Category Archives: SGR

President pledges NSE Revival through IPOs

President William Ruto visited the Nairobi Securities Exchange (NSE) and rang the opening bell, then listened to financial and government leaders explain the situation in the financial markets.

  • NSE Chairman, Kiprono Kittony lamented that there had been no new government listings in 13 years. This stems from challenges and long procedures in the privatization process and they have had talks with Moses Kuria, the designated Cabinet Secretary for Trade, Investment and Industry,.
  • James Mwangi CEO of the Equity Bank CEO said his group was the ultimate hustler fund that grew from being a Nyagatugu village mutual fund, owned by 2,500 farmers. In 2005 and 2006 it converted into a bank and listed on the NSE which enabled them to then raise $185 million (Kshs 11 billion) from Helios. Today, the original investors have seen a 159,000% return on their investment and Equity, with Kshs 1.4 trillion of assets, has the sovereign fund of Norway (Norfund) and the World Bank Group as its largest shareholders.  
  • Lengthy Privations: Engineer Kinyanjui of the PPP said privatization as currently structured has 16-17 steps and each takes 5 months. The government owns Kshs 426 billion of investments (at the NSE) and can’t sell one share without going through a privatization law process. Entities like ICDC (now under KDC) have mature investments they are ready to exit from and support the government program and the delay in privatization means that when they divest, there is an erosion of value. 
  • Pension Opportunity: Hosea Kili, the Managing Director of Laptrust said the Lamu Port, SGR and Nairobi Expressway could have been financed by the local pension industry if they had been structured for them and lamented that they are unable to deploy funds as there are no new listings. He added that Laptrust plans to list Kshs 7 billion of their Kshs 17 billion property portfolio as an I-REIT. 
  • The National Social Security Fund (NSSF) boss said that 15 million Kenyans are not in any pension schemes. At the same time the NSSF, which has shares in 29 listed companies, is 3% of the NSE, has reached the limits of what it can invest in some counters.  

After listening to leaders, President Ruto said the government would revive the capital markets by privatizing and listing 5-10 state enterprises in the next 12 months and that the government would also seek to float a domestic dollar-denominated bond.

He directed that the government review of privatization law to review sections that inhibit the process, or he would move to repeal it. He also asked private companies to step forward and list and said the government was willing to remove some impediments including forgiveness of some tax sins. 

In his closing remarks, the President: 

  • Announced that Bio Foods and Credit Bank have obtained approvals to list at the NSE.
  • Invited the pension companies to a meeting at State House a few days later. 
  • He also put a fire under the boards of Nairobi International Financial Centre and the Privatization Commission for not delivering.

Here’s a stream of the launch of the enhanced NSE Market Place event. 

edit March 21 2023

edit March 22, 2023

Kenya Eurobond 2021 A to Z

Kenya’s 12-year Eurobond, in which the Government sought to raise $1 billion, attracted offers worth $5.4 billion after a three-day virtual roadshow with European investors.

Here’s a peek at a draft 223-page prospectus

Advisors to the National Treasury were Citigroup and J.P. Morgan Securities as book runners, co-managers were NCBA and I&M banks, Citi was also the paying agent and registrar, while legal advisors were Dentons, White & Case, Dentons Hamilton Harrison & Matthews and Coulson Harney.

Banking: The Central Bank regulates all mobile phone-based banking products offered by banks.

The government will not participate in the recapitalization of the National Bank of Kenya and plans to divest from commercial banking.

Debt rescheduling: During Covid, Kenya secured debt suspension relief from eight out of its 10 Paris Club member creditors, and China for a total of Kshs 38 billion of 68 billion requested, to free up liquidity for Covid-19 pandemic-related expenditures.

Default: Is non-payment of the principal for 15 days after it falls due or interest for 30 days after the due date. Also if Kenya ceases to be a member of the IMF or default on another security by $25 million.

Litigation: Any disputes shall be resolved under arbitration rules of the London Court of International Arbitration and shall be lodged through the High Commissioner of Kenya in London.

