Of Cross Border Listing and Cross Trading (Part I)

Cross Border Listing (CBL) has become important in the last decade as companies have become international in their orientation. Technological progress and liberalization of capital flows has fostered considerable competition amongst global stock exchanges for equity listings and trade. The US exchanges over then last few decades have attracted a sizeable share of the cross listed firms.

Emerging Issues:
There issues currently brewing in Kenya yet investors may have taken a back seat, not out of will but, due to inadequate understanding of the issues at hand.

1. First and foremost is the much hyped East African Exchange that will bring together the Exchanges of Kenya, Uganda and Tanzania.

2. Secondly, is the issue of listing securities of our locally quoted companies in other exchanges as well as allowing foreign companies to list at the NSE.

3. The other issue is the clause in the budget of 2007/08 that would allow East african residents to invest in our bourse (NSE) as locals without going through the rigours of the selection process for east african corporate and individual residents.

Cross Border Listing (CBL):

Cross-border listing refers to the listing of securities issued by a foreign issuer on a domestic securities exchange. Therefore when a foreign company decides to expand its horizons and wants to go public in another jurisdiction, this is considered a Cross border Initial Public offering" or Cross border IPO.

The implications of cross border listing are immense and with every country stipulating its own listing regulations for companies it is noteworthy that corporate entities seeking to list elsewhere are no exception to the rigorous vetting process. Several factors still hampers cross border listing which encompass, language barriers, currency conversion, and different regulations.

Clearly, cross-border IPOs are often complex and challenging transactions that demands strict adherance to laid down rules of the exhange in question whereupon the company intends to list.

Reasons for Cross border Quotation:

Cross border listings can help the company raise more capital by targeting new shareholders. However not all cross border listing are accompanied by share placements as this may affect liquidity and share price. Publicly-listed foreign corporations would therefore undertake to list on overseas exchanges for a variety of reasons:

1. To boost its status as a truly global player.

2. To raise Capital through debt or equity.

3. To increase trading volume.

4. To improve shareholder relations.

5. To enhance its visibility among overseas investors and consumers.

6. To tap into retail and institutional funds and benefit from changing global attitudes toward equity investing.

Media Interests:

Normally, cross-border listing would attract media interest in the host country thereby improving brand awareness and corporate image. This can be a valuable asset for companies in the consumer products sector and other groups that depend on product or service recognition and visibility, possibly leading to spill over benefits for product or service-market sales.

Implications of CBL:

Shareholder Base: It leads to the diversification of a company's shareholder base thus spreading their financial risk in the same way that diversifying a portfolio can spread investment risk. This can alter the volatility and liquidity levels of a stock. For most companies this is a positive development.
Institutional Interest: Fund managers consider the company's fundamentals, quality, skill and accessibility of management, leadership position in the market, the scope and scale of the competition, and the stock's liquidity, important particularly for small and mid-cap stocks.
Retail Interest: Cross-border listing is an effective vehicle for increasing demand by overseas retail investors, who currently invest in foreign equities.

Liquidity: Increased liquidity can inspire market makers to compete with the new market to the lower bid/ask spreads. The increase in average daily trading-volume through new investors from foreign markets often results in an increasing share-price, higher market-cap and additional sponsorship. Moreover, a targeted equity offering through a new share placement may ensure deeper liquidity.
Raising Capital: Cross-border listings often assist foreign company in targeting new shareholders for fresh capital. However, not all cross-border listings must be accompanied by a share placement. There's always the possibility that a share placement might affect liquidity and share price.

KQ No Longer the Pride of Stock Punters

Kenya Airways is a premier airline that for a long term had been christened the pride Africa. KQ the national airline of Kenya, based in Nairobi and operates scheduled services throughout Africa and to Europe and the Indian subcontinent is the largest airline in Kenya, and operates more transcontinental flights than any other African airline.

Accidents:

Kenya Airways is still reeling from the tragic accidents that removed a significant junk of asset from its balance sheet. Fresh in our minds is the tradigc accident of KQ 507 in cameroon that was carrying 105 passengers from 26 countries and 9 crew members and all perished in the incident. The Airline also suffered a fatal accident of flight 431 off the coast of Cot d'Iviore killing 169 of the 179 people on board.
Profitability:

Kenya Airways announced another record profit after tax of Ksh. 4,829 million for the year ended March 31st 2006, being 24% above the previous year's result of Kshs. 3,882 million. Though th company realized a 24% increase in profitability, the company is yet to make significant strides towards profitability and the reduced profitability trends by the company scare aware investors who are keen to make extra bucks from dividends.
Volatility:

The Airline industry is very volatile and with increased accidents the demand for airline shares will remain low. The industry is replete with issues of terrorism scare, flight hitches, changing customer needs and preferences etc. This volatility is an issue that has implications on the company.
World Oil Prices:

The volatility of world oil market prices is also an issue and the company has to contend with higher expeditures on gasoline to power its aircraft. Oil and other commodity prices continued to rise against a backdground of security concerns in the Middle East anf risks to oil production in Niger Delta in Nigeria.

Customer Service:
After rebranding to be referred to as the pride of Africa there have been concern of poor customer service that has also had negative implication on the company's bottomline. With other airlines coming into the region, competition for clients is bound to rise and with poor customer services as alleged of KQ, customers will most likely shift to other established Airlines as Emirates, KLM, British Airways, Virgin Atlantic, South African Airline, Qantas etc. Therefore KQ should up the game in its customer service.

