Category Archives: triton

This time around: Kenya Stockbroker collapse, Report leaks, Credit Reference Live

Time for another this time around post which looks at stories that recur in the business environment

Mars Group Kenya: The an anti-corruption watchdog group is the wikileaks for Kenya, re-publishing hitherto top-secret government reports at their website.

Mars Group research and produce their own reports, but their archives contain a growing list of reports of corruption in Kenya that is worth checking out. This week they have reports done by PricewaterhouseCoopers for the government of Kenya on the collapse of Triton Oil Company and on the misuse of funds for Maize famine relief in 2008. Last month they also released the report on the sale of the Grand Regency hotel. The Triton report shows that:
– At Kenya pipeline company (KPC) the oil collateral agreement was poorly drafted and ambiguous. Also managers had great discretion, procedures were lax /there was inter-departmental conflict (oil was released without verification) and documentation was poor (since documents would get lost at KPC, financers would exchange documents then present them all to KPC at once)
– Triton was aggressive with financing and would arrange for shipment before they got financing. They were stuck at some point and KCB entered into a finance agreement for goods when the ship was already in Kenya
– Bad banking Ecobank have no claim against KPC, while the Fortis claim against Triton is suspect. Also Glencore had stopped financing Triton in June 2008 as they were suspicious about KPC fuel stock claims
– KCB and other financiers did not cooperate with the PWC investigators
– The debt owed to KCB may be substantially lower than KCB claims and they have provided little information to assist in verification of the Triton debt.
– Kenya anti-corruption commission should investigate further staff named in the report

GoK Bond The Government of Kenya is going to raise Kshs 14.5 billion for infrastructure via a third infrastructure bond. How does that compare to a similar bond a year ago?
2009: Kshs 18 billion ($240 million), interest rate 12.5%, minimum bid Kshs 100,000 (~$1,250), maturity 8 years, principal repaid in 2015, 2017, 2021. Funds used for road, geothermal, water projects
2010: Kshs 14.5 billion ($188 million), interest rate 9.75% tax exempt, minimum Kshs 100,000, maturity 8 years, principal repaid in 2016, 2018. Funds used for water, sewer, irrigation, road, and geothermal projects
The 2009 bond was over-subscribed and the only notable difference in 2010 is the lower interest rate offered. The CBK has decided the high cost of loans offered by commercial banks and perhaps by offering the same banks a lower return on government bonds; they will offer more competitive borrowing rates to the public

Credit Reference: February has also seen the licensing of Kenya’s first credit reference bureau – CRB Africa by the bank regulator, the Central Bank of Kenya. Following this, commercial banks have apparently commenced sharing information with the agency. Some of the rules governing sharing of data were highlighted when the credit reference rules were gazetted almost two years ago. These include
– Bureaus may share info only with a customers’ permission (which happens when you sign for a loan)
– They may only share information for business decision making (evaluate credit prospects) and must keep track of all information they share
– Customers are entitled to one free report a year, and within 30 days of a negative referral.
– If a customer complains, and bureau not able to complete an investigation of disputed information within a month, information will be deleted as request by customer
So what information will they compile?
– For individuals: Name Citizenship ID / PIN Postal/ Telephone Credit history (as reported) Court judgments (as reported) Referees
– For companies: Company registration details postal/physical/telephone Credit history (as reported), Court judgments (as reported), Guarantees
Shareholdings/directorships

Stockbroker collapse: This month saw the placing of another stockbroker under statutory management – this time its Ngenye Kariuki Stockbrokers [Last year in March it was Discount stockbrokers that was placed under statutory management]

Despite strong defense from the Kenya Association of Stockbrokers & Investments Banks – KASIB who say the brokers problems were manageable and did not warrant the intervention of the authorities the broker was in a weak financial position.
A summary by Faida Investment Bank, based on the published un-audited results of Ngenye Kariuki showed this
Half year June 2008 versus 2009
June 08 income 35m, expenses, 21 million, pre-tax profit of 10 million
June 09 income 3 million, expenses 10, pre-tax loss of 11 million
Share capital of 50 million, capital reserves of 251 million (which many brokers draw from the sale price in 2006 of Francis Thuo stockbrokers) [and the same amount appears as an intangible asset) at June 2009, the broker had an overdraft position of 63 million and receivable of 127 million which KASIB is laying at the feet of Citibank for withholding funds from the 2008 Safaricom IPO that are owed to several stockbrokers.

