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 http://www.bloomberg.com/news/articles/2015-07-15/nine-people-who-saw-the-greek-crisis-coming-years-before-everyone-else-did

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!

THE ‘PRIDE OF AFRICA’ IS FAST LOSING GROUND by Aly-Khan Satchu

Is KQ on its last wings?

http://www.rich.co.ke/media/docs/038NSX1304.pdf by @AlyKhanSatchu

My blogposts

http://coldtusker.blogspot.com/2012/04/kenya-airways-rip-off.html

http://coldtusker.blogspot.com/2012/04/kq-rights-issue-2012.html

http://coldtusker.blogspot.com/2012/04/kenya-airways-commissions-payment-scam.html

http://coldtusker.blogspot.com/2012/04/govt-of-kenya-to-pay-commission-for-kq.html

http://coldtusker.blogspot.com/2015/01/kq-losses-losses-and-more-losses.html

By the inimitable & brilliant @iGaddo http://gadocartoons.com/wp-content/uploads/2014/11/Gado-18-11.jpg

and http://gadocartoons.com/wp-content/uploads/2013/06/KQ.jpg

Ngunze was handed a lemon by Naikuni. Interesting to note that Naikuni 'resigned' one month before the AGM and announcement of the largest loss ever by a company in Kenya.

Now waiting for an answer/comment from @ay1m - which I will post on here!

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

No.	Names	Shares	Percentage
1	British-American (Kenya) Holdings Limited	452,504,000	23.92%
2 Equity Holdings Limited 405,000,000 21.41%
3	Jimnah M. Mbaru	219,300,000	11.59%
4 Benson I. Wairegi 100,298,400 5.30%
5	Kenya Commercial Bank Nominees A/C 915F	91,404,035	4.83%
6 Peter K. Munga 75,000,000 3.97%
7	James N. Mwangi	75,000,000	3.97%
8 Co-op Bank Custody A/C 4012 60,000,000 3.17%
9	Filimbi Limited	58,453,600	3.09%
10 Standard Chartered Nominee Account 17,165,300 0.91%
11	Others	337,326,515	17.83%
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).

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...

Source: http://gadocartoons.com/kq-10-billion-loss-blaming-ebola/

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.

Pros:

• 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.

Cons:

• 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!

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!

* Lamu Governor, Issa Timamy, is in court over terrorism charges over Mpeketoni attacks

* Bomet Governor, Isaac Ruto, accused of spending more on trips & entertainment than development

* Muranga Governor, Mwangi Wairia, is trying to get a KES 3.6bn investment vehicle on the road

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

http://www.businessdailyafrica.com/KQ+s+subsidiary+eyes+turnaround+after+record+loss/-/539552/1981302/-/item/1/-/nuh6asz/-/index.html

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.

http://wolfganghthome.wordpress.com/2013/09/05/aviation-observers-stunned-by-level-of-precision-air-losses/

Crazy!

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

http://coldtusker.blogspot.com/2012/04/manufacturing-egypt-downdraft.html

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

http://www.globalpost.com/dispatch/news/regions/middle-east/egypt/130815/egypt-economy-violence-cairo-rabaa-muslim-brotherhood-military-aid

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.

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

http://www.businessdailyafrica.com/Corporate-News/KQ-eyes-cost-savings-to-restore-profit-/-/539550/1895744/-/6chwxf/-/index.html

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

http://news.yahoo.com/newly-listed-kenyan-lender-m-plans-raise-more-124757835.html;_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.

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?

http://www.theeastafrican.co.ke/news/British-MPs-want-asylum-seekers-camp-set-up-in-Kenya/-/2558/1751796/-/1231gdl/-/index.html

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.

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?

Sources:
http://www.nation.co.ke/business/news/Kenya-ready-to-produce-oil-now/-/1006/1846570/-/13ojlfu/-/index.html

http://citizennews.co.ke/business/2012/national/item/10259-tullow-oil-to-increase-oil-exploration

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...