Competition:

The emerging competition from Virgin Atlantic with significantly reduced faires on its London route will also affects the long run run prospects of KQ. Virgin Atlantic enterred this route with a bang and promised to significantly reduce flight fairs in most of its routes clearly bringing into focus the issue of heightened cut throat competition that is likely to set in.

New Aircrafts:

As Kenya Airways was voted East Africa 's Most Respected Company for the second year running they needto keep up and even exceed this recognition of no mean feat.However, despite the company planning to add 5 new aircraft to its fleet over the next few years the cost outlay is significant and the company might have to borrow heavily from world lenders a syndicated loan that will also lead to high payment of interest (Expense) which will reduce Earnings Before Interest and Tax (EBIT).
Stocks:

The company may have to contend with low stock demand ,for awhile, at the bourse that is signifiantly hampering price appreciation. The company on traded 117,300 shares at a price between 76 and 67.50 from a 12 months high of 147 a few months ago. The company has a 12 months low of 36 and with investors taking a wait and see attitude things might turn for the worse.The company may need new strategies to improve its bottomline and stir the market.

Thumbs Up

1.Leadeship Center

KQ has opened a Sh500 million Leadership Centre near their Embakasi Headquarters in Nairobi that will be used to train the airline’s staff and also staff of other air operators.

2. New Embraer Jet

KQ has already taken delivery of the first 70-seater Embraer jet, with the second regional jet expected next month. The two 70-seaters will try and bridge the gap created by the accident where we lost the third B737-800.

3. Corporate Center

KQ has also opened a Corporate Centre and a Sh21 million service centre for its frequent flyer club members. The airline is a partner on the frequent flyer programme with Air France and KLM, called Flying Blue. Both facilities are located at the Barclays Bank Plaza, Loita Street, Nairobi.

The corporate Centre will:

-Serve over 80 corporate members.

-Offer dedicated reservations and ticketing

-At as a call centre.

-Provides email address for efficient communication with customers.

-Have ‘Commercially Important Person (CIP)’ code for recognition at the check in.

-Besides Kenya, the Flying Blue Centre will serve Uganda, Tanzania, Rwanda, Burundi, Sudan, Ethiopia, Zambia, Malawi and Mozambique.

WE REMAIN WATCHFUL AS INVESTORS TAKING A WAIT AND SEE STRATEGY AND FOR THOSE WITH THE SHARES YOU CAN AS WELL HOLD FOR THE LONG TERM.

Equity Still Rocks Despite Controversy

Enviable feats:Against a backdrop of controversy sorrounding the shareholding of its Chief Executive, the company has realize such enviable feats in recent times that the players in the banking sector are yearning for.

Being Kenya’s largest retail bank, Equity, has posted an impressive growth that put its ahead of most companies in the banking league.

Growth: The company recorded a 107% growth in pretax profits to Sh1 billion for the half-year period ended June 30.

Operating Income: This increased by 83% to Sh2.6 billion from Sh1.4 billion in a similar period last year.

Customer Base: Its customer base rose by 300,000 in the 6 months since January to 1.3 million customers representing about 35 per cent of all bank accounts held in the 42 licensed banks in the country.

Customer deposits: This went up by Sh7.3 billion to Sh23.6 billion since January.

After Tax profit: The bank’s after tax profits increased by 137 per cent to Sh830 million up from Sh350 million in a similar period last year.

Interest Income: Net interest income for the period was Sh1.2 billion compared to a total non-interest income of Sh1.3 billion.

Overhead expenses: This increased by 70% from Sh903 million to Sh1.5 billion as the bank forged ahead with its branch and staff expansion.
Total assets: This went up by Sh9 billion to Sh29 billion.

Staff numbers: It grew by 600 to 1,919 in the period.

Awards: The bank recently won the global vision award in microfinance jointly with Grameen Bank of Bangladesh, during the annual G8 summit held last month in Germany.

Shares: The bank’s shares continued to maintain its stability and liquidity with sizeable investors still streaming in to buy a piece of the companies stake. This is after the shares fell to an all time low of around Ksh 80 just after the effecting of a bonus issue. However this was only shortlived as the the shares were priced at between Sh133 and Sh128 in yesterday’s trading at the stock market.

Housing Finance stake: The company has already signed a deal to buy 24% of the the stake in Housing Finance, the listed mortgage company, after successful boardroom negotiations with CDC to take up its shareholding in the company once the impending rights isue is effected.

Financial Supermarket: With the company in partnership with Britak in the Housing Finance deal, it appears theat the company might be headed towards the establishment of a financial supermarket with British American Insurance, British American Asset Managers, Dyer and Blair, Housing Finance and Equity Bank in the deal to provide a one stop shop for insurance, Capital markets Investments, Corporate Finance, Asset management, retail lending , mortgages etc

East African Tiger?

Economic Survey

The recent economic survey released by the Central Bureau of Statistics (CBS) in collaboration with the Ministry of Planning and National Development reveals that the global economy continued expanding in 2006 with economic activity in most regions exceding expectation. The global growth recorded a rise of 5.1% in 2006 mainly boosted by robust growth in US, Euro Area and China.

Oil prices continued to rise with metal prices being driven mainly by the high demand in the emerging Asian markets.The Sub Saharan Africa region experienced the strongest period of the economic expansion since 1970s with 5.2% growth which is projected to increase to 6.3% in 2007.

