Category Archives: Rift Valley Railways

NSE Nairobi Investor Briefs

new corporate activities at the Nairobi Stock Exchange include

British American Investments – a.k.a. British American a 46 year old company in the country now planning an IPO at the NSE. They are also embarking on regional diversification as a group, which is best known for its British American insurance (Britak) – but has since added British American asset managers (formed in 2005) and Britam insurance in Uganda.

In 2010 they had gross revenue Kshs. 4.5 billion ($56 million) (up from 3.9 B in 09) largely due to Investment & other income of Kshs 5.1 billion (09 was only 400k) and their profit before tax was Kshs 2.8 billion, compared to a loss of Kshs. 334 million the year before. This also included underwriting income in Kenya of Kshs 152 million (up from 80M year before)

They are aiming for the IPO in 2011 to finance their diversification into micro-insurance and bancassurance as well expansion to Tanzania, Rwanda and south Sudan. They are yet to obtain shareholder and capital markets authority approval. Group Managing Director Benson Wairegi said they have alerted the CMA, but are yet to submit documents until their shareholders approve the process

Kenya’s capital markets rules require 3 to 5 years profitability before a company can list, though @coldtusker disagrees with that saying smart investors should be allowed to decide a company’s prospects regardless of their recent profitability.

Other: – Their balance sheet grew to Kshs 25.2 billion ($315 million) up from 16.3B. Assets under management by British American asset management (BAAM) grew from Kshs 8 to 17 billion
– Expenses were up 8% compared to 16% for revenue
– Paid a dividend of 200M (Kshs 6.67 per share) up from 120M last year (Kshs 4 per share)
– Bank portfolio: they own 11% of Equity bank and 15.9% of Housing finance

TransCentury: Also up for possible listing is TransCentury which was founded by a Group of prominent Kenyan investors who expand into the limelight when they acquired East African cables in 2004. Since then they have taken stakes in Development Bank of Kenya, Kenya Power & Lighting company as well as Rift Valley Railways

Their 2010 highlights and 2009 detailed accounts show;
– High finance costs eating into profits and need to pay down debt
– Strong shillings bad for there profit 170m impact,
– Kshs 1 billion invested in 2009, down to 50 million in 09

Portfolio – Seem to manage regional diversification better than Olympia did and which Centum is now trying to do
– Quoted shares in Metal Fabricators (Zambia) 20%
– Unquoted in Rift Valley railways (34%) and Development Bank of Kenya

– In 2010, added Cableries du Congo (Congo Cables)
– Chai Bora Blended Tea (Tanzania) [Revenue of Kshs 714M, pre tax loss of 29M]
– Kewberg Cables & Braids [Revenue of Kshs 781m, pre tax profit of 44M]
– Tanelec (Tanzania) [Revenue of Kshs 772M, pre tax profit of 133M]
– Avery East Africa (Kenya scale) [Revenue of Kshs 226M, pre tax profit of 21M ]
– Participation in investment in funds include Kshs 200 million in Aureos (East Africa, South Asia, china), Helios (Kshs 350m) and Business Partners International (Kshs 43 million)

In anticipation of a NSE listing, they made moves such as:
– 10:1 share split in October 2008. Now has 263 million ordinary shares up from 20 million after bonus, split, and new issues
– Paid a dividend of Kshs 13 million in 2009 (DPS of Kshs 0.05). For 2008, it was 29 million, which was part paid in ’09
– According to the East African in Feb ’11, Transcentury shares were trade at an OTC market run by Dyer & Blair at Kshs 35 per share compared to Kshs 48 in 2010.
– Seem to manage regional diversification better than Olympia did and which Centum is now trying to do

Kenya Airways: Is likely to seek to raise capital from its shareholders this year on advice from their directors and CFC Stanbic who are their financial advisors.

Regional: In Tanzania, Kenya Airways is ceding a steak in Precision Air, which is seeking to raise almost $30 million, in an IPO, but indications are clear that Kenyans will be locked out as will other non-Tanzanians.

From Rwanda, we have the prospect of more share listings from two companies – Bank of Kigali and MTN Rwanda, and following in the footsteps of Bralirwa who’s IPO was open to all East Africans.

Motoring Moment: Thika Road, Commuter Trains

Discovering Thika road: Took a road trip up Thika Road to hang with the Kuweni Serious crew last weekend. Chinese contractors are converting the road into a super highway and the dramatic transformation (follow Thika Road blog ) has plenty of soil hills, deep valleys, closed roads, missing roundabouts etc. It was a fun trip, but as it is said every day, don’t drive on Thika Road if you’re a stranger, or it’s dark, or the road is wet.

The journey is made more dangerous by Matatu’s and some road regulars who make their way anywhere they see fit – by driving in the wrong land, making U-turns in traffic, over-lapping patient motorists etc.