London Bond Listing: An application has been made to list and trade the notes on the London Stock Exchange. Notes are in denominations of $200,000

Past Eurobonds: In 2014, Kenya raised an aggregate $2.75 billion through dual-tranche 5- and 10- year Eurobonds. In 2015, Kenya had $750 million syndicated loan with a consortium of banks and in February 2018, Kenya issued its last Eurobond, a $2.0 billion one comprising a 10-year tranche and a 30-year tranche.

In April 2019, the Auditor General issued a special audit report on the 2014 Eurobond and found the funds were fungible utilized but some were spent outside the Government’s IFMIS.

Purpose: The Kenya Government intends to use the funds for general budgetary expenditures.

Repayments are made in US dollars.

SGR: In January 2021, Kenya secured a debt suspension from China of a loan by Eximbank to fund Kenya’s SGR. US$378 million, will be repaid over five years, after a grace period of one year, in ten equal, semi-annual installments.

The Kenya Electricity Transmission Company recently signed a contract with China Electric Power Equipment and Technology Company for the electrification of this section of the Mombasa-Nairobi railway.

Subscription: In case, the bond was under-subscribed, Citigroup, J.P. Morgan, I&M and NCBA would have filled the gap.

Taxes: All payments are made, without deducting withholding tax. Also, interest payable on the notes has been exempted from income tax and capital gains tax in Kenya.

Stanbic economic briefing for Kenya 2020

Standard Bank (Stanbic) Group Kenya released their Macroeconomic update in which they are cautiously optimistic about Kenya’s growth through the private sector. The presentation in Nairobi was done by Jibran Qureishi, the Regional Economist – Africa at Stanbic.

Highlights:

  • Stanbic economists believe that global growth will fall in 2020 and 2021 as central banks in advanced economies are tapped out and their ability to stimulate economies is limited. Chinese growth will slow to sub 6% in 2020 and be about 5.5% in 2021. Meanwhile, the US cut its rates three times last year but investments are still falling as the trade war with China has hurt growth.  
  • For Kenya, Stanbic expects 5.9% GDP growth in 2020, up from 5.6% in 2019. Three things that held back private sector over the last two years were interest rate caps, delayed payments by government and congestion at the Inland Container Depot (ICD) Nairobi.
  • Government policies should focus on private-sector driven economic growth.
    There is growth but where are jobs? Growth in the wrong place.  90% of new jobs are the informal sector and also in the service sector but these will not create a middle-income economy.
  • Tourism was resilient, earning $1.5 billion last year, but the potential is much larger and this depends on how much private investment the sector can attract. Kenya gets 2 million arrivals but Mauritius, Morocco, Egypt and South Africa get about 10 million in bad years.
  • Ambitious tax revenue targets embolden the government to spend more and tax revenue targets are still much larger than average collections.
  • If the government does not fix fiscal issues, this will lead to unpredictable tax rules which could hamper productive sectors
  • A move back to concessionary loans and away from commercial loans for the first time since the (President) Kibaki years is a welcome step.
  • The Standard Gauge Railway (SGR) may still get extended to Uganda but the government will have to build new ICD. It is not that China does not have money, but they are asking questions they should have asked 7-8 years ago.
  • Kenya traditional manufacturing has been an import-substitution model which has not really worked around the world. Better to shift from being protectionist and instead work towards growing exports which (excluding tea and remittances) have been stagnant – at $6 billion a year
  • Don’t focus on manufacturing too much and neglect agriculture, as a big part of that will come from agro-processing and adding value to agricultural produce.

Charles Mudiwa the CEO of Stanbic Kenya spoke of how the bank has aligned to the government’s agenda. They are a shareholder in the Kenya Mortgage Refinance Company, and 20% of their lending goes to manufacturing with another 9% going to agriculture & food security.

Stanbic was the lead arranger for the Acorn green bond that was listed on London’s LSE today. The bank also has a DADA program to promote women financially (with a goal to lend Kshs 20 billion) and is also supporting financial literacy training to musicians and Uber drivers.