Real Gross Domestic Product

GDP expanded by 6.1% in 2006 compared to 5.7% in 2005, 5.1% in 2004, 2.9% in 2003 and 0.5% in 2002. The growth was boosted with agriculture and Transport and communication being the main source of growth.

Over these few years of the NARC administration the economy has grown marginally with further projections of even better growth in the next decade. It is worth noting that the economic projections for the 2007/2008 is expected to near the 7% mark if all macroeconomic variables at play continue being stable as the major economic drivers realize increased activity.

With this in mind i was left wondering whether Kenya will one day realize such spectacular growth as was witnessed within the Asian economies that came to be know as the Asian Tigers.

The Tigers

This term was coined in reference to the economies of Hong Kong, Singapore, South Korea and Taiwan. These economies were also known as Asia's Four Little Dragons and were noted for maintaining high growth rates and rapid industrialization between the early 1960s and 1990s. In the early 21st century, with the original four Tigers at or near to fully developed status, attention has increasingly shifted to other Asian economies which are experiencing rapid economic transformation at the present time which include India, China, Japan, Indonesia and Phillipines amongst others.

East African Tiger?

With the foregoing spectacular growth of many economies in East Asia over the past 30 years which amazed many professionals i wondered whether some day Kenya will realize such no mean stature. With the current upgrading of Kenya in the world map from the Least Developed Country (LDC) to the Developing world status might be a sign of good tidings to come and a step in the right direction. The Kenyan economy has realized significant activity in Agriculture with alot of Investments by both local and foreign investors has also been boosted the transport and commucation infrastructure showing signs of further growth. Transport and Comunication, Business Process Outsourcing (BPO), Information Technology etc.

Vision 2030

I believe that with the launch of the vision 2030 by the government Kenya is so close yet so far to becoming a nation to reckon with interms of the world economic muscle. However alot of things have to be in place if Kenya is to go down the road of economic prosperity with the three vision pillars of Economic, Political and Social being at interplay. It is neccessary to provide a conducive environment for Foreign Direct Investments (FDI) in industrial production/manufacturing, agriculture, business process oursourcing, financial markets/money banking and finance, technology, infrastructure, mobile telephony, transport and communication, tourism, energy, building and construction etc.

The vibrancy of the Kenyan stock market is notable and with further listing of more companies in this bourse investors across the global divide will stream in to invest in the country. Correspondingly, corporate governance within most corporations will be enhanced greatly as the watchful eye of the Capital markets and the Nairobi Stock Exchange keeps them in check. The capital market activity in recent times is much touted to spur economic growth leading to eventual development that would propel us to be an economic TIGER.

I HAVE A DREAM!

TPS Serena to Benefit from Tourism Upswing

It is clear that TPS Serena will cash in on the projected increase in number of tourists into the country. It is projected that the country’s annual tourism revenue will hit the Sh350 billion mark in the next 5 years from the current Sh56 billion. Kenya Wildlife Service (KWS) director Dr Julius Kipng’etich has also revealed that the number of tourists visiting the country will increase from the current 1.8 million to 5 million.

Influx of Tourists

The influx of tourists into the country has seen Tourism Promotion Services (TPS) Eastern Africa Limited, Serena, profits before tax for the half year ended June grow by 78.9% to Sh215 million. Turnover also grew by 14.7% to Sh16 million compared to Sh14 million during the same period last year. Earnings went up by 61% from Sh191 million the previous year to Sh309 million in the year ended December 2006 due to the integration of the firms unit into a single holding which saw the company bring together its Tanzania and Zanzibar units into a single business unit name TPS East Africa formerly TPS holdings. However, the Units in Rwanda, Uganda and Mozambique are not owned by the listed company.

TPS Shares

TPS (EA) is the only listed company in the tourism sector, has shown strong performance in the stock market and the continuous growth in the sector is expected to continue driving the company’s profits up. It is further expected that there will be an increase in the demand for the company shares after a slow demand during the first half of the year. The company’s share closed at a stable Sh77 on Friday having moved 9,800 shares, and the good results are expected to increase demand for the share among the investing public.

Serena Brand

AKFED's involvement in tourism development in South Asia and East Africa takes place under the aegis of Tourism Promotion Services (TPS), with companies incorporated in Kenya, Tanzania, Zanzibar, and Pakistan.Tourism Promotion Services operates under the “Serena” brand name and owns and manages 15 hotels in East Africa and Asia.

The Aga Khan Fund for Economic Development (AKFED)

This is an international development agency dedicated to promoting entrepreneurship and building economically sound enterprises in the developing world. AKFED focuses on building enterprises in parts of the world that lack sufficient foreign direct investment. It also makes bold but calculated investments in situations that are fragile and complex. AKFED operates as a network of affiliates with more than 90 separate project companies employing over 30,000 people, with annual revenues in excess of US$1.5 billion. The Fund is active in 16 countries in the developing world: Afghanistan, Bangladesh, Burkina Faso, the Democratic Republic of the Congo, India, Ivory Coast, Kenya, Kyrgyz Republic, Mali, Mozambique, Pakistan, Senegal, Syria, Tajikistan, Tanzania and Uganda. Read more

Fintrade's Verdict: Buy and hold for the long term

Corporate Cook-Books, How safe are we?

