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Wednesday, August 23, 2006

Bamburi - Friend or Foe?

An "Anon" commentator called Anon X... on Bamburi, EAPCC & Cement in Kenya.

I hope to add more to the excellent argument presented in response to my blog entry! My comments/observations in RED.

: Lafarge is running a monopoly and should have been investigated by the commissioner for price fixing ;-) and monopolies

It could be claimed LaFarge has a monopoly therefore competition should be encouraged! It is unfair to balme Bamburi for the current state of affairs when Kenyans could have established more competition.

Investigating them is a waste. The demand for cement is relatively high compared to production. Both ARM & EAPCC are running at 100% capacity. Both are trying to expand their production. Well, EAPCC was trying until the recent fiasco! The only firm with extra capacity is Bamburi who are using Econ 201 (marginal production & profits) to make more money!

Bamburi supplies clinker (raw ingredient for cement) to ARM & EAPCC. If Bamburi wanted to choke them, it would refuse to supply clinker thus reducing competition. Bamburi invested in a clinker plant in Nairobi when no-one was investing in Cement production. Foresight!

: the MD of Bamburi lied when he said that their shareholding in Bamburi had caused the shares in the firm to rise to the current high level.

If that's what he said, I would agree with you!

: The truth is that it is the arrival of Ole Mapelu and his team of 5 managers and the changes that staff executed which raised confidence in the firm and its operations.

Mapelu 's team played a huge part in changing how EAPCC was perceived. I believe he was instrumental in bringing accountability to the firm. Don't discount the economic growth & stockmarket euphoria which boosted profits & share value. The stronger KShs also helped reduce the impact of the Yen loan.

: The arrival of this team resulted in the rise of the EAPCC shares from 49 to its current level of over 110+, where it has been (or above) since with one hiccup.

Don't discount the economic growth & stockmarket euphoria which boosted profits & share value. The stronger KShs also helped reduce the impact of the Yen loan.

: This team was the first team at EAPCC to turn around the effects of the disastrous Japanese Yen loan that the company took and which has cost it significant amounts in FOrex losses.

On this issue Mapelu lucked out coz the KShs showed some muscle since 2003. In addition, the Yen stopped strengthening against other major currencies. This was luck!

BTW, this does lessen the other more important achievements that brought sustainability to EAPCC.

: Ole Mapelu and his team had a performance contract. Their suspension and eventual departure had nothing to do with either their contract with the firm or with their performance. If anything, their courage in performing to the terms of their contract is what has resulted in their being dismissed - * they challenged Bamburi and indirectly LaFarge in Sudan (it is common? knowledge that Bamburi, totally owned by LaFarge, is building up its production capacity to 1,000,000 -million - tonnes p.a. to target the Sudan market),
* by entering the Central African market they ALSO challenged Bamburi and indirectly LaFarge in Rwanda and Congo (it is also common knowledge that Bamburi through wholly-owned Hima Cement in Uganda is building up production capacity to enter Congo, Rwanda and Burundi)

True, true & true... I believe Mapelu & guys probably exceeded the terms of their performance contract!

The Rwanda plant will challenge Hima for Rwanda, Burundi, Congo & perhaps Uganda. I do not know if LaFarge has a Sudan plant. Unless EAPCC was challenging LaFarge in S.Sudan, the argument doesn't hold coz transporting cement to Sudan is too expensive for the long-run. If there is sufficient demand, the only alternate is building a new plant there.

Therefore Bamburi gains little by building Kenyan capacity to serve S.Sudan.

: Questions that were raised and that have not yet been answered by the board or by any of its large shareholders

1) Why and how is it possible that LaFarge can have a share holding that gives them control, access and influence over the operations of all of its competitors in the market and the region? Lafarge owns Bamburi 100%, East African Portland 47% and Athi River Mining 15% and life proceeds on as normal. Am I missing somethign? As far as I am concerned, the shareholding that Bamburi has in its competitors should be stopeed immediately. What is the Comissioner of Monopolies doing? Are you going to say that this is technically not a monopoly? ;-)

First the Commissioner of Monopolies has bigger fish to fry! He should have gone after "old" Telkom which has been an "awful" monopoly for years! With pathetic service!

Second, I think Safaricom & Celtel duopoly needs some competition!