Rail Check: SGR First Class

A review of the Madaraka Express SGR service between Nairobi and Mombasa, Kenya using the Business Traveller format of train reviews.

Background: Kenya launched the Madaraka Express, a new passenger service train service when the Standard Gauge Railways in May 2017 that replaced the ‘old’ Kenya Railways train service between Nairobi and Mombasa and which was discontinued just a few weeks before the launch. China Road and Bridge Corporation built the new standard gauge railways (SGR) and Africa Star Railway Operation runs the train service for Kenya Railways.

Booking: You buy all tickets online, and you have to choose – first (costs Kshs 3,000) or economy (Kshs 1,000). There is no seat selection or seat map. You then pay via M-Pesa and get an SMS with the seat selection and ticket number. The ticket price is a flat rate, with no difference in prices for weekends, or midweek. The booking site also shows the number of available seats and you can book for several people, but there are some rules about large group bookings. 

Getting There: Nairobi’s SGR station is located about 8 kilometres from the Jomo Kenyatta International Airport and 15 kilometres from downtown Nairobi while the one at Miritini station that serves Mombasa is a corresponding distance from the airport there and centre of the island. You can get to either station by using a taxi service like Uber or Little Cabs.

Even though you are going to hot Mombasa, dress warmly for the SGR ride. Don’t get on board in T-shirt and beach shorts as the train is kept at a cool air-conditioned temperature for the duration of the ride and the windows don’t open.

At the SGR station, you go through a few security checks – sniffer dog, bag x-ray etc. There are different rules that are not clear and some people are allowed to bring food onboard, but other items like visible alcohol bottles and cigarette lighters are confiscated from passengers.

You then go and print your ticket stub from a vending machine, which you have to show to enter the station. You enter the number that was sent to your phone via SMS and you can, for good measure, also print one for the return leg.

Boarding: At Nairobi, there is a lounge for first-class passengers that is separated by a screen from the economy ones. First class passengers board first from their lounge, and parents with children are given boarding priority. You walk across a bridge from the lounge and down to the train.  There are escalators at both Nairobi and Mombasa stations and some lifts, but they can get crowded.

You find, your coach and there’s another ticket check at door. The train has about eleven economy coaches, and two first-class ones, according to the announcer, with numbers one and two at the back, next to the dining car.

Seat: Once on board, you have to sometime be firm on the seat you paid for as some people arrive and want to sit on a different seat in the first-class cabin that is in a 2-2 layout. Window seats have a socket and you want to sit next one where you can plug your gadgets in to charge. I got the impression some people buy two seats so they can stretch out in the extra space and nap without being bothered by a seat companion who may be a noisy, messy eater.

There is enough space in the overhead bins, and large suitcases are placed at the end of the carriage near, or under, the sink. It would be nice if there were some proper luggage racks, but there is ample space.

The tray table, which pulls out from the seat in front, is wide enough to rest a laptop computer on. But it has no slots for cups, so if you are reading or working on a laptop, it is available to hold your cup. The train sways gently, but it is more likely you will knock over the cup or someone passing may bump it by accident.

Journey: The train pulls out of the station on time at 2:35 P.M. It accelerates slowly on through past the many cement factories in Athi River town, the African Heritage House, and other familiar sights. It doesn’t really pick up speed, in this area with slight curves, until it starts descends the plains, and the rail straightens. Most of the journey is done at speeds of about 110 Km/h (70 mph) and the train is very deceptive in its speed, which is displayed on a small screen in the coaches. You never get a sense of the speed until you pass a car on the highway or see a helicopter slowly pass overhead and you realize just how fast the train really is compared to these other vehicles.

The entire railway is double fenced, zoning off the SGR from the communities that it passes through on the 400-kilometre journey. The afternoon train is a non-stop one. Unlike the old train which would slow to stop in small towns and in which passengers tourists would stick their heads out of windows, watching the passing countryside or to count the number of coaches of the train as it turned, this new rail has few curves and the train hardly bends. There are no roads to cross, and instead, the train is elevated far above the ground as cars pass underneath. School kids, who used to stop and wave at travellers on the old train, do not bother to stop playing football to even glance at this fast-moving one.

