Category Archives: oil industry

NSE Moment: Buyouts, Vultures, Divestments

A look at recent deals at the Nairobi Securities Exchange (NSE) and other privatization and equity bids since the last update. 

Divestments

  • Essar released a bombshell from India that they would be abandoning their investment in the old Kenya Pipeline Refineries and sell their stake back to the Kenya Government for $5 million. At the same time a Receiver Manager put up (the closed) Pan African Paper Mills up for sale, but that is likely to be complicated by links the company had with vulture funds who purchased Panpaper’s debts in the international secondary debt market. These faceless entities — basically different mutations of one group (going by the names like Noon Day Asset Management Asia and Farallon Capital Institutional Partners) — and 11 such firms own 37% of the company’s debt.The Essar fallout prompted Parliament to also look into the mystery of Orange Kenya which keeps asking for more government support even as the government loses equity in the company.Since then, the government announced that a new office will advise the government on state investments: Attorney-General Githu Muigai said the Government Transaction Advisory Services Office will guide state deals with the aim of sealing opportunities where the latter has been losing its shareholding in parastatals without monetary gain.  
  • EDIT: Another divestment is Kenya Wine Agencies Limited (KWAL) finally exiting Uchumi after disposing of all its shares. It had 18% in 2004 and 4% in 2012. – via @NSEKenya 

Done Deals

Recent M&A deals approved by the Kenya Competition Authority include:

  • Agri-Business: The acquisition of Juhudi Kilimo (turnover of Kshs 30 million) by Soros Economic Development Fund.
  • Aviation: The acquisition of Lady Lori Kenya by Ian Mbuthia Mimano, Adi Vinner and Peter Nthiga Njagi.
  • Education: The  purchase of 60% of Safer World Investments by School Operators Limited (owners of Peponi School) (The two will have a combined turnover of Kshs 672 million or ~$8 million)
  • Finance & Banking: The acquisition of Francis Thuo & Partners by Equity Investment Bank.
  • Food: The acquisition of 66% of Coca-Cola Juices Kenya by the Coca-Cola Export Corporation.
  • The acquisition of Lonrho PLC by FS Africa  (as part of a $280 million deal in South Africa).
  • The acquisition of Ma Cuisine by Harper Holdings.
  • Health: The acquisition of Jampharm Chemist by Viva Afya (the two have a combined turnover of Kshs. 19.5 million).
  • The acquisition of Ascribe Group (which has a turnover of Kshs 70 million) by Emis Group.

Deals Bubbling

  • Brookside Dairies have taken over Buzeki, the makers of Molo Milk, in a Kshs 1.1 billion ($13 million) deal that increases Brookside’s share of the dairy market to 44%.  – EDIT GAZETTE NOTICE No.  15068 – THE TRANSFER OF BUSINESSES ACT: NOTICE is given that the furniture, fittings, fixtures and the assets and the stock being the business of manufacturing and selling of milk and milk products owned by Buzeki Dairy Limited (the “Transferor”) on the premises situated at Ganjoni, Mombasa have been sold and transferred by the Transferor to Brookside Dairy Limited who will carry on the said business of manufacturing and selling of manufacture of milk and milk products at the premises of Brookside Dairy Limited under the name and style of Brookside Dairy Limited (the “Transferee”) with effect from 1st November, 2013 (the “Completion Date”).The address of the Transferor is Post Office Box Number P. O. Box 85532-80100, Mombasa, Kenya. The address of the Transferee is Post Office Box Number P.O. Box 236–00232 Ruiru, Kenya. The Transferee is not assuming nor does it intend to assume any creditors or debtors of the Transferor incurred in connection with the purchase and business of the assets of the Transferor up to and including the Completion Date and the same shall be paid and discharged by the Transferor and likewise all debts and liabilities owing and due to the Transferor up to and including the Completion Date shall be received by the Transferor. Dated the 5th November, 2013. KIPKENDA & COMPANY ADVOCATES, Advocates for the Transferor. COULSON HARNEY ADVOCATES
  • Centum shareholders approved new investments in Liberty Beverages, Mvuke Power, Two Rivers Lifestyle Centre, Centum Share Services, Centum Asset Managers (who are buying Genesis Kenya)  and the acquisition of 79% of Kilele Holdings.
  • Africa Media Venture (AMVF) a Dutch-based venture capital firm has raised its stake in a Kenyan restaurant guide website, EatOut, from 25% to 32% for Kshs 17 million ($200,000) in a transaction that values the online portal at Kshs. 220 million.  
  • Lonrho is selling its entire stake (11%) in African airline Fastjet. 
  • Crystal Ventures (owned by the Rwanda Patriotic Front) plan to sell their 20% stake in MTN Rwanda, in an IPO which will make MTN Rwanda the third company listed on the Rwanda Stock Exchange – after Bralirwa and Bank of Kigali.
  • Sameer Investments is buying out 41 million shares that Bridgestone owns in Sameer Africa – after which Sameer will own 159 million shares equivalent to 72% of the company.
  • Across the border, Tanzania’s Precision Air is looking for a government investment, just a year after an IPO which raised $7 million and reduced the shareholding of Kenya Airways from 49% to 35%
  •  Unga Group will acquire Ennsvalley Bakery for Kshs 125M ($1.5 million) and also dispose of its shares in Bullpak.
  • EDIT: Kestrel Capital has arranged a $1.2 million private placement of convertible debentures in Stockport Exploration to local Kenyan qualified investors. Stockport is listed on the Toronto Stock Exchange and has mining interests in Nyanza Kenya where they are exploring along a prolific gold-hosting greenstone belt. Zeph Mbugua, the Chairman of TransCentury, became a director of Stockport in February this year. 
  • EDIT:  Swedfund, the Swedish state’s venture capital company, and The Africa Health fund through The Abraaj Group, a leading investor operating in global growth markets, made a $6.5 million investment in The Nairobi Women’s Hospital, a leading private healthcare provider for women and their families (men and children) in East Africa.