Total 2009 AGM

The 55th annual general meeting of Total Kenya was held on May 19 2009 at KICC and was presided over by company Chairman Herve Allibert
Easy registration took a minute. Total have introduced an electronic check-in, shareholders or their proxies show up with a bar code, which is scanned and they as they sign in

Q&A

Erroneous publication: company secretary apologized for some omitting list of top shareholders and wrong agenda contained in the annual report; saying the printer gave out wrong copy.

Buyout of Chevron assets: in 2007 Chevron decided has divested from petrol stations in west and east Africa and Total is buying their stations in Kenya and Uganda. The chairman clarified that parent Total Group (pronounced Tota hutra -meh) is buying the assets and deal will be finalized in June 2009. Thereafter Total Kenya (78% owned by Total Group) will buy the assets from the Total Group. Total Kenya has obtained regulatory approvals in Kenya, is arranging financing for that deal, and the directors will call for a shareholders meeting in a few months to approve that deal.
In answering another shareholder, Chairman added that Total Group is not divesting from Africa; they know how to do business in Africa, work well here and will continue to invest here

Performance drop in fourth quarter: board member answered shareholder that it was true that Q4 performance was worse. He said it was a s a result of negative stock effect (oil bought at $140+ that was sold at lower prices), and company had to make provision of Kshs 171 million for a supplier (Triton?) who was paid, but failed to deliver products to the company. He added that Q1 of 09 was much improved as the company had received a payment of 150 million in refunds from the Kenya revenue authority (KRA), a feat, which the Chairman added, was very difficult to attain.

Increase in borrowing costs: this had gone up because of the price of fuel was up, while they also had to pay upfront for all taxes

Bio energy: the group does research and investment for that and deploys products such as bio-diesel now sold in Ethiopia

No women directors Chairman said company was aware of this mis-match. They were continuously seeking some women to join the board and also plan to have more women in all management levels of the company

Hot point I – Total’s Q&A format; instead of having shareholders stand and ask questions, Total have (for some years now) had shareholders write their questions down on notes which are then handed to the board table and the company secretary selects a few which to read. The directors were today accused of ignoring some questions, not answering other key questions properly (about the flat share price and lack of bonus shares), while altogether leaving shareholders and some directors in the dark . The Chairman said they would review the practice before next meeting. Another aspect of the meeting (the French Chairman called it a “general assembly” ) that was challenged was the time of the meeting 3 PM

Hot Point II – Goodies:
– Total still doesn’t get it; they always have buffet of meat bitings , today by San Valencia that is messy to serve with shareholders jostling to get some food before it’s finished. They should just serve lunch boxes.

– each shareholder got a tote bag, t-shirt and an umbrella. Some shareholders complained that they had not got their gift items (but somehow other shareholder had 3 or 4 umbrellas) – and the company secretary was asked to record their names and see if the company could have them delivered after the meeting

AGM Split

Family Bank and KCB 2009 AGM

Family Bank is 25 years old this year and is about the 21st largest bank in Kenya. It is in some circles known as Equity Blue because of some similarities with retail giant Equity Bank (it operated as Family Finance Building Society till May 2007)

They held their AGM today in Nairobi; it was a straight-forward meeting, very informal. Chairman is Mr. Titus Muya who’s the founder and was also the CEO till about two easy ago when he relinquished that post reluctantly.