Bamburi's ownership in EAPCC & ARM is a result of 2 factors:

  • There was the (international) Blue Circle & LaFarge merger that effectively made LaFarge own a stake in Bamburi & EAPCC.
  • Capital Financing - During EAPCC's lean years, it tried a Rights Issue to shore its finances but many Kenyans (minority shareholders) did NOT participate thus LaFarge (which did participate) ended up with 42%. You can't blame Bamburi for doing the smart thing!

EABL faced a similar situation a few years ago when Diageo/Guiness took up their Rights whereas most minority shareholders did not! Some stockbrokers even counseled their customers NOT to take uo the Rights. Prior to the Rights, EABL offered a Scrip Dividend, which would have benefitted both EABL & their shareholders but many Kenyan (minority shareholders) sat it out in preference for cash! EABL was fighting it out with Castle & needed to preserve cash for restructuring & marketing.

ARM was in mega trouble (when Kenya's economy was in the crapper) coz of low demand for cement, high finance costs & a low share price thus was unable to do a Rights or raise cash from banks. Bamburi stepped in as a saviour by taking a preferred equity position. They also agreed to supply clinker to ARM thus saving ARM from cashflow problems & certain failure. Their investment in ARM not only saved ARM but paid off well. Smart thinking! I wish I had done the same! ARM ordinary shares have risen 15x since Bamburi's investment.

When fickle short-term investors (many Kenyans fall into this category) refuse to stand by their companies in hard times (witness the lack of support for Uchumi by many minority shareholders) when they need to put up. I would probably be in the same position coz I feel it is good money after bad esp if I am giving my money to the same management!

Would Kenyans have bought shares in the Rights Issue if kennedy thairu was still MD of Uchumi?

Would Kenyans have bought shares in the Rights Issue if alexander kaminchia was still MD of KCB?

BTW, Bamburi owns 42% whereas Govt (Treasury+NSSF) own 52% & the public have 6%. Therefore effective control belongs to the government. Yikes!

Therefore I say: Put Up or Shut Up!

Another piece about smaller shareholders who dump their shares at low prices then complain when the firms do well & prices rise!

2) Why is it that the board has not given a position statement on how they plan to take the organisation forward with regards to the entrance of the Sudan and Rwanda markets? What is the timetable for these entries? Or have they halted these plans at the insistence of Bamburai??

The Board should come out with answers to the queries.

Please note that Bamburi has 42% but government (kituyi & his posse) control the Board. Unlike KQ (KLM 26% vs govt 23%), the power lies with the government who can force any decision through coz of majority control.

3) All of Bamburi's profits go to France. Over half of EAPCC's profits remain in Kenya. Who will Mukhisa Kituyi, David Nalo and their team give priority to?

Erroneous statement.

Bamburi is PUBLICLY traded. Kenyan shareholders get their dividends in Kenya. Bamburi actually pays a low dividend compared to other firms. They continually reinvest into improving their operations. This regular re-investment has made them the largest cement firm in E & C Africa.

BTW, NSSF owns 16% while 10% is the float on the NSE.

The current government gives priority to its own (personal) pockets! They don't care two hoots about Kenya, Kenyans or LaFarge. If the government had control of KQ, the arturs would have being flying the 777s to Armenia on a whim! Of course, KQ would be dead broke!

4) What is the use of performance contracts if managers will be fired or forced to leave organisations BECAUSE they were doing their best to meet their targets for their own good and that of their organisation and their country? So what if Mutua na wengineo wanajivunia kuwa wakenya with things like these happening?

Wacha Mutua! He is a puppet. I actually feel sorry for the jamaa. He has to vomit what he is told. Even then, he gets told off by government bigwigs!

I agree that those who try to meet their performance contracts should be allowed to do so! Lakini in Kenya, unfortunately, you can't ignore the "godfathers" interests! Ole Mapelu was headhunted so hakuna godfather! I believe since he was not helping grease the way... he was sukuma'd to allow for more plaint management.

5) Does Mukhisa Kituyi, Bamburi MD know that Kenyans are not watoto any more?

Huh? Bamburi is not at fault. The Business of Business is Business!

Kituyi - what can I say? I was a huge fan but recent events are very disappointing! He & Kimunya could have been the czars of Kenya's economic revival! We would have been proud of the 2Ks... maybe even elected them to be prez!