Shareholder Restructurings

  • Businessman Christopher Kirubi is acquiring an additional 32 million shares in Centum Investments (for ~$8.6 million) which will raise the stake he controls to about 30% and he has received an exemption from complying with the NSE requirement to make a takeover offer.
  • After listing at the NSE, I&M shareholders have done a swop to bring the company’s investor numbers past the 1,000 shareholder mark.
  • The WPP Group (through Cavendish) is increasing its shareholding in Scangroup from 33% to 50%.  WPP, the largest advertising group in the world, is strengthening its control of Kenya and the East African market ahead of the merger of the two other advertising firms – Omnicom the No 2. in the world  (owners of TBWA) and No. 3 – Publicis (of France)  – which, when combined, will be larger than WPP.

De-Listing’s – Companies leaving the NSE 

  • Access Kenya Group after their buyout by Dimension Data was approved by the Government
  • CMC is at the conclusion of a buyout offer from Dubai’s Al-Futtaim Group who are offering existing shareholders Kshs 13 a share, or about $90m. 
  • The Dubai-based conglomerate, which holds lucrative distribution rights for Toyota and Honda in its home market, will help the struggling Nairobi-based automotive group expand its brands beyond its existing stable, which includes Volkswagen, Ford, Mazda and Suzuki.
  • R.E.A. Trading, which owns 56% of Rea Vipingo Plantations has offered to buy out all other shareholders at a price of Kshs 40 per share, representing a 43% premium. The shares that have since been suspended from trading and will be delisted from the NSE if the deal succeeds.

Stalled Deals

  • There was a Financial Times (FT)  article on queues forming to buy up East African retailers but deal opportunities at Nakumatt and Naivas have been hampered by shareholder/family disputes that darken their buyout reputations and possibilities.

Guide to Abu Dhabi

Getting There: There are direct flights from Nairobi to Abu Dhabi on both Kenya Airways and Etihad that cost $600-700. There’s also Qatar Air with a stop-over in Doha and   Emirates Air to Dubai, but which ends with a bus ride to Abu Dhabi City (it’s about a 150KM drive, and rather too short for a jet flight).

Sunset at the Yas Marina F1 track

Prior to departure, your airline would usually have arranged for a visa in Nairobi which is emailed ahead of the trip. The costs of the visa may vary depending on who’s doing your booking, and it can sometimes be free if you pay for a full holiday package. Mine cost $82 and  included (a surprise) medical insurance that covered the trip.