Q&A
Joseph Kaguthi, former PC, Anti-drug tsar is a shareholder in the company and also asked some good questions (he’ll be referred to as JK)

Q. When will the bank list its shares? Many shareholders bought shares in the bank in anticipation of it listing soon (JK noted they said they’d do it within three years and they’d be a market for their shares and asked the board to clarify the over the counter (OTC) market as more people want to buy shares in the bank
A. Management replied that they were ready to list last year/early this year, but that the timing was not right I.e. Nairobi stock exchange was in a down mode, see Co-Op Bank shares after IPO

On Presentation of the annual report
– JK noted they have improved the presentation of the report by including details, missions, vision, values, but he asked them to now include a list of top 10 shareholders as this was a governance issue
Q. another asked why if retained earnings were high, the bank was giving a low dividend?
A. Need retained earnings to grow. Also company can’t pay share capital or premium back to shareholders

Q. loans as security – One shareholder who’s a carpenter narrated a tale of how he fell sick for many months and ran out of funds; he wanted to take a loan using his share as collateral
A. company act doe not allow one to sue company’s shares to borrow from same company

Q. why are non-performing loans high?
A CEO O said their bad loans are 6% of loan book compared to banking sector average of 11%. Also they are mining those and collected 100 million from non performing loans last year

Investor outlook
– Only customers can buy shares in the bank
– May have to raise capital in a few years owing to fast growth
– Company registered opened on May 1, and dividend (Kshs 1.50) will be paid on may 30 2009

KCB AGM: KICC is a very popular site for annual general meetings since Philip Kisia (now appointed the new town clerk in Nairobi) rehabilitated what was a very run-down Nairobi landmark. But with almost 170,000 shareholders it may have been the wrong place to hold their annual meeting. The lines snaked all over the courtyard and registration took a couple of hours for some people I hear

Comrade Sylkwan (thank you) was at the meet and gave a brief re-cap of the Q&A sessions

Q: Why there was no proxy for on the financial statements which were issued at the AGM
A: Shareholders had already been sent to the F/S and the previous years the proxy form was used by s/holders to collect multiple gifts

Q: Why foreign institutional investors own a lot of shares in KCB and what benefits it brought to the Bank
A. KCB shares are listed at the NSE and everyone is free to buy them

Q. Age of directors was not indicated on the F/S. Since there were directors seeking re-election, wanted to know if any was above 70years
A: None of their directors was above that age and if so they would have issued a special resolution

Q: why KCB shareholders could not withdraw cash at the Uganda branch
A: the CE said that it was possible to withdraw money unless there was a technical hitch on that day

Q: Triton issue?
A. Ignored this question (continuing a no comment on Triton or any KCB customer policy)

stalled building construction on Waiyaki Way, rumored to be a Triton property

Q: why the bank does not provide fare to the Shareholders who travel from far
A: It was not possible to pay shareholders fare and share dividends

Q: why the CSR budget was so high even when KCB was only issuing a Kshs. 1.00 per share
A: KCB was spending 2.2b in dividends and Kshs. 54m was a drop in the ocean. KCB also needed to establish a good relationship with the community where the business is established.

KCB Dodges Triton Bullet?

Kenya Commercial Bank released their 2008 financial results over the weekend.

No. 1 but… KCB is now Kenya’s largest bank by bank assets and group assets, though Barclays still has a much larger book of loans and deposits, as well as higher profits.

Also with less than half the assets, Equity may be more profitable than KCB by 2010 if its exponential growth continues.

KCB assets were up 56% and profits 40%, with deposits up 28% and loans up 40% compared to 2007. 2008 was a balanced year for the bank actually performed quite well in Q4.

IPO Killer KCB has effectively delivered the final nail in the coffin of the Kenya Pipeline IPO by suing the corporation for almost $14 million of missing oil. The bank is also leading the case against Triton.

KCB beats expectations A January 2009 analysis by African Alliance pegged a Kshs. 2 billion hit to KCB profit and a pre-tax profit for the bank of Kshs. 2.2 billion – yet KCB managed to report a pre-tax profit of Kshs. 5.3 billion. AA also had an overweight recommendation with a price target of Kshs. 28.85 (at the time KCB was 21) and it looks very attractive at Kshs. 15.5 today.