The highway defies belief, and when it’s done it will probably need other roads to be closed off or expanded. e.g Outer Ring Road and a bypass to Mombasa Road. The large volumes of traffic need to enter and exit cleanly and without delay otherwise there will be more situations like the one at Riverside Drive and (current) Museum Hill Roundabout where traffic waiting to enter these smaller roads spills over backwards onto the large highway causing more jams.

The on-going rains make it more difficult and with all the un-drained water, some cars are probably washed daily only to end up covered in red mud. For users of public vehicles, the rains mean added journey times and increased fares on Matauts.

More Commuter Trains: However there is some relief for commuters who live along Thika Road since Rift Valley Railways (RVR) has upped the number of daily consumer trains in Nairobi from 8 to 18 which collectively serve Kahawa, Dandora, Embakasi, Ruiru, Kikuyu, and Kitengela/Athi River

The addition of the early morning trains has slashed some commuters’ fares by almost 2/3 e.g. some Embakasi residents who take the train paying Kshs 30/- per trip compared to the previous Kshs 70 – 100 per trip by Matatu. Also, the train is more dependable, and takes 25 minutes to complete the journey, unlike driving in a car or matatu, which usually takes over an hour in ‘rush hour’.

Ultimately having dependable train travel may lessen the burden on the roads (fewer Vitz card) and while there is talk of having a train to Jomo Kenyatta Airport, it is not a government priority or feasible in the short to medium term.

Commuter trains aside, the reason that the concessionaire, Egypt’s Citadel (operating as Kenya Uganda Railway Holdings) invested was for cargo and the train transport while significantly cheaper than the Kshs 120,000 ($1,500) to transport a container by lorry from Mombasa to Nairobi ($3,600 for Mombasa to Kampala) needs to emphasize this aspect and demonstrate more reliability to business owners. This will relieve the burden on the roads.

Oil Shipment: As the international price of oil is expected to go up owing to instability in the Middle East, in Kenya there is a small dispute between oil companies led by Shell and Kenol pitted against NOCK – National Oil Corporation (NOCK), a Kenya government state agency that imported the latest shipment of diesel on behalf of all the oil companies. After some postponed arrival delays, and tales of missing phantom ships [MT Volga, MT Adden, MT Ratna Sheruti, MT Ratan Namrata], which resulted in a partial cancelation by Shell, a shipment finally arrived on March 1.

However that did not put the matter to rest since NOCK has announced that they would bill the oil companies using the higher March prices instead of the February price. And where is the diesel? NOCK says it has all been sold, but the other oil companies say they have not bought it, and won’t be buying it owing to the higher price being demanded.

Fuel Relief: Some slight relief for motorists comes from Kenol who have discounted the price of petrol and diesel by 2 shillings on Tuesdays and Fridays – so petrol today costs about Kshs 100 (~$5.30/gallon) under Deal Poa promotion, and for holders of Kenol corporate fuel cards, they enjoy a 2 shilling discount every day, which doubles to Kshs 4 on Tuesday and Friday

In Car Beverage: My current in-car beverage is Nestea iced tea that you can make in a supermarket. How? (i) Buy a Kshs 20 Nestea satchet (ii) Buy a one litre bottled water for Kshs 40 – 60 (any brand) (iii) pour the sachet contents in the bottle & shake (iv) you have a litre of iced tea for less than $1.

Farewell RVR

So it’s now clear to all that the Rift Valley Railways era of managing the Kenya to Uganda RVR railway concession may end in the next few days.

And it’s now apparent to many that Roy Puffett, the RVR Managing Director, was a conman, who conned two governments (Kenya and Uganda), the International Finance Corporation (IFC) and PAC who brokered the deal. Running railways is not easy it seems and even Tanzania want to end a troubled rail concession granted to an Indian Company

Puffet has been silent, holed up in boardrooms trying to squeeze out more payments while the clock is ticking. Much has change in three years, when many thought he was another Michael Joseph (Safaricom) who would save the railway from collapse and transform it to unparalleled success thought private management

In 2007, he gave a public talk to members of the Institute of Economic Affairs (IEA talk) and the public that is republished below:

New start: RVR is a 25 year concession between a consortium of companies and the governments so Kenya and Uganda.

RVR got off to a start in November 2006 and suffered 61 derailments that month. They have since slowed down all their trains as a measure to contain such incidents. They now average 10 – 12 incidents a month – from a combination of equipment, railway and human failures (including sabotage)

Financial & Investment: So far the consortium has invested about $18 million. The shareholding is 70% foreign (Sheltam, and an Australian company) and 30% local (Transcentury – 20%, ICDCI – 10%) and some financing was sourced from the IFC.

