Category Archives: NSE stockbrokers

Ugandan Envy

this is NOT about Migingo Island

Google Earth image courtesy of afromusing

A year ago wrote this on the information availed to Ugandan investors by their companies; this year the envy is even more, it makes me sad; that by being the leading country in the region, we may not notice we are being passed in some aspects of investor awareness & rights.

Use of E-Mail: The Stanbic Uganda invitation/AGM notice again arrived by e-mail; now many Kenyan companies have passed by-laws allowing them to send out e-mail notices and annual reports to shareholders, but none has done so far. Maybe, with the eventual passage of the much-maligned/controversial communications bill the legal framework is now there to back enable this – but we’ll see; While not every shareholder will have an e-mail account, if 1/4 of 1/3 of some company’s shareholders (Kengen, Co-Op, Safaricom) do, then these companies could potentially save millions of shillings in postage costs.

Investor Disclosures:
(i) For Stanbic UG, rules of voting are clearly stated – shareholders are to endorse new directors and that 1/3 of directors will retire at each meeting.
(ii) for directors who are up for election, their mini-CV’s are printed out for all to peruse i.e. their ages, year of appointment, educational qualifications, directorships in other companies, and committee seats.

In Kenya, Company Chairmen just mumble through, if at all, fully expecting elections to be a foregone conclusion. Refreshingly here, the directors up for election at Stanbic Uganda (Hannington Karuhanga, Kitili Mbathi, and Samuel Sejjakka) are all younger than 50 years. In Kenya, opportunities for younger leaders & directors are the exception rather than the rule. But at Stanbic Uganda – the Chairman and Deputy Chairman have their tenure is capped at two terms of 5 years only.
(iii) Remuneration of directors is declared. Again in Kenya money amounts paid to directors are rarely mentioned, but in Uganda, they are spelt out for shareholders to approve – here the Company (non-executive) Chairman gets an annual retainer of US$7,500 while a director gets US$5,500

Language used; several companies (most recently) KCB have amended their company article to allow for electronic communication with clients; but they merely replace one of gibberish with another one, without bothering to explain what the jargon means. Here; Stanbic explain allows video-conferencing or tele-conferencing to be used at board meetings

Proxy detail proxy forms contain a lot more details including the items to be voted for with shareholder able to vote for or abstain on votes. They also call for shareholders to provide contact details (name, e-mail – what an easy way for a company registrar to build up a working database to manage is subsequent years)

Shareholders or their proxies (who can be more than one) are entitled to attend, speak, and vote, and the endorsement /presence of a proxy does not disqualify a shareholder from attending; this enables a shareholder to bring his wife/wives or children for them to learn about the process!

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Investor guides: There are many things to learn from other countries in the region on investor rights and information despite Kenya being the leader. We are innovative, Uganda is about to unveil a CDSC system that Kenyan investors have had for three years, but which rogue stockbrokers have besmirched. It would not be surprising if the Ugandan version may be sorted out ahead of time, closing loopholes that will be used to protect shareholders, and by educating them on how the system works.

All the regional exchanges – Kenya, Tanzania, Uganda, and soon Rwanda (where KCB, Kenya’s largest bank in Kenya will be the first company to have its shares be (cross- listed & trading) all have the same information; but my NSE seems stale, like all the regulations were put up years ago and forgotten. Usualyl, we just check for the latest share trades, bond trades and quarterly financial announcements.

e.g. Faced with a budget deficit, Kenya has lowered the minimum amounts to invest in bonds to Kshs. 50,000 ($625). The Central Bank of Kenya which issues these bonds has put up some investor information basics, but nothing from the NSE who trade in these bonds. In Uganda, there is an advisory page for investor guides for bonds and shares, for any new investor to read, download for free.

Also in Kenya, tribe is the unacknowledged elephant in the room; one we pretend to not be influenced by, but which governs many aspects of our lives. Kenyans are required to communicate official in English (almost all government documents), and to a lesser extent in Kiswahili. But there are rural folk who may not understand the national or official language, but may wish to learn about shares and bond Uganda has investor awareness booklets in vernacular languages – including a Luo investor guide (PDF)(for the Northern Region) available from the Uganda Securities Exchange. And that, properly disseminated, may be worth much more than a small island.

NIC Soars

The NIC bank AGM will be held of April 29. The company has 24,000 shareholders up from 20,000, and while the top 10 shareholders remain unchanged, they are in for the long haul in the bank which is diversifying its business strategy as a re-branded NIC that aims to be a regional giant.

