Category Archives: Prospectus

Co-Operative Bank Listing A to Z

Almost halfway through the IPO window which runs from October 30 to November 13 2008 at Kshs. 9.50 each. Minimum application amount is 1,000 for retail investors who will get 66% of the floated 701.3 million shares

Basis for listing funds raised will go toward new banking system, new branches, mortgage finance business, card business etc.

Cost of listing The budgeted cost is Kshs. 249 million ($3.1 million) and includes Placement fees 99m Advertising 68m, CMA fees 20m, Printing 17.5m, Lead Sponsoring Stockbrokers fees 8.4m, Public Relations 8.3m, Co-sponsoring Stockbrokers Fees 5.2m, Lead Transaction Adviser 5m, Legal Fees 5m, Receiving Bank fees 3m NSE listing 1.5m and valuation fees of 0.9m. This compares to Equity listing – 28m, Access Kenya 40m, Kenya Re 280m, Kengen IPO 401m, KCB rights 1.1 billion, and the giant Safaricom IPO at 1.1 billion shillings

Expert advice: See also Nairobist and Ratio perspectives on the Co-Op IPO

Float Retail investors will get 463 million shares and qualified Institutions will get 210 million shares, with employees another 28 million shares. The cooperative societies, which will own 62% of the company, are locked in for 5 years, but the existing individual shareholders are free to sell their (680 million) shares.

National Bank of Kenya a joint-receiving Bank for the IPO and the only bank to step forward and offer 100% loans towards the Co-op Bank IPO. Consolidated Bank has just announced that it is also financing.

Numbers Projected EPS is Kshs. 0.66 for 2008 from a profit of 3.45 billion ($43 million), and estimated assets of 87.6 billion [deposits of 66 billion and loans of 51 billion]. the bank has about 800,000 customers, 50,000 CDS accounts, 53 branches and 152ATM’s

Shareholders top shareholders comprise some of the largest savings and credit societies and also top management of the bank. These include Harambee SACCO 3.7%, Teleposta Sacco 2.97%, Afya SACCO 2.94%, Masaku Teachers SACCO 2.90%, Kipsigis Teachers SACCO 2.46% Kenya Police SACCO 2.33%, Gideon Maina Muriuki 2.32 (the Bank MD), Kiambu Unity Finance Co-operative Union Limited 2.27, Nandi Teachers SACCO 1.78%, Aembu FCS Limited 1.77% Mungania Tea Growers SACCO 1.57%. The top 10 individuals are all senior managers and board members (4%)with about 51,000 other shareholders, but there’s no lock-up period for their shares. Equity listed with 2,800 shareholders

Recapitalize a Subsidiary – Co-op consultancy services (-17m reserves) which builds capacity among SACCO’s is also one of the goals from the listing

Subscription: mid week, little traffic and activity among brokers and at various IPO tents around town. Subdued but significant marketing is taking place. Adverts in the newspapers (even the Weekly Citizen tabloid) and on TV

Timing of Listing IPO euphoria for shares has dampened somewhat since the Safaricom IPO and the downward trend of the market right up to the start of the Co-OP IPO

Transaction advisersLead advisers – PKF added to Dyer & Blair, National Bank added as a receiving bank

Valuation beyond setting the basis for the offer price at 9.50, there’s no comparison to peer banks of this size (KCB, Barclays, Equity) which would be expected.

Verdict slight over-subscription expected. barring Safaricom, past IPO’s generally appreciate after listing long enough for speculators to cash out. The shares are much less than the 10 billion from safariom, but having 1 billion shares floating in the market with a large retail pool will have the shares behave like Mumias Sugar shares [Kenya re 9.50 august 2007 for 240m shares]
Me? bypass for two reasons (i) IPO bypass theory resumes even though a lot of the negatives associated with IPO’s – queues, refunds, hassles seem to be are absent (ii) my portfolio is overweight on financial shares.

Celtel Zambia: Prospectus Peek

After taking a peek at Safaricom prospectus, take a look at the Celtel Zambia one (Thanks M for mailing it in) with two weeks to go in the calendar.

January 2008, showed that cross-border diversification may not be a bad thing, even for Kenyans – and if you have the money and the chance, you should do it. Stanbic Uganda has performed quite well, though the weakening Uganda shilling eats into improved dividends.

In this IPO, retail investors from outside Zambia are not included, nor are there provisions for other country nationals except as international institutional investors. For Kenyans who take part, we are one of the countries who have double tax treaties with Zambia – hence reduced tax on dividends. However Celtel has never paid dividends as it has ploughed back all profits into operations.

