Investors Diary

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Tuesday, September 11, 2007

TRANScending the CENTURY in Investments

Trancentury group is a company that (started as an investment group) has risen from obscurity to uccupy the coveted pedestal in the Kenyan corporate scene. Most young entrepreneurs striving to own big corporations and sit in big board meetings where they call the shots often look back at the feats that this politically connected company has attained within a short span of time for their motivation.

Over the years Trancentury has modelled itself as an active investment unit that employs creme-dela-creme in the investment and portfolio management cycles with incredible papers to run their affairs while the directors dig deeper into their pockets to unleash the much needed investment funds. This has borne fruits for this company.

Investment Groups
It is noteworthy that one in three working Kenyans is a member of an investment group and Sh30 billion is estimated to be held by these groups, almost close to the Sh 35 billion that Safaricom hopes to raise with its IPO later this year. Indeed their popularity has extended across the borders with Kenyans abroad pooling their resources to invest in the country, with the Nairobi Stock Exchange and real estate being the most popular areas of investment.

TCL’s current portfolio of investments traverses rail transport, financial services and manufacturing sectors with some of its most notable investments being a stake at the Rift Valley Railways (RVR), the concessionaire for the Kenyan and Ugandan Railways system.

Trans-Century’s foray into the regional markets signals the 10 year-old firm’s hawk-eyed strategy of seeking fundamentally viable, well positioned companies with attractive growth prospects. TCL has in the last five (5) years been making waves after a series of profitable acquisitions and stock market investments that has seen the company that started as an investment club with a capital base of Sh1 billion turn into a 14.3 billion fund in a decade.

East African Cables
East African Cables marked the start of the most successful part of investing for Transcentury Company Limited (TCL). In 2003, the firm closed one of its smartest deals yet by buying 75 per cent of East African Cables, which is listed on the NSE from Naushad Merali for Sh240 million. East African Cables is today worth Sh9.9 billion, meaning the TCL stake is valued at Sh7.4 billion. TRANS-CENTURY is the controlling shareholder in the East African Cables (EACL) group, through its subsidiary company Cable Holdings Ltd.
Products manufactured by Cables include copper electrical cables for domestic as well as industrial applications, aluminum conductors and cables for power distribution and transmission over national gridlines. After the acquisition (TCL owns 75 per cent of EAC) profit after tax has increased 30 times from Sh9.3 million in 2003 to Sh284 million in 2006. Sales have increased five times from Sh428 million to Sh2 billion.

Dausung Cable
TCL already dominates the electronic components market in Kenya, through East African Cables and in Tanzania after it acquired a 51 per cent stake in Tanzania’s Daesung Cable for $2.62 million from its Korean owners.

It also has a two (2) per cent stake in Kenya Power & Lighting Company (KPLC), which also gives its investment portfolio a significant presence in the energy sector and an overweight exposure to risks in that sector as well.
TCL’s investment in KPLC is now worth Sh447 million. Money raised from the sale of KPLC shares was used to finance the Sh630 million investment in Rift Valley Railways— the company that won a 25-year contract to run the Mombasa-Kampala railway line.

Development Bank of Kenya
Last year TCL acquired a 10 per cent stake in Development Bank of Kenya from the Commonwealth Development Corporation (CDC). Development Bank of Kenya is a leading Kenyan development finance and commercial bank that focuses on the corporate market. TRANS-CENTURY holds a significant minority equity position in this entity and has invested along side Industrial Commercial and Development Corporation (ICDC) the investment arm of the Government of Kenya.

Equity Bank
TCL holds a 1.38 per cent stake in Equity Bank.
Kewberg Cables and Braids
Transcentury Limited (TCL) is in the process of refashioning itself into a private equity fund, has turned the tide by making audacious acquisitions of Kewberg Cables & Braids, a South African firm and ABB Tanelec, which is based in Tanzania.TCL has bought 100 per cent of the shares in the South African firm and 70 per cent of the Tanzanian firm allowing it to spread ita wings to the south african market.
Kewberg Cables & Braids (Pty) Limited, which is located in Johannesburg is a leading manufacturer of instrumentation and control cables for the oil and gas, mining and power sectors.

ABB Tanelec (Tanelec)
This is the largest manufacturer of electrical distribution transformers and switchgear in East and Central Africa. The Arusha-based Tanelec distributes its products to a number of Sub-Saharan African countries including: Tanzania, Kenya, Uganda, Zambia, Mozambique and the Democratic Republic of Congo.
The ABB Group of companies operates in around 100 countries and employs about 111,000 people.

Rift Valley Railways (RVR)

TCL is the largest minority investor with a 20 per cent equity stake.

Avery East Africa Ltd
TRANS-CENTURY holds a controlling stake in Avery East Africa. This company is the leading manufacturer and distributor of a complete range of domestic and industrial, manual and electronic weighing scales, as well as video jet printers for industrial use.

Aureos Capital Limited

This is an independent private equity fund manager focused exclusively on the emerging markets. Aureos specialises in providing expansion and buyout capital for low to mid-cap businesses with prospects for strong growth and profitability across Asia Pacific, Africa and Latin America. Established in July 2001, Aureos has to date raised and managed US$570m in 24 funds worldwide. Ten of these funds have been raised since 2001, with approximately US$395m of committed capital. In addition, Aureos manages 14 funds previously sponsored and administered by CDC Group plc.
TRANS-CENTURY has invested in three Aureos funds to date. These are the Aureos East Africa Fund, Aureos China Fund and Aureos South Asia Fund.

Business Partners International (BPI)

This is a specialist investment company which has partnered with the International Finance Corporation (IFC) to provide debt and equity capital, mentorship and property management services to Small and Medium Sized Enterprises (SMEs). TRANS-CENTURY has invested in the USD 14.1 Million BPI Kenya SME Fund.

Helios Investment Partners
Helios is a US$300 million private equity fund making private equity and ‘special situations’ investments in Sub-Saharan Africa with a focus on West Africa.

Real Estate
TRANS-CENTURY invests as a primary sponsor or along side other partners in green field and existing property ventures.

Business Prospects
Kenya: Locally, massive Government electrification programmes are ongoing which has consequently seen an increase in demand for quality cables and conductors to the power utility— Kenya Power and Lighting Company (KPLC). The rural electrification programme has connected more than 120,000 people to the national grid in the past 12 months.
Tanzania: massive cabling projects are expected to begin as Tanzania Electric Supply Company (Tanesco) prepares for a major upgrade, following the pumping in of $240 million by a syndicate of local commercial banks and pension funds for the recovery of the power utility firm.
Africa: Icnreasing demand for cables and other related products.

Other investment regions
TCL has invested in Zambia, Nigeria (indirectly) and South Africa.

Business blunders
This encompass Transcentury’s investment in Castle Brewing which closed its operations in Kenya after only a few years following a bruising battle with East African Breweries. In March 2006, news had it that Transcentury Group was to buy 24.9 percent stake in the largest mortgage finance company, Housing Finance Corporation of Kenya (HFCK). This led to a price rally at the NSE that latter led to the collapse of the deal to buy the stake as CDC demanded a market valuation of the stake.
Investments philosophy
-Looking for undervalued companies with potential.
-Not looking for easy going investments.
-Commitment to the company ideals
-Good corporate governance

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