– NIC is now into banc assurance – through NIC insurance agents which partners with two leading insurance companies and had a modest profit in 2008
– NIC acquired 58% of Solid Stockbrokers and has now upped its stake to 88.3% through new capital and buying out other shareholders. The cost so far is about Kshs. 423 million and it made a 2008 profit of Kshs. 5.2 million. The brokerage and investment firms are capitalized at 349 million and 219 million well above the 30 million and 50 million minimums set by the capital markets authority (CMA). Also, legal claims brought by customers of Solid and which NIC inherited in the deal are pegged at Kshs 84 million.
– NIC also plans to complete a deal to acquire 51% of a Tanzanian Bank – Savings & Finance Commercial Bank by 30 April 2009 at a cost of Kshs. 322 million. S&F has in 2007 the equivalent of of Kshs 2.37 billion in assets,with deposits of Kshs 2 billion and loans of Kshs 1.3 billion and pre-tax profit of Kshs. 77 million.

Equity Bank 2009 AGM

Equity Bank 2009 AGM (it’s 5th) was held at the Kenyatta International Conference Centre on Thursday March 26. This capped another year of spectacular performance by the bank during an otherwise difficult 2008 US$1 = Kshs 80

Start on time? Last Equity forum was 45 min late: this one was scheduled to start at 10 a.m. and was late by about the same delay. Last time we were entertained by an entire Boney M album, this time it was a series of advertisements for the bank, with a patriotic them recalling images of tourist splendor (majestic Mara), agricultural potential and athletic achievements (Kipchoge Keino, safari rally, safari sevens rugby) all ending with the line we are proud to be Kenyan

The main speakers of the day were Peter Munga (Chairman – Chair), James Mwangi CEO and Mary Wamae (Company Secretary)

The Chairman took up a long time by reading his entire written speech – almost 20 minutes. He handed over to the CEO who also ran down a series of financial highlights for the year including;

– Market capitalization rose in 2008 from 54 billion to 66 billion (only NSE company whose shares appreciated in 2008 – by 3%)
– Earning per share up from 6.9 to 10.6 – and dividend per share also up 50% from 2 to 3
– Cost to income ratio unchanged at 60%, and down from almost 80 four years ago
– Helios investment (sale of 25% for 11 billion) was the smartest thing the board did – gave the bank the capital & muscle to grow. With their 19 billion capital and subordinated debt of 6 billion gave the bank 27 billion of capital (most cap bank)
– Opened 35% branches, installed 150 ATM’s

Speech also took about 20 min as he added:

– All the awards the bank won in 2008 (Euro money, Africa Investor) which were on display for good measure
– The bank is a case study at Columbia, Harvard, Stanford, IESE and Lagos

The company’s secretary also read out the report of the directors never seen that happen

Fun stuff at AGM’s is always the Q&A with shareholders:

Bad blood in banking sector: one shareholder commended the bank for the fight-back in his area (Machakos) where rumors led to a run at the branch, and a team (with cash) visited to reassure residents that the bank was strong. The bad blood was attributed to competitors who are jealous of Equity’s bank success – CEO mentioned a proverb of a tress that grows taller than the forest canopy and then gets buffeted by winds from all directions. He said they can withstand such challenges because of (i) capital of almost 27 billion (ii) liquidity of almost 66% and (iii) good asset quality

Why borrow foreign funds? one shareholder asked why the bank borrowed. The lines provide long-term funds for long term lending 3-5 years). E.g. a German loan was to support investment in irrigation schemes, of which there are now 3. CEO assured the shareholders that the loans from (Dutch, French, and German institutions) were all denominated and would be repaid in Kenya shillings, cushioning the bank from exchange losses

Most generous company in Kenya: one shareholder asked why the company did not publicly participate in corporate social responsibility (CSR) programs? CEO said that Equity, unlike other companies, which gave a little money with a lot of publicity, was actually the biggest corporate spender in Kenya – bigger even than the Telco’s (Safaricom?, Zain?) and gave some examples
– when they opened 4 branches in Nyanza in 2008, they donated 20,000 beehives to women’s group’s as well as 10,000 avocado seedlings –avocado’s and honey were the most promising products of the region (i.e. beehive can generate 36,000 to 48,000 annually) .
– in Eastern province, they donated sorghum seeds to the residents of Ukambani – and will partner with East African breweries (EABL) to ensure that harvest from the residents will be bought by the beer giant.
– In the education sector, they sponsored 186 top-performing high school student by paying their university fees at a cost of 112 million shillings
– Fanikisha loans (to women groups) has become their flagship product with over 187,000 loans, and in agriculture disbursed 70,000 new loans in 2008
This kind of CSR that Equity engages in, is not publicity, but it is actually sustainable and transform lives by giving individuals the power to generate incomes

Regional diversification: Uganda was a takeover, Sudan is a greenfield and they will watch the growth to see which strategy is better for expansion to other African countries.
– Uganda starts operations at end of March with 30 branches (the biggest branch network in Uganda), and open another 20 this year – he said they had already increased profit by 100 in the second half of 2008 since they took over, even while doing a re-brand operation. CEO said Uganda had better growth prospects than Kenya which had a lot of negative politics
– Sudan starts in April
slip of the tongue? CEO at one point said … “…when we open in South Africa” while also mentioning looking at Rwanda and Tanzania as being next

