed their shares at the NSE on July 14.

Their shares had been trading at an OTC exchange and were listed at the NSE at Kshs 50, which worked out to a P/E ratio of 38

The Group also has a Mauritius convertible bond issued to finance the restructuring of Rift Valley Railways and investment in geothermal and other energy projects, but which also has the potential of diluting investors shareholding by over 1/3. (150 million shares available to bond holders over the next 5 years prices between 40 and 50)

Still, Transcentury has been am inspiration to other investment groups, albeit not as well connected to initiate projects with more risk such as energy real estate, and offshore. The introduction is budgeted at Kshs 20 million (220,000 – CMA 5M, NSE 1M, advisor 8M, stockbroker 4M) and the PDF prospectus is ‘protected’ so you can’t copy sections of it.

Family Bank: Their long dalliance with the NSE is about to be fulfilled as their shareholders will next month approve a listing at the exchange. They will also vote on an ESOP for managers and 1 % transfer of shares of the company to the new CEO. It has since emerged that he is purchasing the shares at a discount as part of his employment package.

Stima SACCO: Away from NSE is Stima SACCO that is in the process of raising funds of about Kshs 500 million ($6 million) . They have advertised in newspapers (even on TV), which may land them in trouble with the CMA, for selling shares to the public without adequate information. At Kshs 100 per share, individuals can buy 200 shares at a minimum (Kshs 20,000).

Kenya Airways: Nothing yet from the airline who were expected to approach shareholders for new funds. The government has allocated funds to invest and defend their 26% stake an the airline which has since signed a deal for new Embraer aircraft to grow their African footprint.

Bank of Kigali: The Bank of Kigali is aiming to raise $62 million from new investors in an IPO that runs from 30 June to 29 July. The Bank control 25-30% of the banking sector in Rwanda; it had profit of 8.6 billion francs ($14 million) in 2010 on assets of 197 billion francs ($324 million) – equivalent to a smaller mid-size Kenyan bank

300 million shares are on offer, and the minimum is 200 shares per person at 125 francs per share ($0.075 or Kshs 18.65). They are open to cross-border investors and the allotment will be to 27% retail East Africans, 2.4% to employees & directors, 15% – East African institutions, 15% to Rwanda institutions and 40% to international investors.

The Rwanda government owns 66% of the bank, and the other 1/3 are owned by the social security fund of Rwanda. 16 billion francs ($27 million) will go to the Government for reduction of its shareholding and 20.8 billion francs ($34 million) will go to the bank to reduce its assets & liabilities maturity gap and grow its loan book and operations (from 33 to 60 branches). This will result in new shareholders owning 45% of the bank, the government 30% and the social security fund with 25%

Other: The IPO prospectus lists
– lawyers acting for the bank, number of cases they have and prospects of loan recoveries
– lawsuits filed against the bank by name (former employees, debtors opposing auction)
– list of subcontractors and related partners such as visa card providers, SMS partners, providers of credit reference and lines of credit etc.
list of properties owned and rented by the bank and rent amounts. Also Rwanda depreciate building over 5 years, after each revaluation

Risks & Exposure – one of the operational risks is scarcity of qualified personnel in Rwanda
– commerce restaurants & hotels account for 46% of the bank portfolio while construction was 29%. Also 11% of loans were to a single group and records of large are available for review to persons who sign non-disclosure agreements
– Kenya is the country’s largest trading partner: Rwanda exports 33% to Kenya and imports 16% back.

Staff: – All staff are entitled to bonus and in 2010 this totaled 8% of profit, which that was shared by 441 staff (out of 454), and the average award was $3,200.
– The bank also runs an in-house dispensary and provides full medical cover to staff and 4 dependents
– The oldest director was born in 1960, the youngest in 1977. At senior management, the managing director is the oldest employee at 54, while the head of finance is the youngest at 31.

Prepaid Electricity in Kenya

Kenya Power & Lighting Company (KPLC), the national distributor of electricity is converting customers in many parts of the country from post-use billing and payment to a (prepaid) pre-usage payment.

One KPLC challenge for many years has been revenue collection, but that has changed since signed they signed up banks and supermarkets like Uchumi (some at a cost of ~ Kshs 50 per bill paid) and other outlets where customers can pay.

Changes

Payment: You can buy electricity tokens from some KPLC offices, but it is easier to pay by mobile money Safaricom’s ‘M-Pesa’ or ‘Airtel Money’ zap. You load money into M-Pesa, send it to KPLC, and in about an hour you get a 20 21-digit number that you punch into the meter for an immediate update of electricity credits.

Prepaid electricity unit installation.

Orientation: None at all! One day you come home and find workmen in the corridor doing a lot of re-wiring (at first I thought the landlord was installing fibre to the block, but it turned out to be KPLC’s sub-contractors) and the next day, you come home and find the watchman with a booklet for you to read and study on the pre-pay system! The booklet has been quite useful, but it omitted a process where you have to call KPLC to link your old meter and new meter numbers – in order to activate the new meter.

