Thursday, June 26, 2014

Week 26 of 2014 - Bonds, Loans and Banks

The flavor this week, though many months in the making, is mostly about loans and bonds.

Kenya's first ever Eurobond is a resounding success and raised USD 2bn. And at lower than expected rates. The $500mn, 5-year Bonds offered 5.875% and $1.5bn, 10-year rate offered 6.875%. Good show by Kenya's Treasury, its first ever non-politician Cabinet Secretary and the Central Bank of Kenya. It seems the World Bank has a positive outlook for Kenya with the potential production of crude oil by 2017 by Tullow may have helped. Tullow, like Kenya's Eurobond, is listed in Ireland.

I follow @sang252, an analyst on Kenya's Bond Market, and often use his comments and observations for my blogposts. He notes that local KES interest rates should drop slightly as Treasury doesn't need to tap into the local money market. That said, there is a lot of demand for cash from the private sector as it gears up for expansion.

Home Afrika (listed on the Nairobi Securities Exchange) wants to raise debt by issuing a Bond. Click on the link from Business Daily Africa.

This will not be easy since HAFR does not have the track record that Britam or HFCK have. Then add the disappointment with the quality of Financial Reporting and Disclosure by HAFR. HAFR Profit Warning for FY 2013. I doubt they can raise debt at the price & quantity of firms like Britam or HFCK since the risk borne by Bondholders would be much higher.

Athi River Mining (listed on the NSE) is Kenya's fastest growing cement firm but as with growth in capital intensive sectors, it needs cash, cash and more cash. And it plans a KES 25bn bond as part of a plan to raise $300mn [KES 26.2bn]. Read about it here. ARM has also issued Convertible Debt ($50mn) and is confident that the conversion will take place based on the performance of the shares on the NSE.

I expect ARM to manage the process well enough and raise the Funding via multiple Bond Issues or a single Issue but structured into tranches. Kenya is currently over-supplied with cement but ARM has expanded into Tanzania and Rwanda as well as other profitable but associated and opportunistic businesses in South Africa and Mali. If the various projects e.g. LAPSSET, Mombasa Port expansion, new roads, etc can be actualized then I expect a huge jump in consumption.

The ugly truth behind being a guarantor is raising its head in Kenya with the introduction of the Credit Reference Bureau. Have a look at this story of Obadhia Gitonga Micheu who sued Co-op Bank which blacklisted him with the CRB for alleged default on a facility for which he was a guarantor, blocking his access to credit for seven years. The suit raises pertinent questions on the liability of guarantors in the event of default. Kenyans routinely guarantee loans for each other, and sometimes clear arrears or have their assets attached after the borrowers default. OUCH!

It's not just the cement industry but also the food industry expanding at a rapid clip.

Bidco had announced plans to invest $200mn by 2017 then in May 2014 went ahead and announced a $23mn loan by IFC, as well as a syndicated loan of $13.5mn for a $46mn expansion project. The current shareholders of Bidco may raise the $9.5mn using bank or bond financing.

Kevian raised a long term loan of $7.5mn from DEG to expand its production facilities for packaging fruit juices. Recently, it added other products to its range to cater to a growing urban population. I figure it will also need loans for working capital needs and these are likely to be sourced locally.

Now this is an interesting one. One man's soup is another man's poison!
Kenya Commercial Bank (KCB) is in the process of refinancing a KES 3.3bn loan, which the County of Nairobi defaulted on, issued by Equity Bank (EQTY) to the County of Nairobi. Good move by EQTY which can write back the NPL as well as suspended interest for a boost to the 3Q 2014 results!

What a difference leadership can make! Alfred Mutua (@DrAlfredMutua) opened a 33km road built in just 3 months! From Capital FM comes this story. I believe Machakos County may be the first county to raise funds using a Municipal Bond if it continues developing its economy and infrastructure in a sensible manner.

"Machakos Governor Alfred Mutua has officially opened the newly tarmacked Makutano ma Mwala to Kithimani road, the first road to be constructed by a county government.