Some attendees later asked why Kenyans were not given a chance to invest in the company (like the Kengen IPO) to which the MD replied that there were not a lot of investors rushing to build railways in Africa (only 2 groups bid for the concession) .

Equipment: RVR inherited 174 locomotives from Kenya (55 were working) and 44 from Uganda (25 operational) . Also 46% of the 7,000 wagons were usable.

They have focused on getting a working fleet going. This has entailed reducing the fleet to contain only trains in good condition and they also got back 5 locomotives from Magadi Soda. Fleet repair is slow as the company faces a lead time of 8 month for locomotive spares.

Their workshops were run down, with no tools or equipment, and many of the sheds had long been taken over by other businesses. The remaining sheds had leaking roofs, and when it rained they had to stop maintenance work for fear of electrocution.

Railway: Demand from china for steel has driven steel prices through the roof. There are few companies making railway parts (and African countries have a different railway size) so it takes about 8 months to deliver (they have to order 4,000 tons at a go) which is expensive. One engineer (from the UK) at the talk said that such a railway would be shut down with all the incidents if it was in Europe – the MD replied probably true but this was the state of things. He added that new rails were be laid on the Mombasa – Nairobi line after which the older ones will be taken out and used for other upcountry lines.

They will also close some stations (there are 50+ stations between Nairobi and Mombasa) and have installed communications and tracking systems on all trains and stations

Operations: RVR have done quite well since they took over in November 2006 and move about 200,000 tons per month. While this has not changed much in volume from before the concession, they are achieving this with two differences (i) they are using a smaller fleet (ii) and they are collecting more revenue (from increased efficiency & reduced corruption in revenue collection) – about $6m a month. Their volumes dipped in December and April following flooding from the rains. The MD mentioned that they now take between 4 – 7 days to move cargo from Mombasa to Kampala – from 20+ days before, though some members of the Kenya Shippers Association disputed that there.

Other Stakeholders
Employees those not retrenched by the company are all being retrained in safety and modern railway processes

Customers While there have been complaints about the slow movement from the Mombasa port (including by the Kenya Ports Authority), the MD said that 50% of the 14,000 containers at the Mombasa port don’t have proper documentation.

He added that business people were contributors to this i.e. as a result of the past railway inefficiency, companies had taken to using railway train wagons at Mombasa as extra storage facilities. But when the railway movement improved, and cargo was now moved upcountry, the same businessmen took their time to offload goods, creating more congestion.

They have tried to contain prices and their charges ($0.05 per ton per km) compare well with, truck companies (that taken advantage of rail inefficiency to jack up prices)

Passengers & Commuters: they will run commuter train services (in Nairobi) for 5 years, but this is one thing none of the bidders for the concession wanted to continue running – as it is a loss maker.

Kenya Railways : The corporation still exists and will oversee the concession on behalf of the government of Kenya, while also maintaining a register of railway assets. The corporation still has a great burden from the past – illustrated by Kshs 31 billion of debts (about $600 million). Including a 12 billion pension deficit. They hope to use land sales to pay off their employee (and perhaps supplier) obligations while also talking with the governments to waive some debt. They have also received 1 billion shillings form the world bank to resettle some residents in Kibera who live/work too close to the railway line (but this plan/financing is already 1/ ½ years behind schedule)

Summary: The MD mentioned that there was a lot of expectations about the now concessioned railways – some of which were not close to being realistic. He also added that they had fewer customers as a result of the slow uptake by the concession, but added that RVR had no regrets and that the governments of Kenya and Uganda were very supportive.

So, a rough but promising start by the company who now say they have enough locomotives working to achieve their 5 year targets. Will they be a celebrated success like Safaricom? We’ll know in a few years.

Centum 2009 AGM

The Centum 2009 shareholders annual general meeting was held on Friday July 17 2009. Their last meeting I attended was 1½ years ago in February 2008 when ICDCI (changed its name) and became Centum. a quick Google search reveals other companies around the world with a similar name. So shareholders were right when they pushed for a more authentic, African name

AGM recap: From reading the minutes of the last shareholder meeting seems there was quite a bit of drama at the company’s last AGM in January where the independence of directors was questioned, and there were some interesting director elections whos resulted were polled and motions by some shareholders to remove two directors – (Chairman James Muguiyi and businessman Chris Kirubi) flopped. Most media reports however dealt with the delayed AGM and the payment of dividends at the door, but the best recap of that comes from the Nation

Bored this time: This was one of the longest AGM’s I have been to in a while. The Chairman and the CEO of the company each give long speeches about the company, that easily took up almost 2 hours – giving views on the performance of the company and future outlook as relates to the corporate bond they are about to launch.