Corporate governance

As the year slowly draws to an end, several companies that are quoted at the Nairobi Stock Exchange are releasing their results as per the corporate governance requirement for listed corporations.The quarterly reports for most companies are streaming into the market as investors ravenously delve to unravel what they might portend but the big question here is whether these results are trully reflective of the goings-on at the company?. Are these reports often witfully prepared and portrayed in the ever attractive, juicy presentations correct and factual or is it that investors are just among thr growing number of victims of the emerging trend of what i would call corporate 'cooking of the books' as was witnessed in corporate America a few years ago.

Enron Scandal

As was the case in the Enron scandal, the company was hailed by many as the symbol of effective corporate management, a great company by any standards, until revelations of its major corporate fraud started streaming in and spreading like wild fire accross the world media houses. As journalists, investors , governments, anticorruption bodies and all stakeholders went on to delve into the nitty gritty of this issue, it emerged that Enronwas in collusion with one of the top five audit firms in the world (Now collapsed) Arthur Andersen to doctor its books. It was later discovered that many of Enron's recorded assets and profits were inflated, or even wholly fraudulent and nonexistent. The company was putting debts and losses into entities formed "offshore" that were not consolidated with (included in) the company's financial statements and, in addition, by the use of other sophisticated and arcane financial transactions between Enron and related companies formed to take unprofitable entities off the company's books.

Tip of the iceberg

These is the tip of the iceberg in what has emerged as the growing trend of cooking of the financial statements by most firms inorder to show a rossy picture that would leave most investors scrambling for the company's pie through purchase of the stocks in the world major equity markets. This leads to skyrocketing stock prices as demands hits the roof. Though these results are not reflective of the company fundamentals, many investors out to make quick bucks and get-rick-quick find themselves in this gold rush only to remain trapped with massive losses once the market corrects itself, others will even loose substantial portions of the hard earned cash.

Why quibble?

Though many would be quick to ask, why quibble over flimsy murky details whereas the company is 'doing well' in most fronts? As you may wish to find out ,these companies are teetering on the brink of bankruptcy and drawing demise and its time investors be aware and beware.

Loss of objectivity

In Kenya, with 53 listed companies at the bourse (and the number is bound to increase with the entrance of Kenya Re and latter in the year Safaricom), the Enron debacle is also emblematic of another problem that has become all too evident in the last few years. It is from the hallowed Wall Street's of the grand corporate deals in America to the emerging Kimathi Street of the Kenyan capital, Nairobi that corporate linchpins have lost their objectivity in preparing and releasing their quarterly reports.

Auditors and Analysts at these firms often face conflicting loyalties. They are often in a dilemma and can be put in the position of having to worry as much about whether a chief executive might find a report offensive as whether an investor might find it helpful. These auditors are in business and though they are expected to maintain integrity and high standards of professionalism, sometimes this is compromised and sacrificed in the altar of business contracts and continued gains.

Prickly questions

Therefore, Investors should ask prickly questions and probe such juicy financial reports before making any investments decisions as they are often skillfully and strategically crafted to paint a well-to-do picture.

Be aware and Beware!

NBK out of the Woods at Last!

No longer at the edge

The results released yersterday by the National Bank of Kenya board/management show that the company has reported a 35% increase in pre-tax profit to Sh617 million for the half year ended June 30, a proof that the repayment of a Sh2o billion debt by the Government is bearing fruits and has helped to pull the company from the edge.

Bonds issued

The debt repayment by the government was effected after it issued bonds worth Sh20 billion as a repayment of Government guaranteed debts advanced by the bank to state corporations. The government has further promised to pay the remaining Sh1 billion by March next year thus clearing its bad debt portfolio with the bank and hopefully enabling the company to significantly reduce its bad debts provision which had significantly reduced its profitability margins over the years.
It was evident that the bank’s investments in government securities shot up by a whooping 743 % from Sh2.8 billion to Sh23.6 billion (The 20B increase in the balance sheet) reflects the loans that were converted into government bonds.

National Bank of Kenya has reported an after tax profit of Ksh.432million compared to Ksh.320 million during the same period last year. This translates into an increase of 35% over the same period last year.

The company's financials summary is as presented below:
1.Interest income on loans & advances:
This reduced from Ksh.2.3billion to Ksh.1.8billion.

2.Interest expense:

This reduced from Ksh.439million to Ksh.375million due to the general decline in interest rates.
3.Provision for bad & doubtful debts:

This reduced from Ksh.1billion to Ksh.350million marking the end of the bank‘s provisioning for all historical bad debts.

4.Commission income:

This improved from Ksh.600million to Ksh.725million.

5.Total deposits:

Deposits increased from Ksh.27billion to Ksh.33billion.
6.Gross Non Performing Loan’s portfolio:

The level not fully provided for and therefore to be managed in NBK balance sheet is Ksh.5.5billion against which a total provision of Ksh.4.3billion is held leaving a net of Ksh.1.2billion. This is covered three times over by securities hence the zero exposure shown.Fully provided for NPL’s which therefore cannot negatively affect operations are being managed by the bank separately outside its balance sheet.
7. Core capital:

This stands at Ksh.3.6billion against the current statutory requirement Ksh.250million and the extended limit of Ksh.1billion. Following the restructuring of the GOK debt (20billion) and full provision of NPL’s, the asset quality of the bank as measured against the core capital has improved significantly.

New Branches:

New branches to be opened are at Moi’s Bridge and at Egerton University.