The 33-kilometer road was built at a cost of Sh650 million over just three months. The road acts a critical linkage cutting across Machakos county, joining Garissa road to the Machakos-Kitui Road."

Makes one wonder what the other 46 governors are doing!

Thursday, September 05, 2013

Precision Air, a Kenya Airways subsidiary, makes a record loss

Wow, things are going bad to worse for KQ as its Tanzanian subsidiary [KQ owns 41.2%] makes a record loss of around TZS 30,400,000,000 [KES 1,650,000,000 or USD 19,000,000] for 2012-13.


Monday, August 19, 2013

Egypt and Kenya - A look back. And forward.

A look back at a blogpost I posted on 11th April 2012 about the downturn in Egypt's manufacturing and how Kenyan firms can take advantage of the situation

Here is an article from Global Post about disinvestment from Egypt or at the minimum a slowdown.

As a member of COMESA, Kenya stands an excellent chance to take back markets lost to Egypt.

Whereas Kenya cannot replicate the beautiful & fascinating pyramids & ancient temples of Egypt, there is a market for tourists who want to enjoy the "Sun & Sand" and not Ancient History in a peaceful environment. It's a pity about JKIA but it should provide the impetus to expand Mombasa's airport to accommodate more flights direct from the tourists' source market.

Back to manufacturing. If Kenya can quickly create an inviting environment for increased manufacturing for export into COMESA, then that will serve Kenyans well for the future not only to counter Egypt but other countries including South Africa, China & India.

Egypt subsidized energy [electricity and fuel] for its export (including COMESA) markets but Kenya's focus on renewable [esp geothermal] energy will be a long-term advantage as Egypt faces hurdles in subsidizing energy for its population & industries. Subsidies will eventually fail and Kenya should stay away from these and concentrate on making the environment attractive for investors & industrial production.

Wednesday, June 26, 2013

Kenya Airways - Citibank projects a massive loss in 2013-14

Citigroup projects the airline to post a net loss of Sh3.1 billion in the current financial year ending March 2014 on higher costs that will wipe out sales.
KQ’s sales are expected to rise 15.3 per cent to Sh114 billion but Citigroup says expenses such as direct costs and net interest payments will rise to Sh118.5 billion, offsetting sales.
The national carrier is projected to return to profitability in the year ending March 2015 with a net profit of Sh618 million, on which Citigroup does not expect it declare dividends.

Wow! The airline business is tough and as Warren Buffett has said... stay far, far away!

I&M Bank lists as I&M Holdings;_ylt=AwrNUPwGLctRPTkADQD_wgt.

I&M Holdings re-listed on 25th June 2013 after a Reverse Merger.

City Trust, a then listed entity on the Nairobi Securities Exchange, acquired I&M Bank Ltd by issuing CTL shares to the shareholders of I&M Bank Limited.

After CTL owned 100% of I&M Bank Ltd, it changed its name to I&M Holdings which encompasses various banking businesses/subsidiaries.

I&M Bank - Kenya (100%)
I&M Bank - Tanzania (55%)
BCR - Rwanda (55%)
Bank One - Mauritius (50% Joint Venture with CIEL)

Congrats the Board of I&M Bank.

Monday, May 13, 2013

Whither Kenya Airways?

Whither Kenya Airways?

So after all the hype in 2012 regarding the Rights Issue by Citigroup, (Not-the) Standard Investment Bank and CFC Stanbic... KQ shares are trading at KES 11.35 which is 19% below the Rights Price of KES 14.00 ... I betcha that none of the 'advisers' were paid in shares but in cash. Ideally, they should have been paid in (locked-in) shares so they feel the gain or pain.

KQ is in a deep funk. Sad but true.

KQ acceded to the unions demands for higher pay/perks/benefits in 2010. The Board and Management [excluding GoK and KLM - represented by representatives not actual shareholders] which own 0.01% or less of the shares at the time agreed. They were NOT thinking like owners. They had no reason to.

Fast-forward to 2012. KQ restructures and right-sizes the labor force. I believe this was the right move to ensure KQ's long-term survival. The courts disagreed. I think many of the judges in the Commercial/Industrial divisions have little business sense.