Centum Performance their investment book is worth 6.5 billion (($84 million) down from 8.1 billion the year before. Reasons for decline were gains on disposal totaling 311 million, and further impairment of Rift Valley Railways (RVR) shares 271 million.
– The portfolio is consists of : 25% is KCB shares, General Motors East Africa 25%, Insurance 19%, 4% is publishing (a 35% stake in Longhorn), Beverages is 24% (includes shares in EABL, and several coca cola franchises), Services is 4% (includes 0.1% of Safaricom, and shares in NAS, and RVR), and 5% is a newly acquired (23% stake) of Carbacid . some values are KCB Kshs. 1.84 billion, GM 978 million, UAP 877 million, Nairobi Bottlers 660 million, KWAL 263 million, EABL 426 million, Mt. Kenya Bottlers 209 million
– Target is to have administrative costs at less than 2.5% of their assets. 2009 was 123 million (1.5%) and 2008 (136 million = ~1.6%), which includes cost of staff, running company, shareholder costs etc. striking a blow to companies that say public shareholders are expensive to administer
– On RVR: board maintains that it is still good company, had bad management. Once new deals are signed, new technical partners and this will see $50 million invested in the company. Fundamentals are still good, lots of foreign investor interest on the company, and it will be wrong to walk away when the value is down

Corporate Bond: Centum will be launching a corporate bond to raise Kshs 2 billion (~$26 million), reasons given include
– It’s the right rime, Safaricom and Kengen about to launch, while a recent bond from CFCstanbic bank was over-subscribed. After prospectus and approvals, it will be marketed to pension funds, institutions, insurance companies, even shareholders can subscribe
– Current borrowing costs at 170 million out of 6.5 billon assets are very manageable. Their dividend flows are not consistent, so they sometime need overdrafts, but can’t grow the business on overdraft. The Bond will add some long term funds to balance sheet
– They have a pipeline of investments lined up, and what is a bad market for others is a good time for Centum to buy into companies. Funds will be invested 60 – 70% in private companies, 20-30% in listed companies and 0.15% in real estate. They already signed the deal for Carbacid for about Kshs. 400 million that was done through Rasimu Limited, a new wholly owned subsidiary
– Bond is better than bank debt, cheaper, long term, more flexible. It will cost 9.5% to 12.5% per year

Image Centum plans to expand into Africa from Kenya and their vision is to be Africa’s foremost investment channel. Chairman mentioned that their name brand is important, and regretted that bad press had seen the share price dip

Voting: The voting was done by ballot, and the auditors will tally the results. So at the meeting, motions in the agenda were proposed and seconded, with shareholders asked to mark ballot forms and leave them outside after meeting for votes to be tallied. With the new registrars CRS, voting by this method could become the norm, especially on controversial votes, where shareholders numbers at the annual general meeting can be canceled out by real tally of proxy votes. That was the case at the January meeting, where the 1,536 shareholder attendees (with 258 proxies) tallied yielded just 1% in the re-election the directors.

Pepsi to Kenya?

. Nairumour that after an absence of many years, Pepsi will re-enter the Kenyan market in the near future to resume battle with Coca Cola, possibly through their South African partners. If so, it will cap a great year for investment to the country, and that despite 2008 being a relatively tough year for investors and companies, with the post-election violence, business disruption, high fuel and energy prices, depressed consumer spending, P & P madness (pirates and politicians) collapsing stockbrokers, there was a steady flow of new investments and new products that happened this year.

Re-cap of some notable ones

Banking
– Takeovers concluded – Ecobank take over of EABS, and Stanbic merger with CFC (now CFCStanbic)
– UBA licensed (2009)
– Gulf African and First Community (Shariah banking kicks off)

Beverages
– Summit Lager a new beer from Keroche Industries
– East African Breweries launched Alvaro (malted soft drink)
Coca Cola launched Novidia (another malted soft drink) and also started selling Minute maid
– KETEPA launched Safari Iced Tea

Communications
– WPP buys into Scangroup
– 2008 saw the launch of two new mobile operators – Orange (France Telkom) and Yu (Essar/Econet) to battle Safaricom and a re-energized Zain
– Altech buys into KDN
– A long-running fight over one(EASSY)submarine cable, gave birth to three different ones being laid to Mombasa
– Wananchi launched Zuku (TV, Broadband, Phone)

Transport, Energy & Manufacturing
– Tiger brands buying into Haco
– An investment in the Kenya Oil Refinery at Mombasa was still under battle between Libyan and Indian Investors
– Jinchuan (China) to bail out Tiomin?
– Mirambo and PD Toll to salvage the Rift Valley Railways
– Delta Airlines (USA – but postponed to 2009)
– Air Arabia started flights to Kenya

Tourism
– Libyans took over the Grand (Laico) Regency
The Tribe opens.

Exits
– Chevron (Caltex) sold out – bought by Total
– Unilever (de-listing from the NSE)
– Roy Puffet from rift Valley Railways