On arrival. Clearance from the airport would have been quite fast, but it took about 1.5 hours as most people had to have an eye scan (picture) taken first and the queue was very long. Many tourists were arriving for the Abu Dhabi Grand Prix) and there were long queues for the scan, and for a rubber stamp after from a very tired official who was taking many cigarette breaks.

Getting Around: One company operates all the taxis you see around Abu Dhabi. Their website advises passengers of their rights such to see driver’s ID, have the electronic trip meter running, have the air conditioner on in the car, and they can refuse to  share the taxis with other passengers – sometimes there’s a shortage of cars at busy times, and the in-car computer advises taxi drivers to go to certain points where there are many people waiting for rides.

The computer also cautions taxi drivers if they exceed the speed limit. The city is a marvel of wide highways, with fast moving traffic, and a level of orderliness that will be shocking to Kenyans. Traffic lights are strictly observed and it’s rare to find a traffic jam in the city.

The taxi journey from the airport to the hotel was about 50 Dirhams (AED) while a trip to a mall or office will be about 20 Dirhams. If staying longer than a week, one should learn to use the city bus system. With the heat and large spread of the city, walking long distances is not feasible.

Roaming Rates

Staying in Touch: Roaming rates are atrocious so get a local SIM card such as from Qtel or Du. This can be obtained at the airport in the case of Du and a line costa AED 100 (about Kshs 2,500) for a combination of call minutes and data that can also be topped up. Also, Wi-Fi is standard at many hotels as there are a lot of intentional business visitors.

Where to Stay: There are many international hotel brands in Abu Dhabi such as Crowne Plaza, Holiday Inn, Rotanna, Ritz Carlton, Westin, Intercontinental, Hyatt, Sofitel, Fairmont, and Radisson. Some of these are located at Yas Island which overlooks the formula one track that has a race in November each year.

The National  newspaper was available in the hotel lobby for all guests free every day, and most hotels have discrete bars on the top floors serve alcohol to guests. Standard rooms with bed & breakfast go for about $100-250, and this comes with the standard international breakfast buffet, along with a touch of local foods like porridge, humus, sticky rice, seaweed soup etc.

Gold Souk

Shopping & Sight-Seeing: Abu Dhabi is considered one of the more expensive cities for visitors and it will cost an equivalent of about $50-100 per day for 2 to 3 taxi rides and meals around the city. (Excluding hotel costs). 

Credit cards are widely accepted in most places, except in taxis which only take cash in local currency. The UAE Dirham can be exchanged into about a dozen other currencies (Singapore, India, Euro) and the  dollars (fixed at about $1 = 3.6 AED) at forex bureaus in malls and the airport. 

There are a few large shopping malls (Marina mall, Abu Dhabi mall) and Souks (markets) like the gold souk that is located in the Madinat Zayed shopping centre. For transit flyers (using Abu Dhabi airport), the duty free section there is rather tiny, and pricey,  compared to the selection at Dubai airport. But if you fly in with the Eihad, the national carrier, showing your boarding pass around town may entitle you to discounts at some hotels, restaurants, car rental, and recreation sites.

Practice your pit stops at Ferrari World

Sights to see include the  Sheikh Zayed Grand Mosque, and lot’s of unique architectural towers. Others popular with tourists include the Corniche which is a 6 KM long  park where you can cycle, jog, even swim in the heat, and another is Yas Water World. But one of the most unique sites here is Ferrari World Abu Dhabi on Yas Island where adults and kids can can spend hours on a variety of motor stuff – roller coasters, virtual reality tours of the Ferrari factory, view the history of Ferrari racing, race karts, eat, shop for merchandise, and still not cover the entire complex. 

With more time, you can do other stuff like take a desert drive, boat ride (from Yas Marina), or go to other cities like Al Ain and Dubai which is about 1.5 hours max away on a ‘real’ super highway. 

Odd Points: Abu Dhabi is a Muslim country, but one that’s quite moderate in terms of what’s forbidden. Still there are signs cautioning visitors to dress modestly, and not to engage in public displays of affection, or consume alcohol in public.

Also the taxi drivers who are an international mix from many countries like India, Pakistan, Philippines, Algeria etc. are the people you are most likely to have a long conversation with during a brief stay. You encounter foreigners at almost all service points – with hotels, shops, malls, restaurants all staffed by a similar mix of foreigners, that you will wonder where the local Abu Dhabi residents are!