Comparing mobile giants: it’s best to compare Celtel Zambia to Safaricom Kenya as they are both market leaders and backed by multinational mobile partners. Zambia is larger than Kenya, but with about 1/3 of the population (12 million) Celtel Zambia has about 1.9m customers representing 78% market share and covers 71% of the country (Cell Z and MTN are competitors). It had 2007 revenue of $252 million and an average monthly ARPU of $13 – similar to Safaricom’s (~800 shillings per month).

Beneficiaries: While the benefits of safcom went to the Kenya government, the benefits of this (sale of 20%) will go to Celtel parent. Stanbic bank are also going to do well as lead manager, distribution agents and one of the receiving banks. IFC owns 10% of the company and is expected to sell its shares after the IPO which itself costs about $5 million.

On offer: 1 billion shares on offer at 640 kwacha per share ($0.18 or Kshs. 11.50). The minimum subscription is 700 shares (about 8,000 shillings). Employees get a 20% discount on the price.

Directors: A Kenyan connection is former PS (part of 1990’s dream team) and IFC executive Mwaghazi Mwachofi on the board of Celtel. It is refreshing got see that all directors other portfolios are listed in teh prospectus and that they have to declare that they have not censured/criticized by any regulator/ authority or been involved in bankruptcy, or liquidation.

Management fees: The company pays between 3.6% and 4.8% of annual revenue to Zain/Celtel parent. Safaricom pays Vodafone 0.5% of revenue and 6% of procurement costs as what has been a sensitive issue for the company but seems to be the norm with multi-nationals.

Stock exchange not retail or liquid: Zambian exchange appears not to be very liquid – it has 9 listed companies worth $100m, and $72m worth of deals were done last year in just 6,196 trades. The listing of Celtel should improve those numbers.

Safaricom IPO: Prospectus Peek

Thanks, M

At the end of it all, there are people who will buy the company regardless of what is in the prospectus or will not buy. So does it matter?

IPO pool

Domestic pool

  • 6.5 billion Shares total (runs from 26 March to 23 April)
  • Individuals (retail) 3.38 billion shares (just 52%) minimum lot is 2,000 shares.
  • Qualified institutional investors (insurers, pensions and other entities recognized by the RBA) 2.73 billion shares (42%). Minimum lot is 100,000 then 10,000 after.
  • Authorized dealers 130 million shares ( 2%) – minimum 2,000
  • Employees 260 m shares (4%) minimum is 2,000

International pool

  • 3.5 billion Shares set aside and targeted at long-term investors. (runs from 9th April to 23rd April).
  • 30 million shillings ($461,000) per order minimum and the price will be set by book building

Inside Safaricom

Balance sheet:

  • Assets of 68 billion ($1 billion) in September 2007, but with negative net assets (9b current assets, 22b current liabilities). In March 2007, it was much better (CA 10b, CL 13b)
  • The company owns no land or buildings.


  • 9-month profit before tax of 16 billion, up from 12b a year ago – and the company is on track for 21 billion pre-tax profit in 2008.
  • Revenue has been increasing at about 30% a year: operating expenses take up 40% of revenue; while SGA take another 10% (average annual increases have been 100% for marketing, 40% admin and 30% for staff each year)

Competition & subscribers:

  • As at December ’07 the company had 9.2m subscribers, up from 5m a year before. Safaricom claims an 80% market share to Celtel’s 18% (2.1m subs).
  • But Celtel hurts: Average revenue per user (ARPU) at Dec 07 of 650 shillings (583 pre-paid, 3,968 post-paid), down from 816 shillings (705, 5,708) a year ago. This is due to adding new subscribers, with lower spending capacity in rural areas and reduction of all rates following the competition. They lost fewer customers (churn) ever since they allowed free replacement of lost SIM cards.
  • Also voice minutes (9 months): Dec 07 352 million, Dec 06 203 million
  • Operating margin Sept 07 31%, Sep 06 36%: this has dropped as a result of chasing new customers with reduced tariffs and increased marketing expenses


  • Key managers take home about 200 million shillings a year, while all employees take home 2 billion in compensation.
  • Like at Kenya Airways, foreign partner (Vodafone) will continue to appoint CEO and Financial controller (Michael Joseph’s contract runs through mid-2009).
  • Has 1,145 employees ( ½ in customer care) in 2007, up from 535 in 2003

Odd points:

  • IPO budget includes just 5 million for PR and 2 million for advertising, but it sells itself.
  • The prospectus lists a shareholder PST who will appoint directors – cut & paste job?
  • Lead transaction advisor (Jimnah Mbaru & Co) bid just 0.05 cents for the job.
  • The dreaded word Mobitelea appears 4 times and the mysterious company owns 5% of Safaricom through (12.5% of Vodafone (K) limited’s 40%. It is mentioned in the context of a public accounts committees report (risk factor). But Standard Chartered’s 1% owner has not bothered anyone for years, so is it an issue really?