Mwai Kibaki and his Retirement Goodies

Emilio Mwai Kibaki will retire, as Kenya's 3rd president, on 9th April 2013 when Uhuru Muigai Kenyatta will be sworn in as the 4th president.

Mwai Kibaki was elected with an overwhelming majority in 2002, and re-elected in a contentious election in 2007, and had a good run as president.

The overall consensus is that he did well in his 10 years as president despite some glaring cases that involved grand larceny during his administration. These include:

• Scams associated with "Anglo-Leasing" & associated entities/persons
• The NCPB maize 'allocation' scam
• The fertilizer import scams

The biggest blot was the aftermath of the 2007 elections when the country literally burned when 3,000+ Kenyans were killed while 100,000+ displaced.

All that is now water under the bridge.

After the Supreme Court of Kenya ruled that Uhuru Kenyatta won the election, the government machinery started grinding away to effect the transition from Mwai Kibaki to Uhuru Kenyatta.

So... Kibaki knew his time was up. No more extensions by default. And the 'retirement' celebrations started. And the lovely gifts that come with it.

Retirement Bonus

How nice. Kibaki signed into law his own 'retirement bonus' while not signing off on a similar package for his VP & PM. For the record, I do not advocate they should receive the 'retirement bonus' either.

And this is the KES 500,000,000 retirement home for the Kibaki built at Taxpayer expense. I do not know if the house has been gifted to him or it will be 'returned' to the Taxpayers in the future.

Mwai Kibaki has approved a bill that awarded him a Sh25 million send-off package as well as other retirement benefits.The Presidential Retirement Benefits Amendment Bill grants President Kibaki and his predecessor Daniel arap Moi a monthly pension, house allowance and a monthly entertainment allowance.

The president will also be paid pension at the rate of 80 percent of his final salary of Sh700,000 meaning he would earn Sh560,000 a month. In addition he will be paid 40 percent of the current salary as entertainment allowance which translates to some Sh280,000.

Not a bad deal, eh? Let's review:

KES 25,000,000 'bonus' + 1,000,000 per month for life + medical benefits that includes treatment at the best hospitals abroad + luxury cars + drivers + bodyguards + + + [all paid for by the long suffering taxpayers]

Then comes the really silly stuff. Via Kenya's Daily Nation http://www.nation.co.ke/News/politics/Kibaki-receives-more-retirement-goodies/-/1064/1740578/-/mxf36i/-/index.html

• The (taxpayer owned, subsidized & funded) National Oil Corporation will build a petrol station for Kibaki at a place of his choice.
• The Ministry of Fisheries is to construct four fish ponds for him. Funded by the taxpayer. Not for the poor Kenyan farmer who barely ekes out a living. Not the residents of Nairobi or Moyale who need a green space with water features.
• An aquarium by top public servants. I hope this was expensed to the ministries by these 'top public servants" rather than paid from their own pockets.
• The Ministry of Agriculture [aka Taxpayer funded goons] 'donated' 2 Friesian dairy cows and 4 Zebu/Boran bulls.
• The National Youth Service is to also sink a borehole for the outgoing President.
• Two digital television sets by the Ministry of Information and Communications and a number of books. PS Bitange Ndemo said one of the TVs will be in Kibaki’s bedroom while the other is for the living room. *Note: @bantigito (Bitange Ndemo) informed me that the 2 TVs were a gift from the staff and NOT charged to the Ministry.
• The University of Nairobi is to establish a library at President Kibaki’s home. The university will further give a copy of each of the books it has published to President Kibaki, Higher Education PS Crispus Kiamba said. The students do not need additional library facilities.
• President Kibaki was further awarded two high tech massage chairs. The article doesn't say who paid for these. Well, the taxpayer paid for them.
• The Judiciary gave him a set of golf clubs.

This one takes the cake!

National Oil managing director Sumayya Athmani said the petrol station, a sign of appreciation for the huge expansion of the parastatal during Kibaki’s tenure, would be built in the next three months.

