Blog Archive

Friday, July 17, 2015

The Greece Crisis and Monetary Unions

There has been a lot written and debated but I wanted to highlight some of the predictions about the European Monetary Union.

Source: Bloomberg

Arnulf Baring
The German political scientist offered dire predictions in his 1997 book Scheitert Deutschland? Here's an English translation:
They will say that we are subsidizing scroungers, lounging in cafés on the Mediterranean beaches. Monetary union, in the end, will result in a gigantic blackmailing operation. When we Germans demand monetary discipline, other countries will blame their financial woes on that same discipline, and by extension, on us. More, they will perceive us as a kind of economic policeman. We risk once again becoming the most hated in Europe. 

And that is EXACTLY what has happened. The Germans are being blamed for demanding monetary (& fiscal) discipline on countries that are Mediterranean (Portugal, Spain, Italy and Greece except Ireland) with the reputation of their citizens as being lazy, unmotivated and/or early pensioners hanging around in cafes.

Milton Friedman
In a keynote address with the Bank of Canada in 2000, the Nobel laureate offered some cautious words when asked about the future of the euro. 
I think the euro is in its honeymoon phase. I hope it succeeds, but I have very low expectations for it. I think that differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them.
Was he right or was he right?
Margaret Thatcher
According to her autobiography, back in 1990 the former Prime Minister of the United Kingdom warned that the single currency could not accommodate stronger and weaker economies. Here she is describing arguments with John Major about the topic:
We had arguments which might persuade both the Germans — who would be worried about the weakening of anti-inflation policies — and the poorer countries — who must be told that they would not be bailed out of the consequences of a single currency, which would therefore devastate their inefficient economies.
The Brits need to build a statue to her and place it next to Nelson's Column in Trafalgar Square!

Sunday, April 05, 2015

Largest Britam EA shareholder's associate (Bramer Bank) in huge trouble with Mauritian Central Bank

A major shareholder [British-American (Kenya) Holdings] in Britam EA associated with Dawood Rawat, a director of Britam EA, is in big trouble. 3 directors in Britam EA are associated with Bramer Bank of Mauritius.

Britam Kenya Holdings, a subsidiary of Britam Mauritius, is a major shareholder in Britam EA (listed on the NSE). So Britam EA is not directly affected by the mess but there may be counter-party exposure.

Bremer Bank, associated with Britam Mauritius through the Rawat Family, has been accused of running a Ponzi scheme by the Mauritius Central Bank. 

Mr. Moussa Rawat is also Chairman of Bramer Corporation Limited, the holding company of the financial services cluster of the British American Investment Group in Mauritius that consists of British American Investments Company (Mauritius) Insurance, Bramer Banking Corporation (Banking & Leasing) listed on the Stock Exchange of Mauritius and Bramer Asset Management Ltd (Asset & Wealth Management).

Mr Ghulati is the Group President and Chief Executive Officer of Bramer Corporation Limited and provides leadership to the Presidents and Chief Executives of BAI Co (Mtius) Ltd, Bramer Banking Corporation Ltd, Bramer Asset Management Ltd, Bramer Capital Brokers Ltd and Bramer Global Services Ltd. He is also the Vice Chairman of Bramer Banking Corporation Ltd and a director on over 25 subsidiary Boards of the British American Group.

Mr. Dawood Rawat is currently the chairman of Seaton Investment Ltd, Mauritius and he has extensive experience in the Financial Services sector. He is now Chairman Emeritus of all The Companies of the Group. He has been the Chairman of the Board of British American Investment Co. Mauritius Ltd. since 2002. He has served as the Chairman of the Boards of Iframac Limited and Courts (Mauritius) Ltd. He has been the Chairman of GlobalCapital p.l.c., since October 4, 2012. He served as the Chairman of the Board of Mauritius Leasing Co. since 2005. He has been a Non-Executive Director of The Mauritius Leasing Company Limited since 1997. Mr. Rawat has been a Non-Executive Director of Global Capital plc. (alternatively, Global Financial Services Group Plc and Bahamas and Malta) since March 2003 and Bramer Banking Corporation Ltd. since April 01, 2008.

Top Ten Shareholders 2013 - Annual Report
British-American (Kenya) Holdings Limited
2 Equity Holdings Limited 405,000,000 21.41%
Jimnah M. Mbaru
4 Benson I. Wairegi 100,298,400 5.30%
Kenya Commercial Bank Nominees A/C 915F
6 Peter K. Munga 75,000,000 3.97%
James N. Mwangi
8 Co-op Bank Custody A/C 4012 60,000,000 3.17%
Filimbi Limited
10 Standard Chartered Nominee Account 17,165,300 0.91%
Grand Totals 1,891,451,850 100.00%

Bottomline: Britam EA may not be affected but for the association with Dawood Rawat (& his directors) who is connected with Bramer Bank. The Mauritian Government may take over the ownership of the shares that Britam (Kenya) Holdings has in Britam EA. If these shares are sold then Britam EA may have a new 'Strategic Partner' or a wider base of EAC shareholders.

