Category Archives: NSE stockbrokers

This Time Around

1. Sustaining Pastoralists: Three years ago, in January 2006, there was a government plan to assist pastoralists by encouraging farmers with abundant pasture and water to buy animals from pastoralists and keep the alive during the prolonged dry season.

In September 2009, Kenyan TV screens have had, images of dying cattle being rushed to the slaughter houses where they will be bought by the government from ranchers at a cost of almost $105 each. But with cattle dying before they can be properly certified for consumption, the government of Kenya through the agriculture finance corporation; now decided to revive the program (details here); the livestock- off-take program targets private ranch owners with surplus land capacity to purchase animals from 22 drought-hit districts.

2. Compensating Investors Nyaga Stockbrokers eventually collapsed in September 2008, despite an earlier bailout that was intended to keep the stockbroker alive when news of its troubled reach the front pages of local newspapers.

The last time a stockbroker collapsed, investors had been compensated from the sale of stockbrokers seat which yielded about $3.5 million. But in 2009, the value of a seat is not considered to be much, hence the need to dip into the investor compensation fund – and late in September 2009, we got the final tally from the capital markets authority – spelling that it would (and teh CMA has paid out 90%) to 27,829 investors a total of Kshs. 302 million shillings ($4 million) from the investor compensation fund (said t have 426 million)
– Payments below 50,000 shillings will be made to a total of 25,135 investors
– Payments of above 50,000 will be made to a total of 2,744 investors

3. Reviving Uchumi In June 2007, Uchumi Supermarkets set out to tap investors for funds through a shareholders debenture loan that was not too successful.
They are now back in 2009, asking for the same funds this time, with much improved performance and the prospects of the company getting out of receivership and being re-listed at the Nairobi stock exchange much better.

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)

NIC Bank 2009 AGM

The 2009 annual general meeting (AGM) of NIC Bank took place on Wednesday April 29 at the Kenyatta International Conference Centre Nairobi. (more on the background and recent performance of NIC)

The Chairman JPM Ndegwa (Chairman) led the meeting which began after the Company Secretary making some housekeeping announcements – mentioning lunch would be served afterwards but members should not litter the building as they eat, asked shareholders to switch off their mobile phone (a few still rang during the meeting) and that the bank had a marketing desk where their products would be on display for shareholders to ask questions and could open share accounts

Chairman Performs: The Chairman introduced the board and the management and representatives of S&F Bank of Tanzania who were seated at the side of the dais. He spoke throughout the day in a mix of English and fluent Kiswahili. He began by commenting that the 2008 AGM held at Safari Park Hotel had been quite crowded hence the move to a larger venue (the bank has almost 25,000 shareholders)
Most important was how he controlled the tempo of the meeting, by stating upfront that only relevant questions should be asked and only as related to what was being discussed or voted on at each time. The result was one of the most constructive Q&A segments I have seen, with no frivolous questions asked during the session and the meeting progressing quite rapidly

Financial accounts 2008: the bank ended the year with a profit of Kshs. 1.48 pre-tax billion (~$18.5 million) and significant growth in assets deposit and loans. After the audit partner (Mr. Ndonye from Deloitte & Touche) read out their opinion, there were no questions and the accounts were approved!

Dividend: a final dividend of Kshs 0.25 for a total for the year of Kshs 0.5 was approved by shareholders. The voter elicited a couple of the shareholders to as usual ask for a higher dividend to be paid than the board had recommended. Another shareholder asked that, since the dividend was meager, could they be paid a bonus share? he clearly had not read or listened to the agenda

Directors fees – while you can’t compare the level of disclosure to shareholders at Stanbic (Uganda), the Chairman stated that the total sum paid to non-executive directors was Kshs 5.2 million ($65,000) – in sitting allowance for board & committee meetings. This was actually lower than the 5.36 million paid the year before last year and the results were plain to see. Vote was approved

Auditor Re-elections: the directors recommended that Deloitte continue in the accounting roles and asked shareholders to approve that; one shareholder asked if Deloitte was the only firm considered and if so why the Central Bank (CBK is bank regulator) also had to approve the appointment of the auditors – was there a problem with Deloitte? The chairman answered that they used other audit firms, and that there were provisions that firms could not consult and audit at one company and they were quite satisfied with the work Deloitte has done. He added that Central Bank, in looking out for depositors interest, also vetted audit firms employed by banks to see that they were competent (an aside is that the recent ‘enhanced rules’ for stockbrokers don’t specify their quality of their auditors or indicate that the CMA will even vet them)

Director Re-Elections: Isabella Ocholla Wilson and George Maina were re-elected as directors; so was lawyer Michael Somen who required was an extra vote since he is over the age of 70 years He’s the Chairman of Access Kenya, but it seems NIC have a habit of de-emphasizing their directors board positions on other companies

Bonus share : The next motion, for NIC shareholders to receive 1 new bonus share for each 9 they own produced the first unscripted moment of the day and the hot button issue was again – rogue stockbrokers – three different shareholders asked the same question – i.e. NIC was giving them a bonus share, which they would be forced to take to a stockbroker who may sell this shares without their knowledge, or collapse with their shares/funds. The Chairman replied NIC Bank now had their own stockbrokerage firm NIC capital Securities where their shares would be safe. The war by banks against stockbrokers is still being waged in public – and a few days ago it was Equity Bank shareholders who were being given the same message –that their shares were safer with the strong commercial banks that they know and own, rather than with some small stockbroker

Purchase of 51% of S&F Bank: NIC is purchasing 51% of Savings & Finance, a Tanzanian Bank for a total cost of Kshs. 580 million (~$7.25 million). Continuing part of expansion and diversification since their 2007 rights issue that has seen them open branches in Kenya, an now make a cross-border investment; the vote brought out the most questions of the day;

