Category Archives: Nairobi Stock Exchange

Salute to Kenyan Stockbrokers Part I

Salute to Kenyan stockbrokers, investment banks and fund managers, and the capital markets authority (CMA) for their moves to improve transparency at the NSE of late.

When the new rules were announced early this year, few doubted that licensees (especially stockbrokers would comply, but the early signs are good.
One of the milestones was for the publication of financial statements by Collective Investment Schemes, Stockbrokers, Dealers, Fund Managers and Investment Banks twice a year; and this they did, many baring their losses, some with dubious figures or cosmetic summations, and some omitted profit & loss, but which their auditors will hopefully be able to reconcile at the end of the year.

The compliance was notable in that the intermediaries were able to publish their June 2009 summarized financial accounts,

Investment Banks: 100% (missing was Juanco (now Equity IB?), while FCB Capital was only licensed in June 09)
– Stock Brokers: 100% (missing was Discount (collapsed), Bob matthew (is now KingdomSecurities), while African Alliance is now an investment bank)
– Authorized Security Depositories: 100% (all 12 are commercial banks)
– Collective Investment Schemes: 100% (all are fund managers)
– Fund Managers: 94% (missing was Aueros, while African Alliance reported as an investment bank, and amazingly CIC who were licensed in June 09 already complied)
– Investment advisories 10% they are not required by the law to report, but Dry Associates and Tsavo Securities did

The results were harsh (more on that later) as the downturn at the Nairobi Stock Exchange has had a shocking effect on these companies. But they have recognized that and started taking measure in the form of mergers, re-capitalization staff reductions. When the NSE improves, they will reap the dividends. The signs are good for frontier markets and African markets, but the Kenyan political scene is still a cause for concern for the recover of the NSE and its brokers.

Shaking up the Nairobi Investment Scene

Knocking Off Rogue Brokers

The Kenya Capital Markets Authority (CMA) has published new regulations that could knock off customer confidence in any small stockbroker still standing at the Nairobi Stock Exchange (NSE) as they have now become law.

Changes include:
– Sets minimum share capital for stockbrokers at Kshs. 50 million (~$650,000) and investment banks at 250 million (~$3.25 million) some stockbroker are investment banks in name only name
– Agents may work for one stockbroker only and may not handles client cash
– They must use International Financial Reporting Standards (IFRS)for reporting
– They must publish audited accounts and ½ year un-audited accounts in newspapers and also dispaly the same in their branches so by August 09 we should get a clearer picture of who’s up or down
– They must obtain indemnity insurance
– They are to notify the CMA before appointment of executives, directors, and auditors as well as prior to branch openings/closing

Some of the proposal also affects investment funds, fund managers, and pension schemes. They were first proposed two months ago for public review and borrow a bit form existing central banks laws and are much harsher than when first formulated.

Other losers retail investors who lost their money in collapsed brokers (Nyaga, Discount, Francis Thuo etc.), it limits their potential compensation to just 50,000 shillings ($~650)

Winners – newspapers who will see an increase in quarterly advertisements from stockbrokers, investment banks, investment funds, fund managers, and pensions schemes.
– insurance companies (Stockbrokers and investment banks are to obtain professional indemnity insurance worth 5 times their daily average turnover)

How Safaricom can adapt Vodafone’s investor relations

old safaricom logo incorporating vodafone

Safaricom have done a great job in terms of dealing with investor relations since its listing; they have also said there won’t be any SWAG for shareholders at their August annual general meeting (AGM).

But there are things that Vodafone can do that can enhance shareholder value beyond giving mere t-shirts and lunch boxes. As 40% owner of Safaricom, Vodafone can drive many things about investor relations. Consider that while Safaricom is considered to have too large a register with 831,000 owners, Vodafone is not too different with 551,000 shareholders – 440,000 who own less than 1,000 shares, and just 46% presumed to reside outside the UK. Despite the numbers, the Chairman’s letter invites as many shareholders to attend the meeting and participate (and probably ward of any hostile resolutions)

So here are 10 things Safaricom borrow from Vodafone to enhance shareholder relations in lieu of SWAG:

1.Have an enhanced agenda and promote shareholder participation in management. Many NSE companies do the bare minimum asking shareholders to adopt accounts, approve auditors and re-elect 1/3 of directors – that means an AGM can take 15 minutes which leaves the floor open for the nonsense questions. With a ‘fatter’ agenda shareholders won’t have time to ask for trivia. Newer companies like Access Kenya, Equity, and Scangroup are more pro-active with the management of their companies. So decisions on acquisitions, fund-raising, are common on the agenda. Another examples is executive compensation: many companies ask shareholders to approve creation of employee share options plans (ESOP’s), but then leave the computation and awarding of benefits to trustees (another set of directors); at Vodafone, shareholders know and vote how much current CEO Vittorio Colao, and former CEO Arun Sarin earned, so why not let the shareholders know how much Michael Joseph and the directors earn per year per meeting etc. Can’t handle that? Uganda companies can do that. Also at Vodafone all directors retire each year, which should ensure a robust re-election session.