So NOCK is a taxpayer funded organization that probably delivers below average returns & is given preferential treatment. So, Sumayya who is a 1/44,000,000,000 owner of NOCK is making a decision that is NOT a commercial decision to build a petrol station based on winning brownie points?

Mr Otieno said some of the items donated to President Kibaki will be delivered on Tuesday when he will no longer be a state officer as the costs of the items exceed the limit stated by the Ethics and Economics Crimes Act. Hmmm, is this to beat the limits & restrictions of the Ethics and Economics Crimes Act?

Article 76(1) of the Constitution also reads; “A gift or donation to a State Officer on a public or official occasion is a gift or donation to the Republic and shall be delivered to the State unless exempted under an act of Parliament.”

Similarly, Section 11 (3) of the Public Officers Ethics Act states: “A public officer may accept a gift given to him in his official capacity, but unless the gift is a non-monetary that does not exceed the value prescribed by regulation, such gift shall be deemed to be a gift of the Public Officers Organisation.”

A jovial and smiling President Kibaki accepted the gifts as he joked in Kiswahili “nitazichukua (I will keep them).” Why not?

Merali - and his 'partners' aka Suckers!

Has anyone who partnered with naushad merali ever made a decent return?

"Merali cuts KDN stake as South African firm exits" [Click on the Link]

This reminds me of the sale of shares in Kencell to Celtel... and a further sale of shares to Zain then to Airtel.

Not to forget the prior 'deals' when he off-loaded 'Firestone EA' (now Sameer Africa) shares at KES 35.50 to an unsuspecting public. He had bought these from ICDC at KES 5 [it was in the Information Memorandum].

Then there was Eveready aka Neveready at KES 9.50 & which trades between KES 1-2 nowadays.

Did I mention Sasini?

MPigs, CDF & the screwed Taxpayer

Treasury releases Sh10bn balance for CDF projects

http://www.businessdailyafrica.com/Treasury-releases-Sh10bn-balance-for-CDF-projects/-/539546/1656406/-/item/1/-/vxxw02z/-/index.html

Yep, the current minister for finance, Robinson Githae, who I think has not done too badly, has crumbled under political pressure & released KES 10bn to the greedy MPigs.

I guarantee some, if not most, of the MPigs will divert the funds to:

1) buy votes by providing 'jobs' to supporters working on the CDF projects

2) buy materials/services from their supporters/donors/lackeys/family

3) directly embezzle the funds

4) fund their campaigns or buy campaign materials

In the post-election confusion with new counties & all the in-fighting... these MPigs will be left alone to do what they want with the CDF funds. These funds should not have been released considering there are only 2 months to elections but caretaker committees (composed of constituents) should have been allowed to complete or oversee the projects to completion.

Unga AGM FY 2011-12

Location: KICC Amphitheatre

Date: 5 Dec 2012

Time: 10.30 am

My opinions in italics 

The matatu strike had delayed a lot of folks but the check-in handled by CRS was relatively slow. It took almost 30 mins to check in but it was organized since the security was good. There was a lunch voucher given at registration - more on this later.

It seemed the majority of the initial questions were not related to the Financial Statements or Annual Report. There was a sense of frustration among the directors since the questions were about SWAG (aka freebies like T-Shirts, flour, etc).

The relevant questions came at towards the end of the Q&A on the Financial Statements.

Q: What property is Unga planning to sell?

A: 4 acres on Ngong Rd but it is earmarked for "Recreational Use" only thus the sale is probably limited to Sports Clubs or such users. It is unlikely, like in the old days, that a buyer can change the use. The MD even thought that Nairobi needs the green space.

Q: What is the valuation of the properties?

A: Unga revalues the properties every 5 years & the next revaluation is coming up in 2013. The ROA is quite low.

Q: Does Unga use GMO grains/products?

A: No, since the law does not allow GMO but the MD was emphatic that when the next drought hits Kenya, which has been the case every 3-4 years, GMO grains will be imported.