Base Titanium to be a model Kenya Mining Case?

Last week, Base Resources and Base Titanium had a session in Nairobi to update the media on the progress of their Kwale Mineral Sands project. CEO Tim Carstens, the Managing Director (who has made 50 trips to Kenya in 2 years) spoke about the progress developments that started in October 2011 and are now 83% complete with the plant expected to go live in the third quarter of the 2013 processing the extraction of three products used in industrial pigments, plastics, paper, and paint colouring.

So far, along with the three fields identified in Kwale, Base has a new dam filled with 6M cubic feet of water, a new 8KM road (from a nearby highway) to the plant – which is itself being assembled like a large pre-fab lego structure, a new dock being constructed at Kilindini (on the mainland side), and a (1,000 ton/hour) ship loader that is being assembled in Durban. In addition they have worked with KPLC to get stable electrical via a new substation, obtaining equipment for the site like the worlds’ two largest bulldozers in – all while  maintaining an exceptionally safe work environment for the current 2,000 workers in a community that has not had past experience in mining.

Despite these investments which are expected to total $300 million for the project, the mine has a useful life of, and will be depleted, after just 13 years after which the company will hand the land back to the government, but now with plant, water dam, electricity, and road for it to to do other things. 

Base Titanium is a Kenyan company that is subject to Kenyan laws and will disclose every dollar they pay to the government as part of an international extractive industries initiative they have signed on for. Carstens believes that Base Titanium will demonstrate that large scale quality mining projects are possible in Kenya and that mining can replace coffee as the country’s fourth-largest export with approximately $2 billion in export revenue.

While many 
local communities typically associate the discovery of oil and minerals with instant wealth, Base has had to manage and communicate the expectations of the community in terms of  extending benefits such as employment opportunities (which will number about 1,000 during production), purchasing foodstuffs from the local area, and most important in payments. The proposed Kenya mining Bill specifies the sharing  of mining revenue with 75% going to the National Government, 20% to the county government, and 5% directly to the community which should alleviate some problems seen in Nigeria and Tanzania where locals don’t see benefits from the mines.

Carstens also said that Base Resources, which is listed in UK and Australia, is now 1% owned by Kenyan shareholders and they are continuing to talk to local fund managers on the potential for further investments in mining.