ATM network:

This continues to expand after the partnership with PESAPOINT last year that saw NBK customers access an additional 110 ATMs. The bank will soon double the existing ATMs in the branch network.
Asset Financing:
The bank recently introduced asset finance and unsecured business loans to meet the changing needs of our customers. Our existing products are currently being reviewed and repackaged with a view to making them up to date with the market dynamics and the ever evolving customer needs.
Mortgage Financing:

The company is working on a mortgage product which is set to be launched soon. The bank will continue to introduce new products that provide solutions to the financial needs of our customers and Kenyans in general.

From the foregoing, the bank is likely to have come out of the woods at last...

Right Time to buy ICDCI

After looking through all the companies listed at the bourse, i though it would be wise to share with you this verdict on the ICDCI counter listed in the financials and investment sector of the Nairobi Stock Exchange.
Facts:
1. Earnings: ICDCI invest in companies that are expected to shows significant increase in earnings.
2. Strategic: The company in its strategy identifies companies that are strategic and require substantial cpaital outlays.
3. Partnerships: In its investment strategy, the company normally partners with like minded companies with expertise and essential business skills. This enables the company get the requisite board advice as well as avoid 100% risk in its investments portfolio that would have far reaching implications in the long run if deals go sour.
Prudence: The company undertake due diligence and stick to prudential allocation of assets to continuously create and enhance shareholders value.
Passion: The company has a passion for excellence and integrity through proactively managing a well diversified portfolio.

Shareholders % Shareholding
Government of Kenya (ICDC) 24%
Institutions 27%
Public 49%
Associated Companies Portfolio (%) Sector
1. Nairobi Bottlers 27% Beverage
2. Kisii Bottlers 17% Beverage
2. Rift Valley Bottlers 47% Beverage
3. Mount Kenya Bottlers 28% Beverage
4. Kenya Wines Holdings Beverage
5. Kenya National properties Property
6. General Motors 17.8% Industrial-Automotive
7. Eveready Batteries EA Ltd Industrial
8. Mather and Platt (K) Ltd 35% Industrial
9. AON Minet Insurance Brokers Financial and Services
10. UAP Provincial Insurance 24% Financial and Services
11. NAS Airport Services Services
12. Wildlife Works Industria- Textile
13. Uchumi Supermarkets Retail
14. Public Equiy Investments
15. Fixed Income Securities
16. Rift valley railways

Portfolio Percentage
1. Beverage 42%
2. Property 5%
3. Industrial 16%
4. Financial/Services 21%
5. Public Equity
6. Fixed Income Securities 5%
7. Transport

Note:
ICDCI is keen on expanding its private equity portfolio and is interested in companies not listed but have a robust business model in whatever sector they operate so as to provide equity capital and prefer companies looking to expand.
Verdict:
From the foregoing and the price movements at the NSE after the split which shows a 12 months high of Kshs80 and an average price of Kshs30 the price is likely to shoot up come the new calendar year.

Just invest and watch this space for more...

From the Thinktanks

Today i read through a couple of blogs just to get a feel of whats happening and these are some of the notable works i found in my clicks and close.

-Kengen vouching for night shifts among industrial companies so as to safe on costs as this will be priced differently as an inducement. Further, this will help the country safe on alot of electricity costs that would have gone towards the building of new power plants accross the country. Read more

-The Ato Z of the prospectus as analyzed by the ever critical bankele provided with the candour it always has.

-Investing ideas for 2007 as provided by smart business magazine that will blow your mind (hopefully) and stir you to look beyond the here and now.

-If you been running up and about looking for the Kenya IPO propectus you can access it here. Read through and make informed investments decisions. Knowledge is power. You know that er...
-The Central Bank has sounded an alarm bell over the increase in counterfeit notes that have continued to dent the image and the credibility of the country's payment and settlement system.

Just a thought:
Could the predictions about the Earthquake that had earlier been delivered by a one Pastor Awori be coming true. The guy had been behind the scenes only to appear with news of doom and called for repentance.

Speculators Crave for Mumias again

The week saw speculators running to buy mumias shares in the bid to make a quick kill after several months of depressed activity and price reduction.

Speculations:There are also speculations that:

1. Acquisitions:The miller is the front runner in the acquisition/management of the other dormant competitor (Miwani Sugar Company) which would add to its portfolio and subsequently future returns from the company.

2. Electricity generation:The company has been pursuing an extensive expansion programme that saw it make inroads into electricity co-generation that will enable it save on costs and enhance revenue. The project cost was deemed to be around $50M.

3. Bonus:There are also talks of an impending bonus issuem (2:1) by the company though this facts are yet to be confirmed officially.

4. Contracts:The company has also signed a 10-year agreement with the Japan Finance Corporation(JFC) to sell carbon credits from its power generation activities with expectations to displace about 100,000 tonnes of carbon which would be traded in a system similar to trading of securities or commodities.

5.TARDA project:Mumias also eyes to put up a new sugar mill within the Tana River delta. In a recently signed joint venture with Tana River Development Authority (Tarda), the company envisages to put up a plant with capacity to crush 6,000 tonnes of cane a day within the delta even though the venture is likely to include co-generation and ethanol production.

Price rally: The above fundamentals support the latest surge that has seen miller’s stock price rise steadily in the past three weeks.Last week, the Mumias stock clocked a high of Sh32.30 after nearly six months of poor performance that saw it plummet from about Sh54 in November last year to an average Sh25. At the close of trading yesterday the stock was trading at an average price of Sh29.75.