So now we have KQ with a PBT Loss of KES 6bn vs the Rights Proceeds before fees/commissions of KES 14bn [miraculously just 0.06% above the minimum requirement] for 1H 2012-13. The 2H 2012-13 Results are due and I doubt they will be pretty.

Will KQ require another Rights Issue in 2014?
Will Kenyans participate in the next Rights Issue? [KQ needs 50%+1 ownership to meet many of the bilateral agreements]

Prisons or Asylum/Refugee Camps - A business? Why not?

Well, if one can make a business out of Asylum/refugee Camps, then why not?

My (preliminary) thoughts:
The Brits pay Kenya(ns) $1,000 per month per refugee. 

House them in a building built with Bamburi cement, roads built by Kenyan [more likely the Chinese] firms using Kenyan engineers and labor.

Provide them with food grown (and processed) by Kenyan farmers (and agro-industrial firms); clothing and linen made by a Kenyan firm [EPZ] and labor; basic medical care provided by Kenyan doctors, nurses and support staff; pricier care can be billed to the UK authorities; hire Kenyan wardens to guard them. The rungus could be made in Kariobangi. The bullets in Eldoret. The batteries for the torches in Eldoret. The patrol cars assembled by AVA in Changamwe. The petrol [probably local production in 5 years] supplied by KenolKobil.

Kenya(ns) can build the refugee center in a remote part of Kenya that cannot be farmed [arid] and is far away from any major town [I can provide multiple examples]. If they send us 1,000 refugees at $1,000 per month, the gross revenue is $1,000,000 per month. That is $12,000,000 per year at KES 84/$ = KES 1,000,000,000 per year. Not many firms in Kenya have that sort of annual revenue! 

Add the benefits Kenya Airways gets from flying family members, British immigration officials, lawyers, etc to/from Kenya to visit these refugees as well as staying at Kenyan hotels, eating at Kenyan restaurants and using other services like phones [Safaricom, Orange, Airtel, Yu], internet, photocopying and faxes. Many Kenyans can start taxi services to/from Nairobi/Eldoret/Mombasa to the Refugee Centers. Western Union, PesaPal and M-Pesa can set up branches at the Refugee Center as can Safaricom/Airtel/Orange/Yu. 

Asylum seekers need paper. Lots of paper. Forms, IDs, cards, etc that can give River Road the boost it does not need.

Look at this as a business and toss out those xenophobic and neo-colonial balderdash out of the window.

Rights Issues - 2013

The season of Rights Issues [last seen in early to mid 2012] is back. With the pre-election political temperatures rising in late 2012 into 2013 and the subsequent economic uncertainty led to high(er) interest rates, a volatile KES and low share prices, the fundraising at the NSE was muted.

Now that the Kenyan General Election is over for most candidates, other matters started taking center stage including the (eagerly awaited) naming of Cabinet Appointees by President Uhuru Kenyatta and the Governors settling into their offices. As calm has settled in, the business of business takes precedence.

Uchumi Supermarkets is coming to the NSE for its 2nd Rights Issue but unlike the 1st Rights Issue, this one is likely to be more successful. Uchumi almost collapsed but Mr. Jonathan Ciano has done a good job in bringing it back from the (almost) dead with the help of shareholders, debenture holders & suppliers.

Rights Issue Date: 3Q 2013 (Estimated)
Size of Offering: KES 1.5bn
Price: 15.00
Quantity of Shares Offered: 100mn
Likelihood of Success: High

*Update: It seems Uchumi may go for a KES 2bn Rights Issue up from the KES 1.5bn after seeing the high demand for its shares.

National Bank of Kenya (NBK) that almost died [technically insolvent] was given a lifeline [subsidy] by GoK and white glove treatment by CBK moved along slowly over time to re-establish itself, and stop the bleeding, under Reuben Marambii, the erstwhile CEO. It has a new CEO, Munir Ahmed, who will try to grow NBK into a respectable player. For now, NBK is assured of government business thus allowing it to steal a march over its competitors. This is the first time that NBK has come into the market for a Rights Issue.