Private Equity Moment

Following the January  post on M&A deals, here are some recent events.
The Private Equity Confidence Survey was published by Africa Assets and Deloitte and it showed that, in 2012, private equity firms invested $1.13 billion towards 58 deals in Sub-Saharan Africa. This was a a slight decline from 2011, and that Kenya, Nigeria and South Africa accounted for 45% of the deals in 2012.  Also in the survey;
– Despite the enormous hype surrounding Kenya’s growing IT sector, dubbed the “Silicon Savannah”, no IT or venture capital deals were reported in eastern Africa in 2012. This clearly reflects that both the IT sector and VC industry in eastern Africa, and indeed Africa more broadly, remain quite young and underdeveloped. Interestingly, IT-Tech deals were done in 2012 in South Africa, Ghana, Nigeria and the DRC.
–  One conference speaker on VC deal structuring said the problem is ‘Kenyan entrepreneurs believe they each have a fantastic proprietary idea, and they want lots of money up front to develop it, regardless of the lack of business model planning done by many of them. 
– The dominant exit route across Africa is a sale to a strategic investor..and most investors expect the average investment lifecycle to be between two to five years.
Recent M&A deals approved by the Kenya Competition Authority include:
Agri-Business & Food
– The acquisition by Almasi Beverages of Kisii Bottlers, Rift Valley Bottlers and Mount Kenya Bottlers
– The acquisition of Lord Erroll Limited by Koita International Kenya. EDIT – The Business Daily in August 2014 wrote on the Lord Erroll buyout
– The acquisition of Ocean Agriculture (EA) by JH Verwiel.
– The acquisition of Siret Tea Company by Siret Outgrowers Empowerment & Produce Company.
– The acquisition by the Rai Family of shares of Sukari Industries.
Banking, Insurance & Finance
– The acquisition of I&M Bank by City Trust Limited.
– The acquisition of PSJ & Associates by PKF Kenya.
– The acquisition of 66.66% of Mercantile Insurance by Colina Holdings
Building, Energy & Real Estate
– The acquisition of shares in Cemtech (who were to put up a cement factory in Pokot) by Rock Field Corporation.
– The acquisition of Economic Housing by Mali Rasili Group.
– The acquisition of all assets of Mutonga Mutuandaju Small Hydro Power  (a hydro-power project in South Imenti, Meru) by Intrepid Energy.
Health & Beauty
– The purchase of shares in Alexander Forbes Healthcare by Zanele Investments Holding Company
– The acquisition of the health and beauty business (cosmetic & hair brands) of Interconsumer Products by L’Oreal East Africa
– The acquisition of certain assets & liabilities of RTT Health Services by Imperial Group
– The acquisition of Lyntons Pharmacy by Luwada Management
– The acquisition of Star Biotech Lab & Diagnostics (a pathology lab) by Metropolis Health Healthcare
– The acquisition of an indirect interest in the assets of Strategic Industries Limited.
Media & Communications
– The acquisition of Alldean Networks Limited by ISAT Africa Limited FZC and Richard W. Bell.
– The acquisition by EMC Acquisition, LLC and Emerging Markets Communication, LLC of EMC, LLC.
– The acquisition of shares in Dodhia Packaging Limited by Corpak Africa and Corpark Kenya
– The acquisition of  the investment in Rodwell Press held in Interlabels Africa by Interlabels Industries Private Limited.
Oil & Mining 
– The acquisition of Aviva Mining Kenya by Africa Barrick Gold (from Aviva Corporation)
– The acquisition of 87.25% of Pacific Seaboard Investments Limited by Tardigrade International Inc.
Tourism
– The acquisition of East Africa Safari Ventures by Natural Habitat Safaris.
– The acquisition of 80% of Nairobi Tented Camp  by Porini Limited.
– The acquisition of Leleshwa Safari Company  by Natural Habitat Safaris
– The acquisition of Vittoria Limited and subscription of shares in Olarro Conservancy Limited by Arabian Ranchers Property Investments
Transport, Engineering & Logistics 
– The acquisition Swift Global Logistics by DSV Air & Sea Holdings
– The purchase of 55% of Tradewinds Aviation by NAS Africa Aviation
– The acquisition of 60% of Treadsetters Tyres by Bharat Doshi, Aashit Shah and Carlet Overseas Corporation.
– The acquisition of 40% of Tredcore Kenya by Magister Limited
– The acquisition of Vtechnologies (Kenya) Limited by UHT SAS.
EDIT
More deals approves in May 2013
– The acquisition of the remaining shares in Cable Television Network by Wananchi Group
– The acquisition of 99% of Microensure Advisory Services by Microensure Holdings
– The acquisition of Brightermonday.com by Cheki Africa Media.

– The acquisition of 1,680 steers and 792 cows from Delamere Estates by Ngombe Ltd 
– The acquisition of 80% of Altech Kenya Data Networks and 100% of Altech Swift Global Limited by Liquid Telecommunications Holdings
–  The acquisition of the business of Daru Shifa Centre by Viva Afya
– The acquisition of Endebess Estates (Kilifi Holdings)  by Ballobhai Chhotabhai Patel.
 
Other recent deals in the News
– Jacana Partners and InReturn Capital announced a merger, and plans for a $75 million SME Fund
– 88mph and the eVentures Africa (eVA) Fund announced a partnership to improve investment opportunities
– Does Tuskys Supermarket want to buy Ukwala  a rival supermarket chain?
– 90% of I&M Bank shareholders have accepted the takeover by City Trust Ltd and the deal makers have been granted a 2 week extension to reach out to the remaining shareholders. Next steps include a share split.  mandatory acquision of the balance of shares, and a possible NSE-listing on June 12.
–  Airtel signed an agreement to fully acquire Warid Uganda – the combined entity will remain the number two carrier in Uganda with 7.4 million customers  and a market share of 39%.
– Fastjet and the CEO of Fly540 agreed to cease their court battles and work towards an acquisition of Fly540  – freeing FastJet to commence Kenyan operations.
– A summary of China investments around the world in the year 2011.
–  In the US, M&A of VC-backed startups are at a four year low.
–  Venture capital merger and acquisition activity in the US dropped in the first quarter of this year, ending with the fewest exits since the first quarter of 2009, according to the just-released venture report from Dow Jones VentureSource.
– Some 86 M&A transactions were done for a total amount of $4.3 billion, down 44% in deal activity and a decline of 24% in capital. In the final three months of last year, 113 deals brought in $7.6 billion to the VC-backed startups.
– Companies raised $6.36 billion in the first quarter of 2013, the lowest amount raised since the third quarter of 2010, when $6.1 billion was raised. In the first three months of the year, 752 companies were funded, which is similar to the 732 companies that got funded just over two years ago. Healthcare deals accounted for almost a third of the invested capital.