Looking outside from your seat, you might spot some elephants, giraffes, buffalo, monkeys and other wildlife in the open plain, and later when an announcement is made about the train passing through Tsavo National Park. Occasionally pass another train, but mostly you pass old abandoned stations that used to be landmark stops on the old train,

Service:  In first-class, a drink cart was rolled down the aisle with a snack, and free serving of coffee or tea is served, but the service is rather slow and clumsy. Later they served drinks, for sale, which were rolled down on an old airline-style cart, with a selection of beers, wine, soft drinks and snacks, but the cold drinks are not really cold. Even warm ones can run out and you may have to switch what you are drinking.

It is better to go straight to the dining car where you can have more cold drinks and snacks. The train ride is not too long, so you won’t be eating large meals like the elaborate full dinner and breakfast meals that the old train used to serve in first-class. The same beer that was Kshs 250 in the VIP at the station is now 350 here. Also, the Mombasa station also has a first-class lounge upstairs but there is no restaurant there, yet.

There is no Wi-Fi or screens, but you get good service on Safaricom internet service for most of the way. Some passengers had iPads which they used to entertain children they were travelling with.

Arrival: Accessing the station at both ends can be stressful At Mombasa having arrived at about 7:15 P.M. it took about two hours to get to our destination by historic Fort Jesus. The new highway, that is still under construction, takes about fifteen minutes to reach the junction to Mombasa airport. Then it took us one and a half hours to negotiate the traffic that had overlapped and got stuck on the dusty Makupa Causeway, with matatus, tuk-tuk’s and other vehicles going off-road and meandering between long-distance trucks. Some vehicles had they engines off and truck brakes had a burning smell. The cause of the jam was a lorry that had gone off the road just as the causeway enters the island. The return a few days later took about a half-hour from town. Regardless of if you take the SGR, or fly into Mombasa’s main airport, you are stuck on the same highway that is under repair for the next few weeks.

Verdict: The 66 people in the first class train cabin are equal to the number on a typical bus on the Nairobi-Mombasa highway, while each economy coach (there were eleven) has almost double that number of passengers. Also, the 50 wagons on an SGR goods train of which you pass one or two during the journey are equal to 50 fewer trucks off the Nairobi-Mombasa. See also Owaahh’s “The Man Who Sold A Country” for more on the impact of this new railway.

Good points: The time-keeping, the on-time departures and arrivals. Also, the new SGR service crew make many announcements, about making good use of a shared public facility. When KFC came to Kenya and later Subway and other fast food-joints followed, they introduced the idea that patrons should clean up after themselves and dispose of their assorted papers, cups and leftover food in large bins provided. On the SGR they keep broadcasting announcements throughout the trip reminding passengers about cleaning up their space, not littering, not sticking gum under the tables, etc. They also ask people travelling in groups to be considerate of others in terms of their conversations and music. But other passengers played music on their phones, without using headphone, and there was a cacophony that competed with music blaring from the train’s overhead speakers.

Some groups ignored this and a few people don’t use headphones and you often have competing sounds in the cabin, including songs on the train PA in-between announcements. While others heeded the advice and took their loud conversations to the dining car where they could sit facing each other and discuss their trips and business plans over plenty of alcohol. There is also some camaraderie in first class, and people share tables as they enjoy drinks and watch the rapidly passing scenery.

In Nairobi, Kenya Railways also runs a commuter service from the old railway station in downtown Nairobi to the SGR station. They time it to shuttle passengers who are connecting on the SGR Nairobi. This costs Kshs 50, a fair deal, compared to the cost of using a taxi which is at least ten times more. The commuter trains makes two stops at Imara Daima and Makadara.

Bad points: The odd toilet rule about not throwing anything, even tissue, down the toilet does not make sense. Their instructions are to dispose of toilet paper in a bin on the floor?? Yet the toilet seems like the same standard vacuum flush that planes have. BTW, the old train used to flush straight down and fertilise the side of the tracks.