Q: Why not buy local grain?

A: The local grain is very expensive especially maize since NCPB pays KES 3,000 per 90kg bag. This means the farmers expect a higher price. Unga pays sooner than NCPB and will not buy low-quality maize. The biggest competition are regional, not national, millers who don't care about quality.

Q: Why are the related party transactions/purchases with Seaboard Corporation (which owns 35% of Unga Holdings Ltd) amounting to KES 4.16bn (2011: 2.9bn) so high?

A: Seaboard is a large soft commodities trader & provides financing when banks may be more expensive or unwilling to do so. The purchases from Tanzania could drop if there is a ban on exports.

It was mentioned that the next 2-3 years will be tough with high interest rates, volatile exchange rates, high/volatile commodity prices, increasing costs and inflation. Competition has grown substantially from the regional (mid-sized) millers. Are they evading taxes?

The firm (& its subsidiaries) are planning to spend lots of capex to increase/improve capacity. I am not sure how these will be funded with the low ROA.

What was left unsaid but one could 'feel' was the question/risk of the election. Unga's buying centres are in areas (Nakuru, Eldoret) that were severely affected by PEV 2008. Imports have to come by road or rail from Mombasa which were disrupted.

The Board declared a KES 0.75 dividend & this was passed with nary a whisper. It was mentioned that dividends not swag is what shareholders should want.

Alan McKittrick & Andrew Stewart Ndegwa were re-elected as directors. There were 2 vacancies created by the resignation, of the erstwhile Chairman, Richard Kemoli & Jeremiah Kiereini. The new Chairperson is Isabella Ochola-Wilson who handled the meeting well despite the "swag" complaints & questions.

Some shareholders had complaints/questions unrelated to the Financial Statements but were gently chided by the Chairperson for not sticking to matters on the agenda. The matter came to a head when the agenda item regarding 'electronic dissemination' of information & dividends was being discussed. The Company Secretary explained why it was necessary to update the Articles & Memorandum of Association to 'match' the new laws.  of  A major gripe was that he (among other shareholders) did not have e-mail. The counter was that the abridged information would be published in the newspapers but some shareholders claimed they did not buy newspapers. 

A section of shareholders were fed up of the proceedings & visibly agitated at the back & forth about the 'electronic dissemination'. Others started walking out since lunch was 'pending'. I think if they had offered the lunch packs earlier, the hall would have emptied out sooner. An appeal to wait till the AGM was over was ignored. No idea what was in the lunch pack but these must be the largest cost of holding the AGM.

An uneventful AGM with no surprises but the outlook seems bleak over the next 2-3 years unless there is a paradigm shift in the taxation regime, interest rates and business environment.

Mumias Sugar Company - Rights Issue in 2013?

It seems to me that Mumias will need to raise funds for expansion as the COMESA deadline approaches.

http://www.businessdailyafrica.com/Opinion---Analysis/State-must-privatise-sugar-mills-urgently/-/539548/1627038/-/10oqds8/-/index.html

The link above from Business Daily Africa is quite eye-opening. The highlights are mine.

"The latest development in the sugar industry is the talk about an impending acquisition of one of the new sugar factories in the Southern Nyanza region by one of the players in the industry.

Initially, I was inclined to dismiss the talk as having no substance. But I changed my mind after I found out that Office of the Commissioner for Monopolies had actually dispatched its officers in the field to study the implications of the impending acquisition and to investigate whether it was likely to lead to over concentration of economic power in the sugar industry by one player."

1. "New" sugar factory threw me off but it has been rumored for a long time that Mumias wants to take over the sugarcane fields of the inefficient (or dying) government owned competitors.
2. The acquisition, even if not approved yet, seems to be gathering steam if the Commish is sending folks out there.
3. Mumias is the largest sugar firm in Kenya & would only grow larger (volumes) if it acquires a local rival.

I figure that once the approvals are in place, the Rights Issue will be planned but likely to happen AFTER the elections are concluded & a new president is in place.