Q4 watch In the September to December 2008 period deposits were up by 9% and loans by 4% – compared to Q1 loans which were up 4% and deposits 17%. KCB also built up quite a huge cash position with 39 billion (~$500 million) in bank placements at the end of the year.

2009 watch This year the bank has announced, a surprising decision to extend real estate finance to estate developers t the tune of Kshs 250 million (~$3.1 million each) and is also one of the few banks to continue offering personal loans in a very public way with media advertisements

More Nairobist analysis on KCB and KCB and Triton

Sporting Moment: GTV Out

GTV folds
It has been a bleak weekend for Kenyan sports – Gor Mahia lost 0 – 5 to a visiting team from Rwanda, Zimbabwe has now defeated Kenya four matches in a row in Cricket at Mombasa & Nairobi, but most shocking was the sudden shutdown/collapse of GTV – who for the last two years were the main broadcasters of the English soccer premier league in several African countries.

Their statement attributes the collapse to the ongoing global credit crunch, but their demise seems similar to that of Kirch Media who spent big in the late 90’s to acquire the rights to broadcast two World Cup events and also 100 years of formula one races among other media properties – but who folded shop a few years later in one of Germany’s biggest corporate collapses.

What next? I expect Multi-choice DSTV to step in and pay the liquidators of GTV about 30% and take over their broadcast rights in Africa (and perhaps hike their prices too), while in Kenya, a successful bid for GTV’s soccer rights could also be an opportunity for Wananchi’s Zuku to make a nationwide impact.

Business impact in sports
The local impact of the economic crisis is likely to be replicated in sports.

– The local soccer league did well last year (2008) with private interests participating and sponsoring the teams & competitions – there was huge fan interest, media interest (for once local radio stations actively previewed, reviewed and encouraged attendance of local soccer matches) and a private security firm (G4S) was in charge of the ticketing and match revenue collection.

But will the economic crisis affect things? Will sugar teams like Sony and Chemelil continue to support sports when even the only profitable company in the sector (Mumias) has profits down 80% this year? And what about Sher (Flower) and other small company-sponsored teams?

– The local motoring scene was mainly supported by KCB last year and fortunately, despite the bank’s ongoing problems – particularly with a fellow sponsor (Triton), they have agreed to also sponsor the 2009 rally season. However, the loss of Paris Dakar to South America shows the global nature of sports and that events (like the Safari Rally) can be translocated elsewhere if countries don’t pay attention to details of sports management. in 2009, pressure shifts to South Africa to progressively move nearer the completion of stadiums for the 2010 world cup.

– Rugby continues to be well-organized, attract top-notch sponsors, and the annual Safari Sevens is the premier sports event(party) – with Kenya’s Sevens Team off to participate in the IRB Sevens World Series next weekend.

Bad management
Another problem in Kenya is bad management – and while every sport has behind the scenes ramblings and wrangles, Kenya is no exception with motor sports, cricket and soccer feuds that have long been a distraction for the sports.

Also, all sports go through generational changes – and in the off-season, Athletics Kenya management went through elections that were well contested. However, in Kenya we need to have longevity of athletes, not management officials; it is rare to have someone (except for Catherine Ndereba) participate successfully at more than one Olympic event. Other countries stars like Haile Gebreselassie, Hicham El Guerrouj and Kenenisa Bekele have successfully represented their countries at consecutive Olympics – while in Kenya it is sad that it is mainly the officials who show such endurance – and that people who were ‘in charge’ of sports like soccer in the 1980’s and 90’s are still in charge today (Sammy Obingo, Sam Nyamweya) – and continue to bicker and blame each other for the problems in the sport.

Having recently read Foul, FIFA comes across as a corrupt institution that does not care about individual countries attempts to improve management of their sports affairs – FIFA wants to dictate who will be the local managers of soccer, and no matter how bad or corrupt they are, they are FIFA’s people who should not be interfered with unless a country wants to be suspended from regional or international soccer competitions.

EDIT: Feb 4 2009 – South Africa based DSTV SuperSport channel reclaimed the rights to broadcast live all English premier league matches, including those from collapsed GTV in 22 African countries over the next two seasons