Cost: None to the customer, and the brochures say the cost of usage should be the same, and so far I’m on par at about Kshs 500 ($6) per week.

The meter also has some commands that you can use to check out your usage at any given time (a fluctuating 80W) and usage since installation – 100Kwh in three weeks. What I miss (for tracking inflation is a breakdown of usage, fuel surcharges and other taxes that form anywhere from 1/3 to 1/2 of every bill, and

  • [edit] cost of collection which may vary from Airtel to Safaricom) i.e it cost Kshs 20 to pay by M-Pesa
  • In order to pay by M-Pesa, you have to know your meter number. (so save it in your phone)
  • The cost of electricity has gone up by ~45% in a month i.e in mid-April a ‘unit’ of electricity cost Kshs 9.8 and in mid-May, it’s Kshs 14.2.

Reading the Tea Leaves at KPLC

The on going rights issue closes on today (22/12/10) after a month and a half of the balance sheet restructuring program.

Background: CEO Joseph Njoroge said its necessity began with the 1999-2002 power-rationing period when the company incurred heavy trading losses of Kshs 15.9 billion. The debt was converted into equity for the government (GoK) and preference shares for the government and what became Kengen – and which Kengen transferred back to GoK prior to their IPO.

Preference share burden: There was a five-year moratorium on dividend, but the preference shares have continued to be perceived by lenders and investors as debt – with fixed annual payout. This distorted the value of ordinary shares, creditworthiness of KPLC, and would be a burden on cash flow to meet as seen when the moratorium ended with a payment of Kshs 1.25 billion ($15.6 million) to holders of 7.85% preference shares in 2010

New balance sheet will have a level playing field and enable the company to access more funds after the redemption of preference shares in three steps by (i) issue of 76 million new ordinary shares (ii) ordinary share split 1 to 8 (iii) a (December 2010) rights issue to shareholders entitled to buy 20 new shares, for every 51 they own, at a ~20 per share with GoK renouncing its rights – to raise a net amount of ~Kshs 9.1 billion ($114 million)

Underwriter: KPLC sought an underwriter and got Centum and Equity Bank to underwrite the issue by 50%.

Retain GoK control: from a current 40% ordinary shareholding, GoK stake will 69% for short period, but as they are renouncing their rights, on conclusion it will be 50.1% and still remain a parastatal. GoK can also ‘count on’ no.3 shareholders – the National Social Security Fund who own 8%

Urban Inflation Index: March 2010

Tracking changes in the three month ago in December 2009, as well as to six months as well as one year ago in March 2009

In 2010 government has shifted adjusted inflation basket to have a better measure of inflation that is less weighted on food. Let’s see how they compare

Gotten Cheaper
Staple Food: Maize flour which is used to make Ugali that is eaten by a majority of Kenyans daily. A 2 kg. Unga pack at Uchumi today costs Kshs 84 compared to Kshs. 83 in December 2009. It’s relatively unchanged, but overall cheaper than the Kshs 96 seen a year ago in March 2009

Free milk

With the onset of rains there is a surplus of milk in the country which has resulted in some sad scenes of dairy farmers and processors having to pour milk down the drains. For urban shoppers there is a boom of milk in the form of larger packets and 1 free packet for every 2 purchase at most supermarkets, and overall shoppers are paying ~45% less for milk now.

About the same
Communications: Safaricom’s Supa Ongea tariff is now six months old (September 2009, and is still being hyped by Safaricom. M-Pesa and SMS charges are unchanged. Price changes are being seen in data (Safaricom tried a one month February to march 2010 of unlimited internets for a price of 1,000 ($13) per week), Orange now has Bunda data bundles, Zain Africa is about to change hands again (new investor is Bharti of India), while Yu is the cheapest, but not making much of dent yet in the market where Safaricom remains the default operator.

Meanwhile equipment prices continue to drop, for smart phone and computers. Banks have gone into computer financing, the latest being KCB Laptops for all last week. And at Safaricom shops, the popular Nokia E63 now cost Kshs 16,000 ($208) compared to 20,300 last September and 23,500 in June last year.

Other food item: Sugar (2 kg. Mumias pack) is at 200, no changed for the last six months

More Expensive
Fuel: A Litre of petrol fuel (at local petrol station) is now Kshs 84.9 (~$5.0 per gallon) which is about 5% higher than it was six months ago. In face since the post-triton fall of early 2009 when shell knocked the price down to 75/= there has been a steady gradual rise of petrol prices.