Rights Issue Date: 3Q 2013 (Estimated)
Size of Offering: KES 10bn
Price: TBA
Quantity of Shares Offered: TBA
Likelihood of Success: Moderate to High but depends on pricing

One can expect more Rights Issue, Listings and New Issues in 2013 leading into 2014.

Thursday, May 09, 2013

Kenya, Tullow & Oil

An interesting comment by Aidan Heavey [if quoted correctly] in reference to oil Tullow discovered in Kenya.

“If local roads were improved, Tullow could start producing from Kenya now, possibly trucking crude to the refinery in Mombasa,” Mr Heavey told Bloomberg at the side line of the company’s annual general meeting held in London Wednesday.

This is good news for Kenya since it means oil production (Twiga-1 and Ngamia-1)can start sooner than the projected 5-7 years. It may not be in large quantities at first but increase if (& when) additional wells come on-stream.

What makes sense for Kenya is to mandate [within the context of an equitable and transparent contract] the explorers like Tullow to build out the infrastructure. Whereas it may take some time for the Government of Kenya to get its act together to construct a road, the chances that Tullow will make it happen within a (much) shorter timeframe are much better. Tullow has a vested interest in building a good quality road to start trucking the oil to the Mombasa refinery.

The cost of construction can be paid from the proceeds due GoK from the sale of the crude oil and should be covered in the contract referred to earlier.

Apart from the proceeds from the sale of the oil, there are other benefits that accrue to Kenya(ns) as the transfer of skills starts early as do programs to train Kenyans in Oil Production Technology. The need for 'Roughnecks' will increase as more oil wells come on-stream & starting production in 2013-14 allows for many young Kenyans to get practical training in the industry.

Building a road (today) from Turkana to Mombasa requires labor & cement which is in plenty (excess capacity) in Kenya thus providing a welcome boost to the economy. Waiting for a debt-laden GoK to build the road may take a while.

Some may argue a pipeline is the better option but a road is required to open up Turkans so why not start with the Tullow Road while the plans, financing & installation of the pipeline is implemented?

Is anyone in GoK listening?


Saturday, April 06, 2013

Suggested Gifts for Mwai Kibaki

So taxpayer funded AND subsidized National Oil of Kenya (NOCK), via Sumayya Athman, offered to build Mwai Kibaki a petrol station wherever he wants regardless of the financial viability of the petrol station?

So I asked Kenyans On Twitter aka #KOT for suggestions and they do not disappoint!