Britam EA can benefit from this boondoggle by taking over business units owned/run by Britam (Mauritius).

Tuesday, January 13, 2015

KQ - Losses, losses and more losses

Ahhh, my bête noire never fails to fail...
*I support KQ as an airline but the poor decisions made by (some members of) the Board and Management have financially devastated KQ*

And Godfrey Mwampembwa aka Gado [on Twitter as @iGaddo] says what I could not in 1,000 words...


Strategic Investors - A brief local perspective

The term Strategic Investor is often bandied around and it seems many firms are looking for one.

What is a Strategic Investor?
Why have a Strategic Investor?
What the pros and cons?

I do not want to post a long post so I will try to be brief.

A Strategic Investor is one who:

  • Invests for the "Long Haul" [not a Speculator nor a Financial Investor] but can sell out if need be.
  • Provides additional capabilities, knowledge or access to superior technology.
  • Often has an additional (in-depth) relationship with the Investee.
Many firms have reached a stage in their lives when they need to collaborate with others to expand or improve their presence and products. It is not easy to go it alone in an increasingly complex world. It is not always about the money but often the need to access processes and technology which is owned by other firms.

  • The Investee does not have to recreate the wheel. Sameer Africa (previously Firestone Tyres EA) had Firestone/Bridgestone as the SI to run the firm, provide technical support and access to suppliers. Firestone/Bridgestone have divested from Sameer Africa but helped Sameer Africa create its own brand/designs under Yana. Sameer is looking for another SI preferably an Asian partner whose technology, designs and processes are more aligned to producing for a competitive and price conscious developing/emerging economy.
  • Cheaper financing. Unfortunately, due to structural reasons, the financing costs in Kenya are very high. Borrowing in KES currently ranges from 12-18% p.a. for many firms. Large foreign firms can borrow in USD at 1-4% p.a. which helps them finance equipment at reasonable rates for its Investees. Seaboard Corporation (USA) owns 35% of Unga Holdings and provides financing for both grain and equipment. In addition, it help Unga access the grain markets at a lower cost using its vast trading network.
  • R&D. Access to R&D is a vital competitive advantage. Many Kenyan firms cannot afford the R&D due to the high costs of funding labs or access to world-class researchers. Safaricom leverages the capabilities of Vodacom to introduce new products e.g. the phenomenally successful M-Pesa is licensed from Vodacom. Whereas some of the infrastructure supporting M-Pesa is being moved to Kenya, it was owned, set-up and hosted abroad for years by Vodacom for Safaricom.
  • Loss of 'control' to an SI versus charting out a path. The SI may be conservative or their thought processes are not ideal or well-suited for the local markets. Equity Bank outgrew both Barclays (it was Kenya's largest bank by a HUGE margin) and StanChart (once a strong #2) in Kenya after the SI of both banks throttled back on expanding in rural areas as well as jettisoning 'low-value' customers. Equity Bank picked up branches and customers to become a behemoth.
  • Loss of value for existing shareholders since the gains/profits are shared with the SI. I do not see this as a major issue since the SI may help make the pie much larger so a smaller share of a much larger pie is a larger piece for everyone.
A partial list of firms with Strategic Investors: [Data may need verification]
  • Scangroup. 51% WPP. Bharat Thakrar who once owned 80% is quite the visionary chap. Hats off.
  • Equity Bank. 25% Helios Partners. HP seems more a financial investor than what a SI is but HP provided EB with significant amounts of capital at the right time. James Mwangi is quite open to innovative ideas about raising capital and Financial Structuring.
  • Unga Holdings [the major subsidiary of Unga Group]. 35% Seaboard Corporation. SC came in when Unga was going through major upheavals.
  • CFC Stanbic. Standard Bank of South Africa.
  • KenGen, KPLC. I am reluctant to call GoK a SI but they do control the firms with 50+% of the ownership.
Not all firms attract a SI but often there are disagreements about value.

KenolKobil, once a fast growing Fuel Marketer badly stumbled due to a significant position in a combination of Fuel and Currency Derivatives had a potential SI (Puma/Trafigura) who backed out after seeing the rot in their books. According to the Board/Management the hunt is still on now that the books have been cleaned up.

National Bank of Kenya with significant GoK (Treasury and NSSF) ownership seems to be looking for a SI.

East African Portland Cement has La Farge (48%) as a SI but the boardroom battles (GoK/NSSF have a significant stake too) have hobbled the firm.

Some firms have ditched a SI e.g. Athi River Mining which almost died in the 1990s had La Farge (Bamburi) as a SI. Bamburi contributed capital and a supply chain which saved ARM. Ultimately, after a clash in strategy with the controlling shareholder (Pradeep Paunrana and family), they bailed out leaving a lot of value on the table. ARM continued to grow by leaps and bounds and may soon be larger than Bamburi in EAC. What a reversal of fortunes!