Utilities/ Electricity: While my electricity: my bill last month is Kshs 1 700 (~$22) less than the 2,100 of December 2009, but about the same as March and September 2009. So despite the prolonged drought of 2009 and rains late on the year and first quarter of 2010, impact yet to hit my electricity bill. However the electricity bill has a component called fuel cost adjustment that is twice hat it was a year ago, it’s billed at 783 cents/kwh, which is 88% higher than the 416c/kwh of a year ago. Not the cost of fuel passed on to energy producers or the government continues to exceed household consumption by 1 1/3 times. So the cost has gone up, but household usage, minimizing use, using better bulbs, better planning has kept the costs in check

With Water bills, this is erratic for most with the Nairobi water company hitting customer with some crazy bills sometimes 3 or 4 times higher than what they have been paying. It has happened to others. Their billings I erratic, mine actually shows a cost reduction from 851 in 2009 to 509 in 2010. However the method of measure and billings has changed and it may only be a matter of time before I get hit with a crazy bill

Foreign Exchange: 1 US$ equals Kshs. 76.6, compared to 75.9 of September and 75.6 in December; but much improved from the 80 of a year ago last March.

Entertainment: A bottle of Tusker beer (at local pub) is Kshs. 150 ($2.00) up from Kshs. 140 in December 2009 at most places I know. East African Breweries is upping their dormant war with SAB Miller and having settled over Tanzania, there are rumours that SAB will re-enter Kenya, perhaps prompting some price wars.

Urban Inflation Index December 2009

Comparing changes to three months ago – September 2009 and a year ago – December 2008

What’s gotten more expensive

Fuel: A litre of petrol is Kshs 83.5 (~$5.0/gal) up slightly from 80.9 three months ago, but still about 10% lower than the 92.7 of last December.

Entertainment: A bottle of Tusker beer (at local pub) is now Kshs. 140. This is up from 120 price of three months ago and also a year ago. There is a proliferation of new pubs all the time in Nairobi – and as others shut down, more entrepreneurs step up (with a new name, coat of paint and furniture) to take their turn behind the bar counter. The median price in Nairobi now seems to be 150 shillings ($2) for a beer, as Tusker brewer east African Breweries (EABL) remains untroubled by Summit of Keroche (what’s to blame? – poor distribution, dirty tactics by EABL, poor marketing?) or by the reports that South African giant SAB Miller may choose to re-enter the re-enter the Kenyan market following collapse of an EABL-SAB agreement in Tanzania.

Electricity/utilities: this month’s electricity bill is Kshs 2,100 ($28) compared to the 1,900 of three months ago, as well as last December. 2009 has been a year of harsh reality checks for Kenyans with the failure of rains, drying of dams and water & electricity rationing programs. And while electricity rationing has ended, water rationing is still on in urban areas, and in rural areas, water sources are diminishing and the usage of water is becoming a cause for tension among communities and neighbours. The government has set out to reclaim and restore water towers in the country, notably the Mau Forest, and has made investment in geothermal energy and is linking up with neighbouring country grids (Ethiopia, Tanzania) ; unfortunately wind and solar energy are not considered to be viable large scale avenues worthy of requisite investment.

about the same

Food: though the inflation impact of food items has been played down by the Central Bank (CBK) who said food prices distorted inflation figures, there has not been much change in the last quarter.

food is bad for inflation

Staple Food: Maize flour which is used to make Ugali that is eaten by a majority of Kenyans daily. A 2 kg. Unga pack at Uchumi today costs Kshs. 83 compared to 84 three months ago. But this is much better for consumers than the 97 shillings of a year ago.

Other food item: Sugar (2 kg. Mumias pack) is Kshs. 200 up, unchanged from 3 months ago, but 25% higher than the 160 shillings of a year ago.

Consensus among farmers and traders is that 2010 will be a worse year for food production in the country, so we’ll see where prices are next year.

Gotten cheaper

Communications: there have been lots of developments towards reducing the cost of communications as competition in the sector heats up.
– Mobile giant Safaricom, who told institutional investors that they aim on becoming the ISP of choice for Kenyans, have been pushing out internet devices at a rapid pace. The company earned 7.2 billion ($96 million) from SMS and data in H1 of 2010 (up from 2.1 billion a year ago). They have now partnered with Equity Bank to get laptops computers (with free modems) to thousands of consumers by way of bank loan
– Both Safaricom and Orange (Telkom Kenya) are selling 3G modems’ at a cost of Kshs 2,000 (~$26) – these used to cost 4,00 before. And with Safaricom you can cash in just 2,000 bonga (loyalty) points and get the modem, which used to cost 15,000 bonga points a year ago.
ISP’s respond Wananchi have lowered Internet prices of their broadband zuku packages since the arrival of fibre cable connection in Kenya. Meanwhile KDN is offering free butterfly service over Christmas and have a program with family bank to offer free wifi services to their customers.

Foreign Exchange: 1 US$ equals Kshs. 75.62 compared to Kshs. 75.93 three months ago and 79.08 a year ago.