Short-term outlook:

  • Dividend in 2007 was 4 billion shillings out of 17 billion profit, 3b the year before. But that is yet to be paid out – Telkom are owed 2.4 billion but that will be used to offset some of their debts to Safaricom.
  • First AGM likely in September.
  • Weak shilling: and/or high-interest rates are bad for the company in the short term


  • Revenue of $677m in the last 9 months compared to $194m Celtel for 2007 – and an EBITDA of 44% to Celtel‘s 16% hmmm – whose managing Celtel? Will they dispute any of these numbers?
  • Country risk: Derives all its revenue from Kenya, so if you don’t believe in Kenya, this is not for you.
  • Competition (5 mobile companies) but competition will hurt/affect all companies.
  • Threat to banks?: M-pesa (virtual money accounts & transfer service) has been registering about 6,000 applicants per day and has 700,000 users. But Vodafone owns the M-pesa solution and Safcom pays them.

Kenya Re Prospectus

A to Zz

Applause: A clap and sympathy hug to the Kenya Re advisors, just as I am typing this at 3 a.m.; they also had to burn the midnight oil to update the prospectus and keep everything current. Still there are a few typos there and errors there

Auditors? : prospectus has statement from pricewaterhousecoopers, but not KPMG who are the Kenya Re auditors. And their statement was signed on May 28 (so was their audit/investigation reason for the delay)

Directors : or lack thereof. There’s no mention of the former managing director and finance director (how can former directors have 2.5X the loans that current directors have?). Instead there are mentions that no current directors had no unusual dealings with the company

Dividend: Kenya Re has been paying 1 shilling per share previously, but they project just Kshs. 0.25 for 2007 (out of an EPS of 0.89)

Earthquake: yesterday and evacuation of high rise buildings gave me a chance to stroll down and get a copy of the prospectus

Employees: are only 115, but they get a raw deal and have to buy a minimum of 2,000 shares like everyone else. Plus they were almost retrenched.

Fluff to ZZZZ: insurance is a boring (through lucrative) business. And a good chunk of the prospectus is taken up by narrative on the insurance sector, reinsurance sector, and how Kenya Re is supposed to make money. Association of Kenya Insures should get paid for how much of their content (a 2005 report) is used in the prospectus

Investments: Kshs. 3.3 billion in property, 615m in mortgages (doubled from 2005), 2.2 b in quoted shares (1/3 is KCB, ¼ is BAT, 1/5 is Barclays), 2.1 b in government securities

JKIA: Kenya Re has land along the passenger terminal road at the airport where it plans/hopes to put up a hotel for transit passengers.

Kenya National Assurance: an attempt to roll it (KNAC 2001) appears to be largely responsible for increase of the IPO cost by over 100 million to a budgeted Kshs. 289 million shillings. (Kengen budgeted 400m to raise 7.8 billion). Increased advertising costs (over many months) was offset by reduced printing costs

Mortgages: Kenya Re does not come to mind when you think of mortgage companies, but they do offer finance to home buyers esp. of their residential properties like Villa Franca and South C houses.

Projections: or lack thereof. I remember the Equity listing prospectus had several calculation methods to come up with the value their shares. This one is scant, but maybe they were thrown out of whack. The fact that the prospectus pegs the US$ at 73 shillings shows how many months ago it may have been synthesized.

A Qualified institutional investor: is financial institution or investment funds (expected to buy 100,000 shares minimum). So is this, like a US IPO, where an investment bank can parcel out shares to preferred select clients?

Real estate: a big investment of Kenya Re and almost half the portfolio. But not how upper hill properties are worth much less than before owing to increased availability

A Share certificate: is still an option for IPO investors here – some people still don’t believe in CDS or trade their shares (buy and hold for dividends and AGM)

Valuation: see projections

Verdict: Kenya Re is Parastatal that lucky to be where it is today (it was almost sold a mere Kshs 400m song in 2002). It still operates under the notorious state corporations act and is not immune from politics and politicians, and was subject to machinations by former directors that seem to have delayed IPO. Still it’s a good Buy, but after the IPO, and when it lists on August 28.