Q. exchange rate change since deal was announced; why is some payment in Tanzania shillings and some in US$?
– mix of currencies is s how the Tanzanian owners requested it be paid. – the shillings is weaker and they are now paying about 2.1x book value compared to 1.9x earlier. Also some S&F shareholders live outside Tanzania
Q. The owners seem to be family/private individuals:
– True most companies start with individual shareholders only – and the institutional shareholder is the East African Development Bank. S&F was started in the 1990’s and its origins were in hire purchase business are similar to NIC. The shareholders with 49% are also going to be re-investing the NIC money in the banking, not taking it out.
Q. why is the bank attractive? Is it a leading bank in Tanzania – where does it rank?
– Tanzania has 28 banks and S&F would be between no 15 and 20. NIC felt they would get best value by acquiring a small bank and driving its growth. NIC directors did their due diligence, have observed S&F operations, got transaction advice and confidential banking reports from Tanzanian regulators confirming the bank was a good buy. It has 3 branches in Aruaha, Dar es Salaam and Mwanza which are all key trading points. MD added that – NIC was not the only suitor interested in S&F.
Q. How will it be run?
– S&F will have 7 board members – 4 nominated by NIC (including the MD’s post) and 3 by S&F (including the Chairman’s post – Abdulsultan Jamal). NIC have opted to retain the current Tanzanian MD – Suranjan Ghosh, Mark Bomani (former Tanzania attorney general) and Andrew Ndegwa (Kenyan NIC director) and James Macharia (Kenyan NIC managing director) as their four nominees.
Q. Other Kenyan banks have focused on Rwanda Uganda and Sudan- why Tanzanian (which has not been receptive to other Kenyan companies
-Chairman replied that Kenyans were the biggest investor in Tanzania (excluding the mining sector). Also in terms of diversification, the election violence of 2008 affected Kenya, Uganda and Rwanda equally – since countries were on same trade route! However Tanzania was a completely different market. A large untapped country with great agricultural and resource potential. Many NIC customers do business there already.
Q. Deal wrap up?
– Approval has been got from Central Banks of Kenya and Tanzania. After NIC shareholders voted to approve the deals, it is now expected to be wrapped up on Monday next week and S&F will become a subsidiary with their accounts consolidated in NIC’s from next month.

Goodies: a souvenir wall clock

– Smart NIC had a boxed lunch served to shareholders (much easier to manage than any buffet and needs fewer catering staff). each box had cold roast chicken piece, beef sandwich, juice, water bottle, cupcake, and an apple.

New Rules for Nairobi Stockbrokers

stockbrokers to remain hidden

The Kenya Capital Markets Authority (CMA) has published new rules at its website on how they propose to regulate stockbrokers. They have also published proposed rules for Kenya real estate investment trusts – a.k.a. REIT’s as they are called.

Unlike with other plublications like the Treasury Budget process or (new rules from) the Communications Commission of Kenya, the CMA is not inviting public comments or suggestions; these are finalized new rules.

What they include

The Capital Markets (Conduct of Business) (Market Intermediaries) Regulations, 2009
– Intermediaries (i.e. stockbrokers / investment banks) will be required to engage in know your customer (KYC) practices (to prevent money laundering)
– brokers will not recommend unsuitable transactions once they know profile of their customer
– No cold calling allowed (does that happen in Kenya? Banks and insurers sometimes do that)
– Brokers must have policies for customer confidentially, handling customer complaints,
– Brokers barred from front running and account churning
– Brokers must separate client funds and stockbroker funds
– Broker employees undertake not to use information gained from clients for personal gain

contentions clauses
– Will customers really have a right to be paid interest on their funds held?
– Will brokers prepare objective client agreements that will be signed between them and clients – and which call on them to disclose third party remuneration, conflicts of interest etc?

The Capital Markets (Corporate Governance) (Market Intermediaries) Regulations, 2009
– Each stockbroker must have board of directors, who are not children (i.e. under 25 years), and one must not be related to any other director; also the CMA will have to approve any board changes
– new rules vest management of the broker in the board of directors on matters such as audit, risk assessment, key employee hiring & duties
– broker to hire a compliance officer
– broker to hire an internal auditor
– employees to disclose securities they or their close associates own

REIT rules

The Capital Markets (Real Estate Investment Trusts) Regulations, 2009
– REIT/schemes will distribute at least 90% of after tax income as dividends like in other countries
– Scheme may borrow for investments, but these will not exceed 1/5 of total assets
– REIT must have an independent Principal valuer to value the scheme assets. He/she must be changed every three years
– Trust founders may not own more than 50% , and publicly listed ones may have a minimum of 100 members

Summary: The CMA to be notified in advance of key events at stockbrokers; e.g. new key managers, likely changes in ownership, material pending lawsuits, auditor changes. Also, the new compliance rules make it more expensive for small stockbrokers to comply; this may force them to merge or seek new shareholders.

Stockbrokers will however remain hidden as their disclosure requirements remain only to the CMA even on the basic issue of sharing financial returns with the public; stockbrokers are required to prepare only annual balance sheets and profit & loss statements using IFRS; but these they will only be shared with the CMA – not published for the public. Contrastingly , the rules are lenient for stockbrokers and harsher for REIT’s who will publish its (quarterly) un-audited financial results in at least two national daily newspapers of national circulation. REIT’s are also required to employ auditors recognized by the institute of certified public accountants of Kenya (ICPAK), but that does not apply to stockbrokers whose auditor qualifications are not spelt out. why not?