COMESA FTA:
However, the Comesa Free Trade Area (FTA) will expire in March next year and as such is expected to negatively affect the performance of the stock.

Court Allows Kenya Re IPO to Continue

The court yesterday allowed the Kenya Re IPO to continue by throwing out a court suit filed by a one Mr. Apollo Mburu Gichuhi on behalf of the collapsed United Insurance policyholders.
Prospectus:
The prospectus was released to the public though there were concerns that the vendor did not make public the forensic audit report that tried to delve into the corruptions allegations at the company. The prospectus said that potential investors can pick up upto 16 documents for inspection from the company head office though many feared that the audit report might not be among them.

IPO Debut:
The Kenya Re IPO, which debuted in the primary market yesterday, offers investors a chance to buy a stake in the company at a price of Sh9.50 per share. The offer draws to a close on July 31, with trading at the Nairobi Stock Exchange set to commence on August 27. The IPO involves the sale of 240 million shares valued at Sh2.3 billion to the public which is equivalent to 40% of the company.
The company assets are worth 12.8B. The company in the last financial year made a pre-tax profit of Sh700 million on a revenue base of more than Sh3 billion.

Allocations:
Public-47%
Insurance Companies-20%
Qualified Institutional Investors-30%
Kenya Re Employees-3%
Delivery Vs Payment:
The IPO offers institutional investors a chance to pay for shares only allocated to them thus reducing on the refund payments as other investors wil be left to grapple with underallcoation and chasing refund payments. Why this preference???

KCB Expansion Plan

35 New Branches:
Kenya Commercial Bank will open 35 New branches in Kenya over the next 12 months according to Susan Mudhune the group chairperson. This is in line with their elaborate expansion plan that will also see the bank open a subsidiary in Kampala after its successful expansion to Southern Sudan and Tanzania. The company also intends to increase its branches in Tanzania and Southern Sudan.
ATMs:
The bank will also install 35 new Automated Teller Machines (ATMs) to cater for the expanding customer base.
Core Banking System:
The bank would also implement the new core banking system-T24 from Temeons- in order to provide technology-driven products and enhance efficiency.
Dividends:
The bank yesterday paid KShs 314.1 million to the goverment as dividend payment for the year ended December 2006. The Government is the bank’s majority shareholder possessing 26.2 per cent.
Turnaround:
The company being the largest indigenous bank has come from a loss making entity to a pre-tax profit of Ksh 3.2 Billion in 2006 and its expansion plans attest to this fact and confirming that Banks's prospects in the future are good.

Kenya Re IPO Opens Despite Court Case

Kenya Re IPO:

It is now official that the Kenya Re IPO will continue despite the court case filed by a policyholder with the collapsed United Insurance Company that sought to stop the process. Finance Minister However said that the IPO will go one despite court case adding that they had not been served with the court order.
Mr Apollo Mburu Gichuhi moved to court and argued as follows:

-Vital Information regarding the Kenya Re Ipo had been withheld from the market i.e. Kenya Re had failed to show the true picture as the statutory manager of the collapsed United Insurance in its books.

-Policyholders of the collapsed United Insurance had not been settled.

-Main raised from the IPO would be lost in paying out claims to the United Insurance policyholders.

-CMA to quash the floatation intended to raise Kshs 2B until the plight of the collapsed UIC policyholders is addressed.

Hon Kimunya argued that they had not been served with the court order and the IPO will go on nontheless adding that all the allegations had no legal basis.

NSE:

The Government plans to sell a 40% stake (240M Shares) in Kenya Re for Sh2.28 billion ($34.09 million at Sh9.50 per share. Trading is slated to start on August 27 at the NSE. Prospectus would be available to the public on Wednesday.

Placement Costs:

The case threatens to further escalate the placement cost which have so far shot above budget by 109M as legal fees to pursue the case would be needed. The increase of 109M was payments to consultants retained to advise on the process.
The overall cost of the Sh2.3 billion transaction has risen by 60 per cent to Sh289 million from Sh180 million.

Previous IPO Costs:

On a comparative basis previous IPOs cost less than Kenya Re.
-Ken Gen IPO which was valued at Sh7.8 billion cost Sh401 million.

-Eveready’s IPO valued at Sh639 million cost Sh42 million.

-Access Kenya paid out Sh40 million.

The huge increase has resulted in the overall expenses as a percentage of the gross proceeds rising to double digit range of 12.67 per cent from the previous estimates of 7.91 per cent.

Lead Transaction Advisors:

The consortium consist:

-Dyer and Blair Investment Bank

-PFK Kenya and

-QED Actuaries and Consultants r

Their costs rose by 56 per cent to Sh25 million from Sh16 million quoted in the initial bid documents. The reason given for the huge increase on work related to the defunct Kenya National Assurance Corporation (KNAC) which was meant to be part of Kenya Re but was the plan was shelved the last minute to avoid queries on Kenya Re accounts.Of interest and related to this is that the cost of the lead and co-sponsoring broker dropped substantially from Sh12 million to Sh600, 000. No reason is provided for the phenomenon drop.

Join Lead Cosponsoring Broker:

The joint lead sponsoring brokers for Dyer and Blair are CFC Financial Services and Standard Investment Bank with Suntra Investment Bank acting as the co-sponsoring broker.

