Blog Archive

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?