Equity Bank Listing: A to Z

About Equity Bank, will have a secondary listing on the Nairobi Stock Exchange next month at a price of Kshs. 70 per share. I located an information memorandum (prospectus) at a thanksgiving celebration /prayer /dinner the company threw for 3,000 Nairobi customers at KICC last night – and went through it to decide on whether to buy the shares next month.

Commissions: Banking at Equity is not cheap, and this is the situation in the entire the micro-finance sector – and Equity will probably have to lower some of their bank charges. Their account opening minimums are very low, but some of their charges e.g. cheque clearing are rather high compared to other banks who are now targeting Equity’s customers.

However lowering charges may not be an easy option since these form a greater portion of the Bank’s income (52i%) than at its peers (CFC 33%) NIC (24%) and D-Trust (30%).

Employment: Despite the staff high turnover, the bank is a good, fast growing, employer that has gone from 354 employees in 2003, to 884 in 2005. It has 35 branches, (14 in Central province, 8 in Nairobi) and over half of them have opened in the last two years.

One issue I disagree with in the memorandum is that Africap agreed to sell 50% of their shareholding in the Bank to staff. But the truth is that staff were forced into buying these shares. The staff trust (unregistered staff ESOP) now owns 5.52% of the Bank’s shares, same as Africap.

Listing costs: Floatation was much cheaper than a new IPO. Equity’s listing is budgeted at 28 million compared to the Kengen IPO at 401 million and KCB rights issue at 104 million. The CMA and NSE get their fees (8.1m and 1.5m here respectively) as they did from Kengen (24m, 1.5m) and KCB (6.1m, 0.5m) and most of the savings come from not having to pay stockbrokerage and advertising costs. Equity has budgeted 11m for the financial advisers and sponsoring brokers; compare this to Kengen who paid 101m for advertising & 118m to brokers and KCB who paid 13m for advertising, 6m to brokers, 37m as agent commissions, 9m for postage, and 11.5m for printing etc.

Loans: Equity has been keen to grow their loan book ever since they became a bank to keep up with their ever-growing deposits. They have five times as many depositors as they do borrowers and while this was acceptable at a micro-finance level, it is important they grow their interest income.

They doubled their loan portfolio in 2005 from 2.9 to 5.5 billion, but NPA’s likewise doubled from 246m to 519m. Their loan to deposit ratio is now 72% (June 2006) which is comparable to CFC (76%), NIC (85% and D-Trust (785) at the beginning of the year

Management: The MD, current Chairman, and former Chairman, are among the largest shareholder in the Bank – and along with employees (in the ESOP) are barred from selling their shares for the next two years.

Marketing: Equity is now a Bank and should focus on marketing as a bank, not a micro-finance institution. The more, the MD shouts about how the Bank is not about one community, being very liquid, excellent global capital rating, not depending on government deposits etc, the more it makes one think about those very issues. Imagine if Adan Mohamed said the same thing about Barclays every time he was on TV. The focus should shift to marketing the bank’s customers, products, and convenience.

Nakumatt like: I’d compare Equity to Nakumatt in terms of their fast growth and they also own very little property (branches).

Ownership: Confusing to say the least, and it would be good to know why the management took such a convoluted route – from building society converting to a bank, converting deposits into shares, private placement to finance the bank’s share capital, and finally the issue of 4 bonus shares for each 1 held that created the 90m shares, that will be on offer in August.

Pesa Point: Equity has signed an agreement with Pesa Point to link their ATMs.

Verdict: In 2005 the Bank returned a pre-tax profit of 501 million, which translated to an EPS of 3.77, up, from 2.51 the year before. (Dividend was Kshs. 2 per share, same as in 2004). The Bank is on track for another year of record profits of 800 million before tax and could pass the billion shilling milestone next year.

The memorandum contains joint statements by Dyer & Blair and Suntra Stocks that values Equity shares (par value 5/=) using the DDM method at Kshs. 91.4 shillings per share, PBV at 64/=, and PE method 63.4 shillings per share. The advisers reckon that this compares well to CFC, Diamond Trust and NIC banks, who they consider to be Equity’s’ peers listed on the NSE

Yes, Buy Equity: But not immediately. It will take a few months for the share to settle since the current 2,800 shareholders of the bank will have to open CDS accounts and immobilize their shares before they can be traded. In 2006, 2.5 m shares have been sold in the OTC market. A share split is likely but it is also prudent to ask if the Bank is growing too fast.