Registrars:

Another cost escalation is attributed to the provision of registrar services and the provider is Kenya Commercial Bank, which will also act as the receiving bank. The cost spiked five times to Sh5.9 million from Sh1.5 million. The reason attributed to the increase in the provision of the service is on software licence fee.

Again this raised the question of whether the provider knew the real cost at the time of bidding for the task and why they would review the cost by such a huge margin.The legal advisor consortium also reviewed their charges by a whopping 71 per cent.

Legal Team:

Just like the lead transactional advisor, the legal team made up of Hamilton, Harrison and Mathews, Rachier and Amollo and Denton Wilde Sapte of London claim the cost increase is associated with KNAC related work.The delay of the IPO following intermittent postponement has seen a threefold increase in the advertising and public relations costs.

Advertisement/Public Relations:

The advertising cost spiked by 171 per cent to Sh57.7 million from Sh21.4 million. Lowe Scanad a subsidiary of the just recently quoted Scangroup is handling the PR job.

Controversies:

This court controversy adds another twist to the IPO fate and threatens to scuttle the much awaited listing. Other controversies that dogged the shares floatation in the past include a forensic report alleging grand corruption that led to the firing of the MD (Jonhson Githaka) and his Finance Controller (James Kinyua) pending investigation. The two had allegedly diverted company resorces to personal use.

Price Wars at Telephony Industry

Cut throat competition:
It is now very evident that there is a cut throat competitition amongst the telephony industry players with everyone striving to remain relevant, absolutely cheaper and relatively preferable to the other party within the growing industry.

Celtel and Safaricom:
Earlier it had been evident that the two main players in the GSM commucation; Celtel and safaricom had been at loggereheads as price wars intensified. Safaricom with over 5M Subscribers recently made headlines with its substantial profit margins amounting to 17Billion, the only feat in this region of the world and may be quite unparalleled in Africa as well. Celtel on its part has close to 3M subscribers and is striving to increase that number marginally as well. Now Telkom Kenya has joined in the fray and is busy unveiling competitive tariff structures aimed at making the cost of telephony services affordable to the consumer.

New Tariffs:
The new tariffs launched by Telkom are: Furaha, Thamani and Shikamoo as well as a credit sharing service called Pasha as well as an SMS service.

CDMA Technology:
Telkom in its current onslaught on the industry is using the 3rd Generation System referred to as the Local Loop/CDMA i.e. Code Divisibole Multiple Access Technology. The Technology has 390M Subscribers and is currently used in 21 countries around the world.

Anonymous Letter Alleges Improprieties at Equity Bank

Improprieties:
The last week was marked by revelations on the alleged improprieties at Equity Bank occassioned by a letter from an anonymous financial consultant and observed by Hon Khalwale among other M.Ps in Parliament.

Alleged Facts:
The anonymous letter Cpied to various concerned institutions) points out that millions of poor indigenous kenyans have been fraudulently robbed of millions of shillings through the listing of the banks shares at the NSE and gives the follows "facts";

Trade Bank Collapse:
1. James Mwangi, Equity CEO was the Finance Manager at Trade Bank, and part of the senior management team that supported Mr. Kassam before the bank collapsed with Billions of customer deposits.

Moved with Ksh 200M:
2. He moved with Kshs 200Million cash to Equity from the collapsed Trade Bank which he injected as capital supporting the resultant position of being the largest shareholder of the bank despite being only 42 years old.

Goldenberg Iquiry:
3. Mr. Mwangi was adversely mentioned inthe Goldenberg Inquiry.

Directorship:
4. From the above is he fit and proper under CBK guidelines to be a director of the Bank today?

30% shareholding:
5. He owns over 30% shareholding at the bank well above the 5% limit set by the CBK for a CEO, most of it in nominees accounts alleged held by the following members of staff:

Nominee Accounts:
Name: Designation: No. of Shares: Value:
Andrew Kimani General Manager 11.3M 1.6B
Mary Wamae Company Secretary 5.22M 730M
Gerald Warui General Manager 4.9M 686M

Bonus:
After the 2:1 bonus issue an employee earning kshs 400, 000 P.M would never build such a portfolio i nthe bank even in 200 years!

CBK and CMA?
How comes the CMA and CBK cannot see that they are just some of the nominees of James Mwangi?

Independent Directors:
6. Two Independent directors resigned from the board starting from the well respected Wanjiku Mugane of First African capital and now David Ndii citing serious corporate governance issues. Dr. Ndii is a highly respected development policy expert at the UoN with a PhD from Oxford University and previously worked at the world Bank.

Senior Staff Turnover:
7. Equity Bank has the highest senior staff turnover in the industry none stays for more than 1 year also citing serious corporate governance issues.

Exorbitant Prices:
8. The purpoted listing has been driven by the directors need to offload at exorbitant prices shares held in Asociate/Nominee names as their shares are bonded by CMA for 2 years hereunder for illustrations:

Dyer and Blair:
a) The principal shareholder of Dyer and Blair Investment Bank the leading broker on the shares is also a major shareholder of Equity Bank.

Kshs 70/Share Listing:
b) The listing was done at Kshs 70 Per Share, which was pushed to over 240 Per Share before huge bonus issue (2:1) ( capitalizing all revenue reserves) with subsequent share price then pushed to over Kshs 140 i.e. in simple monetary terms the value/ wealth of the directors has been multiplied more than 8 times in less than 1 year through the machinations at the NSE.