6) Why has parliament not instituted an enquiry into this whole issue? When you look at how much money East African Portland has generated in 1 year in profits, does it make sense to pressure the team that engineered this rapid change out? What are we not being told? And what are the PAC and the PIC afraid of that they are not pursuing this matter?

Please not another commission or inquiry! Most politicians do not understand Business. Look at the foolish/stupid comments on Scangroup's IPO! An inquiry would probably mean more wasted cash! And someone on the inquiry team might end up with a new house built courtesy of EAPCC!

7) ColdTusker, I think that the hold LaFarge has on the its competitors and therefore the industry NEEDS a BIG (like REALLY BIG) re-think. I don't think that the market control that LaFarge is obviously exerting on its competitors is anywhere close to the SMALLER evil of govt involvement in business.

Oh no... NO, HAPANA, no way! I CANNOT support this argument. I would rather have an efficient monopoly than the government run any business! Please show me a government success where the government had absolute control!

  • KQ - Unprofitable until KLM came along. Now among the top 5 airlines in Africa & very profitable.
  • KR - Watch its growth after privatisation. I wish I could buy in now coz I expect great things in 5 years!
  • KCB - What a mess until government was forced to reduce its holdings & become a large minority shareholder with substantially reduced control!
  • NBK - Still under a huge NPL portfolio
  • KPLC - Used as cash cow in 1992. Demand has exceeded supply for many years!

The government through its "control" has caused the economy to lose untold BILLIONS.

Two examples:

A private & efficient Telkom could have made Kenya the "India of Africa" for Business Process Outsourcing (BPO) if Telkom had been privatised 5 years ago! We could have had Call Centres lined up on the road all the way from JKIA to Machakos! Jambonet was a piece of crap. Its the competition from KDN & Vsats that spurred it into action!

The government through Telkom was dead set against VOIP but VOIP is set to change telecommunicatons in Kenya. Using VOIP through their internet gateway means I can call UK for 40% of what it used to cost me. Even Telkom is pushing VOIP. Imagine if VOIP was allowed in 3 years ago?

BTW, wWe do not even know the extent of Telkom's losses but I bet they are STAGGERING! They will probably need huge writedowns on their outdated equipment! The only saving grace is Safaricom BUT this was thanks to a duopoly & Vodaphone's management not foresight by Telkom.

NBK has NPLs that exceed KShs 17 Billion! That is greater than the value of MOST listed firms in the NSE. Here is an example: CFC Bank & HFCK combined are worth KShs 17 Billion! Most of these NPLs were accumulated in the days of government stoogie john simba!

If not for Marambii's firm hand, I think NBK would have collapsed! He has done a great job in stanching the red ink! The government had no choice but to give him full control since the NSSF would have lost Billions (of our hard earned money) had NBK collapsed! Customers were fleeing NBK & there was no more to steal!

AnonX

PS: Ms K, does anyone recall Kituyi repeatedly WARNING Kenyan business to keep off Sudan until he gave them a go-ahead?!?!?!?%^#$%^@&#

I don't recall his warning but was he trying to limit access to the S.Sudan for his cronies?

7 comments:

Kudrinketh said...

@coldtusker, you'd make a great corporate lawyer!

coldtusker said...

@kudri - The entry, though exhaustive, has only your response/comment!

What did I do wrong or right?

Kudrinketh said...

I think its coz most kenyans have a very short attention span, always looking for the short term gain, not in for the long run, just look at how we trade shares!

pesa tu said...

@Kudrinketh: KEYNES said 'in the long run we are all dead'.

@Coldtusker: There is a way to buy into KR(indirectly). Buy Grindrod (www.grindrod.co.za)which is listed on the JSE. It owns 50% of the SA firm taking over KR and UR.

coldtusker said...

pesa tu - What I was asking was that I put quite a bit into this blog entry!

I believe my arguments were reasoned & researched but the responses are lacking!

Perhaps, as kudri said, I should have had "senational" headline with one paragraph rather than a drawn out point by point write-up!

Anonymous said...

On the proposed merger btwn Bamburi and Portland, how will this impact ARM?
will this merger adress the capacity constraints issue or is it intended to shield the kenyan companies from foreign competition.

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