Buy other Banks? one shareholder asked that they buy up more shares in housing finance, while another suggested they also buy up National Bank of Kenya in which the government is offloading more shares. CEO said they would do their due diligence on NBK and if they were announced as being in the running, shareholders would know soon, but if not, then there was something they did not like after their analysis of NBK (as far back as 2005, Equity have been interested in NBK). CEO mentioned that RBS of Scotland took over a bank before the economic crisis, and choked on that toxic investment that has reduced its value to a mere fraction (from $119 billion to $3 billion)

Enough bad loan provisions? these increased from 600 million to 1 billion, but was that enough one shareholder asked, considering that some of these were for Safaricom shares? CEO said they lent individual 80% for Safaricom shares with investors paying 20%, then the over-subscribed IPO allocated just 21% (which the investor paid or), and so the 1% loan was repaid in the first week

Poor bank network systems: one shareholder complained about the downtime of the bank’s IT systems – at branches or at ATM’s which perhaps led to people saying the bank was shaky. CEO said they have been upgrading the platform over the last few weeks and it has caused some hiccups but they would be over. Equity is now branchless, you can bank in Kenya, Uganda, and Sudan seamlessly. Also, look for new branches as queues and crowds will no longer be an issue

Kenya immune from global crisis? CEO said in the year 2000, Kenya economy shrunk by 2% while Equity grew by 100%
– The stock market dipped in 2008 as foreign investors (who constitute 70% of trading) left the NSE, but they are now coming back
– Said Kenyans were being scared. there are no toxic loans in the sector. If the Kenyan economy grew by 2.8% in 2008 and is expected to grow by 3.6% in 2009, and even though tourist numbers and exports will be affected, overall we should not unnecessarily panic about… except in the capital markets.

Argument against being a stock-broker: one shareholder asked why they did not buy a stockbroker like NIC (bought Solid stockbrokers) and yesterday Coop bank (bought into Bob Matthews stockbroker)? CEO said that not going to happen as stockbrokers have such bad reputations and toxic assets. Equity already has a custodial license, they already employ 8 stockbrokers, and get 70% of the transactional income – so why the need to become a broker? They get the profit now, without the hassle
– said as custodian, they are the largest custodial account holder with over 50% of all CDS accounts in Kenya
– he exhorted all shareholders to transfer their shares from their stockbrokers to Equity Bank.

Shareholder votes: 
– first and final dividend for the year of Kshs. 3 per ordinary share of Kshs. 5
– Election of directors: Ernest Nzovu was re-elected while Dr Ezekiel Alembi (of Kenyatta University) and Professor Shem Migot- Adholla (former GoK dream team PS) were elected as new directors. The Chairman mentioned that Peter Njeru Gachuba (Africap) and Linus Gitahi (CEO Nation Media Group) had retired to make way for the new directors.

Share split: 
can’t be selfish when doing well
– Special Business was the share split that every ordinary share be sub-divided into ten shares
– CEO explained that shares had become too expensive at the Nairobi Stock Exchange, which made it difficult for shareholders to judge their true values. E.g. to buy minimum 100 shares of equity costs 12,700 while to buy KCB costs 1,700 and co-op just 610 shillings
– company has 10,000 shareholders and 3.5 million customers. The share split will enable more customers to become shareholders
CEO gave a history of bonuses and splits:
i Year 2000: share split- 1 share sub-divided into 4
ii 2004 bonus – 5 bonus shares for each one held
iii 2007 bonus – 3 bonus shares for one held
iv 2009 split – 1 share split into 10
– so if you had one share in 2000 worth 20 shillings, that share was now worth 7,500
– the register closed yesterday (March 25) and the new shares start trading on May 25
– CEO exhorted shareholders to hold on to their shares, as they could be expected to go from the current 13 (130) to 34 (340 was the previous high before the bear market)

Odd moments: 
– Managers and board were asked stand and bow to the shareholders
– CEO was at one time referred to as chief servant
– CEO seemed to delight in the woes of Citiiank and the US banking sector
– The meeting started and closed with a positive prayer by Canon (priest) who obviously must be a shareholder too.

Goodies: Buffet snacks served outside by safari park catering staff tea/soda – with samosas, cake, fish fingers, croissants,

Summary: Nice AGM. Equity is now media savvy and the event was well attended and covered articulately by the press

Difficulties Changing Nairobi Stockbrokers

Stockbrokers are falling at the rate of almost two a year, and tales continue to abound.

The reality is that, sooner or later, you may need to change your broker and while I’ve had this post for over three years about how simples the process of transferring shares from one broker to another should be, the reality is very different!