Front Running:
c) Clearly the share is being front runed/Spiked up poor kenyans are being duped to buy the share.

Industry P/E Ration:
d) Even the industry everage PE ratio of almost 60 times compared with similar institutions profitability base the share price at a reasonable industry PE of 15 should be around Kshs 30 Per share on the higher side but notKshs 140!

Hyped Media Bliss:
9. The hyped up daily unprecedented media bliss in Kenya's history is a cover up for all these fradulent activities to hype up the share price.

Unsustainable growth:
10. The bank is being pushed to grow at an unsustainable rate and indeed as observed by Hon. Members of parliament may go the same route Mr. Mwangi the CEO and friends of Trade Bank!
11. Former senior staff from CBK-Bank Supervision have been employed at the Bank to slow down any findings from CBK onsite inspection team.

Tip of the iceberg:
The letter alleges that this is only a tip of the iceberg and you may wish also to review how the Kshs 1Billion ICT, Branch expansion and overall procurement is being carried out that has prompted the 2 key directors and senior staff to resign; kenyans will be in for a big shock if you do not urgently intervene.

Yours Faithfully,

S.K. Patel

cc: -Governor CBK
-All fund Managers
-Commercial Banks
-Stock Brokers
-Capital Markets Authority
-PS Treasury

Kenya Re IPO Opens 18th July 2007

Initial Public Offer (IPO):
It is now official that the Kenya Re IPO opens in a week (July 18) and most investors are bracing themselves ready to jump in on the bandwagon and get a piece of this national cake.

Retail Investors:
In most IPos from Kengen, Scangroup, eveready, acessKenya etc it has been evident that retail investors are the majority and more often than not have to contend with minimal share allocations way below their applications. This is then followed by a rigorous process of seeking from refunds which more often than not leaves many a discouraged lot wishing they had not in the first place plunged into this stock markwr mania.

Prospectus:
Most savvy investors are nonetheless waiting for the release of the prospectus for them to analyze the company fundamentals and assess the company credibility as a viable investment option vis other counters trading at the bourse.

Scandals:
The the compnay is still reeling from scandals that rock it, investors are waiting with bated breaths hoping to make a kill during the first few weeks if trends i nthe stock market point upwards. The books however have been 'cleaned' though many would stilldig deep down inorder to ascertain what would have led to the firing of the MD and its close Finance Director who were alegedly involved in the corruption racket. We are waiting...

Monopoly:
Kenya Re being a Reinsurer, that insures other insurance companies is a monopoly of some sort (more like Kengen and might follow the same trend) with alot of assets in its name that would provide a solid security base though the current trend of accidents and especially the Kenya Airways (KQ) Crash might have an impact on the company that has to compensate some employees of the company who lost their lives during the fateful day. The company has good growth prospects that is likely to create excitement at the stock market.

Corporate/institutional investors:
They have been allocated a substantial portion of the offerered shares.

Allocations:
Retail investors; 47% equal to 112.8 million shares of the 240 million shares offered.

Pyramid schemes:
This year witnessed the meteoric rise in the number off pyramid schemes that latter came tumbling down with a big thud going under with millions of shillings in investors money. Those who were lucky to have gotten their money back may rush again to invest at the bourse since this schemes had led to massive sales at the NSE as crious investors hoped to rake in millions from this rather lucrative deals supposedly referred to as the viable investment schemes that offered mind bloggling returns, its sustainability notwithstanding.

Statistics:
= IPO opens on July 18, closes on July 31.
=Result out mid-August and listing towards end of August or early september.
=minimum shares for retail is 2,000 shares @ 9.50 which is worth 19000.

Parting shot:
Is it true that institutional investors complains about refunds has been heeded and they dont have to pay any money for the shares applied until they get their share allocation confirmed?

Financial Supermarket in the Offing

Trancentury:
It is quite evident that the wheeler-dealers at Trancentury cannot stop at anything until they get what they want.

Jimna Mbaru:
Now Jimna Mbaru the director of Britak, Chairman of Dyer and Blair Investment Bank, Chairman of NSE and a member of the Trancentury Group, as well as the a shareholder of Equity Bank has his eyes on Housing Finance rights.

Britak-Equity partnership:
By allowing Britak and Equity partnership to take over the rights of CDC (24.9%)Government (7.32%) and NSSF (10.35%) this would create one of the leading financial services supermarket in this part of the world as well as make it one of the leading shareholders of the firm with a stake in decision making through its voting rights.

Synergy:
If you can fathom this:

Equity Bank: Leading Lender/Bank to the SMEs

Dyer and Blair: Top Investment Bank and Stockbroker

Britak: Has interests in Insurance (British American Insurance) and Asset Management (BAAM)

Housing Finance: One of the top listed Mortgage companies in Kenya offering finances for real estate development, purchase etc

Trancentury: has interests in telecommunication, stock market, infrastructure, Banking, ICT etc


Investopedia Says:

For the consumer, a financial supermarket can offer convenience and efficiency, since his/her money is not being continually shifted from one institution to another. For the institution, an all-encompassing relationship with the consumer is more profitable than handling just one aspect of a customer's financial needs.

Nairobi Stock Exchange (NSE):
With NSE now trying to sell information to investors even the price lists through a shrouded company call MediaCorp might be another conspiracy by those connected with Trancentury and the stock market investment elite to deny most yearning investors the requisite information to make informed decisions.