Via @coldtusker : Why doesn't @KCBGroup follow in NOCK's footsteps & offer to build a branch wherever kibz wants? cc @JoshuaOigara (CEO of KCB)
Via @sunnywords : Perhaps @SafaricomLtd could offer a base station of his choice?
Via @geonal : Let SK Macharia's RMS build him a private vernacular FM station.
Via @geonal : Let @kwskenya give him a game park
Via @pengithinji : @KenyaRailways_ shouldn't be left out! That way we would have a line laid out all the way to Mweiga.
Via @MistaWahome : Unga Limited can grant him a giant Posho Mill
Via @evansowiddo : @KenyaPower should add a standby generator to enable kibaki use his massage chairs when there is a blackout
Via @msnaserian : or just build him is own power generating plant
Via @msnaserian : Maybe the @KenyaAirports will offer to construct him an airport
Via @denniskioko : China will build him a dual carriageway to his home, while @kenyapower will build him a substation.
Via denniskioko : @Safaricom will build him an Mpesa outlet. City Council will give break down truck.
Via kevonshky : @KenyaPower will give him Candles
Via fashbesz : Kenya Ports Authority set to build kibaki a port at a place of his choice
Via @jgakinya : Then Cube movers will move him from state house to his half a b residence in Mweiga for free.
Via @lynnkathu : and Othaya peoples(sic) a tea factory
Via @danaceda : Tuesday, I will also give the retired president all the Benga in the whole world for him to listen to exclusively at Mweiga.
Via @symowain : KPC should connect the #PetrolStation with an all expense paid pipeline to make the freebie worth,operational.
Via @kuxii : me thinks they'll (@KenyaPower) give him a generator.
Via @leomukasa : New KCC...installing a milk plant, complete with piping and taps in every room in Kibaki's retirement house
Via @ShadrackKimutai NCC should give him a yellow tire clamp.
Via @ShadrackKimutai Lawyers should build him a Golf Course at othaya.
Via @KipkemboiKoech : Will Kenyatta Hospital gift the whole surgical wing to Kibaki while we are at it?
Via @JacksonTheuri : I propose Kenyans and Ugandans give Kibaki #migingo as a gift to solve the row over that rock.
Via @optimmyst : @kwsKenya to also set up a game reserve at his 500m house balcony
Via @maruwinnie : Tuskys or @Nakumatt shud be falling over themselves to build a supermkt in his compound
Via @emalid : Nakumatt to also set up a mini-store for Kibaki hapo nje kwa gate
Via @MosesMuya : Kenyans on Twitter will keep him entertained for the rest of his life! #SemaCrazy cc #KOT : Please action this! :)
Via @KipkemboiKoech : A year supply of Paraffin from NOCK would have been a better idea since he will have to live with @KenyaPower's vagaries.
Via EvangelineChao : Equity to put up an ATM at his Othaya Compound.
Via @ochoti : Kenya Ports Authority should open a port at the banks of River Chania.
Via @fmbuthia : Ogopa Dejays wampatie recording deal ya mwaka moja
Via EvangelineChao : Drama festivals national finalists will perform for him in his Othaya compound, every year.
Via EvangelineChao : Multichoice will dedicate a rain-proof satellite dish to him.
Via EvangelineChao : KPLC will build non-hydrophobic power lines just for him.
Via @ochoti : @iebcpage to put up a polling station in his compound for his domestic staff.
Via @ShadrackKimutai : Matatu owners association should buy him a 33 seater manyanga
Via @kamwega : Kiwi should just provide a lifetime shoe polish
Via @virgie_shikoh : how abt Mercedes establish a showroom at his mweiga home
Via EvangelineChao : Kenya Meteorological Department to always predict the weather in his favour.
Via @TitusDedKIMZ : @kenyaairports to build a runway on his balcony!!
Via @gitts : from supa loaf... you know the rest
Via @TheAkiru : Kenyatta Hospital to open a branch in his compound
Via @Odary_G : @SafaricomLtd allow his bonga pnts 2 redeem migingo island
Via @risperg : Kibera guys should ng'oa reli and take it to Othaya as a thank you gift.
Via @iDaywa : Dong Fang on Biashara St. to offer curtains anywhere he wishes to speak behind from like the way he did with RAO.
Via @joeemgee : @SubaruKenya should setup a service station in his compound, he is the king of subarus
Via @mmnjug : DT.Dobie will open a Mercedes service center in his compound for his fleet.
Via @kuirab : Maybe @CapitalFM_kenya will let Kibaki DJ a show, he can be DJ Baks
Via @mmnjug : KCC will open a milk processing plant in his compound.
Via @mentalacrobatic : No jokes the Agricultural Soc of Kenya gave Kibaki a cow called Pale. He'd direct Pale pale or pale Pale
Via @denniskioko : He he. Kibaki will have a city near his house by the end of it all.
Via @jgakinya : Doctors union to teach him how to consult so that RAO can stop complaining.
Via _Mboga_ : a trophy, by harambee sta.... Never mind
Via @PapaMarvokolo: China Wu yi will build A superhighway from his Bedroom to the Kitchen!!
Via @macharia_p: @AIRTEL_KE to extend #bonganabob for a lifetime for him
Via @mmnjug : This @NSEKenya will open a trading branch at Kibaki's home.
Via @mmnjug : Min.of Transport to bring home Mwai Kibaki Road from Tanzania to his farm.
Via @collns : wrigley to provide him with unlimited supply of pk
Via @MumbiKaigwa : Port Authority to move Kenya coastline to Othaya.

More coming...