Kenyan shareholders have had the option not having share certificates for a few years now. With a central depository system (CDS), you surrender your share certificates e.g 1,000 Kenya airways (KQ), and in exchange get an electronic account/statement which is updated each time you buy or sell, shares. You also get all your dividends and annual reports by mail.

Still to buy and sell shares you have to go through a stockbroker, who ideally should have the same tally as your CDS statement. Recently problems have been had with rogue brokers, who would sell share without informing clients – and clients would only find out when they got a CDS statement showing less shares than what the broker said they had. Later the frauds went even further when brokers would ensure that even CDS statements didn’t get up-to-date records of share sales.

I had to change broker for a company account this week and the reality was much more than. I had a team of people, the transfer was between two viable brokers and we were able to get all the (numerous) documents that were asked for. Yet it still involved almost a dozen trips to the office and took almost two weeks.

The steps taken included
(i)Open an new CDS account with new broker
(ii)Close old CDS account with old broker
(iii)Move shares from old to new CDS account

Documents that were asked for included
– 3 copies of Certificate of incorporation with – one stamped by old broker, one stamped by new broker, one for the CMA (all stamped by company seal)
– Memorandum & articles of association requested by new broker (was not required at old broker so copies had to be traced and photocopied)
– 3 copies of director ID or passports – stamped by old broker, stamped by new broker, one for to the CMA (all stamped by company seal)
-2 copies of form of shares being transferred one called CDS 4A and one called CDS 4B, signed by directors and stamped with company seal. One form must be stamped by old broker, one stamped by new broker
– 200 shillings ($2.50) transfer fee

Now imagine what it is like trying to reconcile accounts, reclaim investments or move from a collapsed stockbroker? Or a fraudulent one? Or one who doesn’t have motivated (paid) staff, or proper records?

Also until last year, IPO’ were considered sure winners – and people would open several accounts e.g. in the name of their mother, grandmother, cousin, maid, driver etc, all in a bid to get more shares after the fractional allocation that characterized Kengen and Safaricom IPO’s, but before the price rocketed up on day one. Many CDS accounts were opened, many by new temporarily hired staff in a bid to get as many applicants in as possible during the limited (IPO’s usually 2 -3 weeks) and some rules were readily relaxed. I explained these to the new broker, but they said CMA can come and audit their files and they have to comply CMA have their hands full with collapsing or non-compliant stocbrokers!

So, finally, the new account is now open, after a very tiring two weeks, during which I confessed that it was maybe better to sell all the shares held at old stockbroker and open a new account at new stockbroker than to attempt to transfer the shares.

Kutwa Tuesday: Toxic Brokers

Toxic Brokers The US has toxic banks, Kenya has toxic stockbrokers

Discount stockbrokers was yesterday placed under statutory management. It has been technically insolvent since new managers were appointed six months ago, and given the cost and extent of their operations it’s unlikely to ever turn round.

Bob Mathews was also re-admitted at a stockbroker after injecting in new capital, but once labeled at a toxic broker no amount of rescue cash is enough to salvage an institution. Nyaga stockbrokers got a lifeline infusion of Kshs. 100 million rescue loan, which was largely paid to other brokers, but it was not enough and the firm went under too. smart investors should read the signs of a collapsing company

Capital Gains market turnaround

The Nairobi stock exchange had its best week in a long time, with a mini run led by Equity Bank up 31%, CMC up 25%, Kengen 22%, EA Cables 20%, National Bank 16%, EA Breweries 15% and Diamond Trust 12%. With no significant financial results, or economic & political news out last week, the rise remains a mystery; Was it in reaction to US markets having their best week, or realization that there was a new finance minister in charge or investors realizing that they had missed on the infrastructure bond (and the next one was not as lucrative), or was it stockbrokers making a last stand?

Insurance Losses

Pan Africa Life a relatively large company with assets of Kshs. 6 billion ($75 million) returned a pre-tax loss for 2008 of Kshs. 175 million down from a profit of 51 million in 2007, which they attribute to the unrealized loses in capital markets. If a large insurance company is in this state, what about the smaller other Kenyan insurance companies? Already standard assurance has gone under and it was not the main company in public transport sector (matatu’s) whos’ claims are being blamed for its collapse.

Opportunities & Events

TED Global applications have opened for the 2009 TED Global 2009 conference. Deadline is April 3 for fellowship applications

Tujuane Mixer will be held on March 20. More details at Tujuane site and here’s a re-cap of the last mixer I attended. The event will be facilitated by Nyokabi Njuguna, Founder – Entrepreneurship and Leadership Foundation, and with a special appearance by R&B vocalist and Guitarist Harry Kimani.

Nairobi Wine Festival Get stylish and drunk is how Rafiki Kenya describes the event on Friday and Saturday (20/21 March)