EDIT Jambo Biscuits food processing business is being transferred Kilimanjaro Foods.

Shares Portfolio February 2013

Comparing the portfolio to three months and about five years back which was just before the last Kenyan general election.
The Stable
Barclays ↑
Bralirwa (Rwanda) ↑
Diamond Trust Bank ↑
East African Breweries (EABL) ↑
Equity Bank ↑
Kenya Commercial Bank (KCB) ↑
Kenya Oil Company (Kenol) ↓
Safaricom ↑
Scangroup ↑
Stanbic (Uganda) ↑
Unga ↑

What’s changed?
In: None
Out: Kenya Airways
Increase: EABL, Equity, KCB
Decrease: None
Dividends: None yet 
Best performer: Bralirwa’s (up 31% in 3 months) then Stanbic (UG) and KCB
Worst Performer: Kenol down 5% 
Unexpected gains/losses: Sold Kenya Airways, which despite troubles at rivals [Jetlink (suspended flights in November) and Fly540/FastJet (shareholder wrangles)], still has major clouds ahead with uncertainties over the delayed Boeing 787, hedging, staff, and serving routes in Europe and Asia. 
Performance Summary: The NSE 20 share index is up 10% in the last three months, while this portfolio is up 11%. But, at 4,500, the NSE 20 Index is below what it was in November 2007 (~5,100) before the election. 
Other Developments: 
Mining Sector: A media session took place this week with a goal to demystify the mining sector. The announcement in 2012 that oil had been found in Kenya raised some unrealistic expectations about sudden wealth that will be available to Kenyan communities including a recent notice by the Minister for Environment requiring that mining ventures should have 35% local ownership and another this week by the Kenya Revenue Authority on payment of withholding tax on the transfer of oil and mining assets (10% from payments to locals, and 20% for foreigners).
Kwale Mineral Sands
Discoveries this week at the session included: 
  
(1) A Kenyan investor can buy shares in the Kwale Mineral Sands project as Base Resources (who are developing it and who will build a local processing plant) are listed at the Australian and London (AIM) Exchanges.  
(2) Mining companies are always on the lookout for local partners & investors who are sophisticated and wealthy enough to understand the risks of mining.
(3) The sector comprises prospectors, explorers, and large mining companies each of who invest increasing amounts of capital from $50 000 at the prospecting stage to $1 million at the exploration stage to over $100 million at the mining stage and all assume varying degrees of capital, risk, and longer payback periods. Typical mining investors are interested in bullish markets, and stable countries with established policies on mining while conflicts over land use vs. mining rights remain perennial challenges (also affected this particular project).

Also see Can Kenya Avoid the Resource Curse?
GEMS:  The Nairobi Securities Exchange launched a Growth Enterprise Market Segment (GEMS) a few weeks ago to promote the listing of small and medium enterprises. The  basic criteria for a company to qualify include being in operation for at least one year, have audited accounts of at least one year (but no profit requirement),  have sound management and board consisting of at least 5 directors, commit to have at least 25 (non-employee) shareholders own at least 15% of the shares within 3 months of listing, and appoint an NSE-nominated advisor to help them with governance. 
At the launch, the NSE Chairman noted that GEMS provides an opportunity for firms participating in Kenya’s natural resources and mining sector to raise capital and also comply with the 35% local equity component. 
Online Commerce:  In the last week, South African-based Private Property Holdings and Kenyan-based Cheki Africa Media merged their businesses to form One Africa Media, possibly Africa’s largest classifieds portal‏, even as Naspers shut down Mocality in Kenya and Nigeria.