FACT FILE:

  • JOURNEY TIME 4 hours, 35 minutes (Nairobi to Mombasa).
  • SEAT CONFIGURATION 2-2. Seats can rotate backwards but no one tried to turn them around. People went to the dining car for face to face meetings.
  • PRICE:  Advance first class fares from Nairobi to Mombasa are Kshs 3,000 (about £23 / $30) for a one-way booking, which you make online and pay for via mobile money (M-Pesa). You must enter the name and ID/passport number of each traveller. 
  • CONTACT info@krc.co.ke

SGR enters the Nairobi National Park

Kenya’s National Land Commission (NLC) has again published a list of land titles it is seeking to acquire on behalf of Kenya Railways for the construction of Phase 2A of the Standard Gauge Railway (SGR) between Nairobi and Naivasha.

The parcels are in the counties of Kiambu, Kajiado, Nakuru, and Narok. Big winners include Kedong Ranch Ltd as they will be compensated for three huge land parcels (measuring 35.7 hectares, 13.01 hectares, and 100.65 hectares) that were previously listed as being belonging from Morning Side Heights,  Ruaraka Housing Estate, and Morningside Heights respectively. Another is Kiambu Western Grazing Area from who the NLC will purchase 146.8 hectares.

Big losers include the Nairobi National Park which is managed by Kenya Wildlife Services (KWS) and which is billed as the only national park within a capital city in the world which will lose loses 41.3 hectares (about 102 acres) which will be hived from land title – L.R. 10758 that was reserved.  The Nairobi National Park was originally 28,950 acres in 1961 when a 999-year lease was granted to Trustees of the Royal Nairobi Parks. Another loser will be Oloolua Forest 17.3 hectares (about 43 acres) to the railway, at a time when Kenyans are concerned about the depletion of forests. There have been news reports that construction work for the SGR has commenced in the Nairobi National Park park in the last few weeks.

Construction through the park had been contested for some time, and back in November 2016, a session was held at the Strathmore Business School where Kenya Railways staff met wildlife conservation groups, and concerned residents, to explain issues like the intent of the government, justification for the SGR, land rights, the railway route, land acquisition cost, feasibilities done, stakeholders consultations, impact on wildlife, environmental and community impact etc.

Alternative routes map from Save Nairobi National Park (“SNNP”)

Athanas Maina, MD of Kenya Railways said that it was not possible to follow the corridor of the old (British) railway, which would not be funded and whose terrain was difficult – and that they had considered seven different routes through which the new railway could exit Nairobi to pass through a crucial tunnel at Ngong. They had settled on a “modified savannah” option and the new SGR railway would loop back from the Inland Container Depot at Embakasi, and go over six kilometers of the Nairobi National Park. This would be achieved by constructing elevated bridges in three stages, and running the railway elevated at an average height of eighteen (18) metres over the park with noise defectors and that construction would be completed in 18 months.

The acting Chairman of the Friends of the Nairobi National Park said that if there was a conflict between conservation vs development,  it is because of a lack of planning and consultation, while another representative spoke of continuous assaults on the Nation National Park over the years with demands for the park to cede more land for construction of the Southern bypass highway, oil pipeline, and fibre cables among others.

Maina said that exact route that the railway would follow remained a secret as many people wanted the line to pass on their land to make money – speculating on land at any cost and waiting for the government project to come – and pointed to the LAPSSET projects that had been derailed demands for land compensation. (Elsewhere it has been reported that landowners in the Konza area got Kshs 3 million (~$30,000) per acre of undeveloped land that was acquired for phase one of the SGR). Another resident said that the park’s main threat was  not the SGR, but individuals who were privatizing land, along wildlife corridors, south of the park for housing and quarrying and cited the Jamii Bora development case

Finally, a letter from Richard Leakey, Chairman of the KWS, was read out in which he said that the SGR would have minimal impact on Nairobi National Park, and mainly during the two years of construction. He added that some conservationists had opposed fencing the southern part of the park for many years because wildlife species migrate through there, and if the railway was laid and fenced there, outside the park, it would cut off wildlife from accessing the park. That ended the debate, that day.