2. The complete 2009 Safaricom annual report will only be given to those who request it, to save costs. It will be downloaded from the website. So let’s have a interactive report so investors can choose to download video or just sections they are interested in e.g. the notice only. Same with the memo & articles

3. Promote a alternative methods for shareholders’ to enhance value. Support a dividend re investment program (DRIP). Not everyone wants an M-Pesa dividend; some may prefer to buy 100 more shares in the company instantly, while the shares are still cheap (Kshs. 3.7 or ~$0.05 per share) and a DRIP will be a useful tool that keeps cash within the company and its owners. Alternately, if feeling philanthropic, Vodafone shareholders may donate their meagre shares to a charity – and why not to a school in Kenya that was Tahidi High last night!

4. Broadcast a webcast of the AGM – this will be a showcase for safaricom’s broadband capabilities and will be enable foreign investors to participate. If not ,broadcast it on TV so people don’t have to travel to Nairobi from other towns and can watch have it from home – NTV or Citizen would cover the mid-morning event up to the 1PM news

5. Promote alternative voting ; by e-mail, by telephone, by mailing in the post; mail-in happens in Kenya, but Kenyan investors feel they have to be there, to vote which is not the case.

6. Send investors information by phone (SMS) or e-mail. Safaricom is a mobile phone company; they send trivial messages to advertise products, so why not also quarterly results by phone? And for those of us at the next level, why not Safaricom twitter ? Join @kenyaairways and @jimmykibaki (:_}) on the new media wave

7. Don’t leave everything to the share registrar: On the website, shareholders can track their shareholding, change their address, and change their dividend payment option. At the meeting have a shareholder help desk – already a common feature at bank AGM’s (Equity, NIC) but to help them transfer their shares to the bank. Online information use was a feature deployed during the IPO, but that information is sitting un-utilized in a server somewhere

8. Pre-empt shareholder questions with a FAQ. Compile a list of frequently asked questions with appropriate answers, put them on website, or hand out flyers for those who attend meetings.

9. The Vodafone site warns investors about boiler room tactics and cold callers after their shares. So why not tell shareholder which brokers are misbehaving? Which to use and not to use?

10. Vodafone governance policy calls for disclosure of any political donations (and for Safaricom if any) – it has been noted here that the company tends to have increased corporate social responsibility activities in the home areas of the sitting information minister

11. Oh, and finally Tea & coffee will be served at Vodafone AGM

Nairobi Stock Exchange Fiddles

While investors burn or run

Fresh off the appointment of a new chairman of the Capital Markets Authority, the owners of the Nairobi Stock Exchange welcomed him with another pledge to:

-Cap broker ownership of the stock exchange (NSE) at 40%
– Reinforce compliance and supervision through implementation of a risk based supervisory approach yada yada yada…..
– Deal with the findings of the PWC Forensic Report on Nyaga Stockbrokers once the report is received from the CMA i.e. they officially haven’t seen it!

So they throw the ball back to the Government (to fast track the demutualization process – and what this entails) and the CMA (new Chairman to act on the report) while investors rush back and forth like headless chicken changing brokers in search of the one honest broker left in Nairobi, while also yearning to return to the good old days when share certificates were kept in bank vaults or under mattresses.

Mark Mobius on Emerging Markets

Dr. Mark Mobius, the executive Chairman of Franklin Templeton Investments,is in Nairobi this week. He gave a talk this morning on his investment perspectives. It is especially timely considering the bear market being experience the world over and at the Nairobi Stock Exchange this year.

Some notes
– They are bargain hunters, they love cheap stocks and thus love bear markets
– Emerging markets look good for long term investors for several reasons: they are growing faster than developed countries, they have less debt, they have more reserves, inflation is coming down, they are taking up a lager share of world trade and also trading more with each other
– Bull markets are followed by bear markets which are followed by bull markets then bear……
– Bull markets last longer than bear markets, and values appreciate more during bear markets than they depreciate during bear markets. he said by their measures over the last 20 years bull markets last on average 22 months and values appreciate by 113% while bear markets on average last 6 months and values depreciate 32%
– Various FT funds are concentrated in mainly energy stocks, then banks, raw materials, communications etc.

My take: This is a time to buy Nairobi Stock Exchange Shares (NSE) , if you have the money and a long term investment perspective