Wall Street Crisis

Dear readers,
After many Month of absence from the blog scene due to some unavoidable circumstances am happy to be back and rolling!!!! yepyyyyyyyy...

Crisis
However and quite sadly the goings on at the World's famous Street has led to financial contagion across the other markets of the world and many investors are loosing alot of money in their cherished financial assets.

Short Selling
The emegence of this crisis fueled by the Subprime mortgage crisis led to panic across major markets. This neccessitated the drastic drop in the prices of vibrant and fundamentally strong companies across the globe.

Short selling
Short selling a phenomenon involving selling of borrowed shares in the hope of replacing them as prices continue to fall became the order of the day.
This did not augur well for most of the counters amidst rapid flow of information from one continent to the next.

Rescue package
As the Wall Street giants continue to wallow in financial crisis and illiquidity, the Fed government's rescue of Fannie Mae, Freddie Mac and AIG demonstrated clearly that the financial turmoil continues on Wall Street and it is a matter of time before sanity resumes and investor confidence is restored.

Financial Contagion
Other major stock markets also tumbled with news of this crisis including Russia, Paris,Toronto, Germany, Asian Markets as well as emerging African markets amongst others.

Kenya
The Kenyan stock market was no exception and neeedless to say that most of these Wall Street investors had ventured into the Kenyan market through the much touted Safaricom IPO and their crisis in the far west will impact negatively in our market.
AIG for example is a major player in the stock market investing substanbtial amounts for perosns in Kenya and also abroad and more especially those who are keen on investing in emerging markets.
The rescue package might have come as a sigh of relief but time will tell where the markets are headed despite the slight rebound. Whether south or north!

Financial Reforms
The onset of this crisis has laid bare the need for stringent financial reforms to protect investors assets from rapid erosion once fundamentals change though in the slightest of ways. Further these reforms would ensure proper management of our financial markets and regulations of all financial innvoations icluding derivatives that are widely traded across the globe though not fully appreciated and understood by many.

Political will
This is imperative if rapid reforms and proper infrastructure is to be set up to avoid continuous problems facing investors young or savvy both in the developed economies of the world as well as the rapidly emerging markets.

Safaricom Much touted IPO: Bits and Pieces

D-day At Last
Kenya's largest mobile telecommunications network service provider, Safaricom, will launch its initial public offer March 28 and closes on April 23 taking a total of 26 days. This offer for sale will give Kenyans amble opportunity to invest.

Stakes
The government will offer 25% of the issued ordinary shares of Safaricom. The IPO will offer 10 billion shares priced at 5 Kenyan shillings a share, which implies a value of KES200 billion ($3 billion).

High Expectations
Thw Governement hopes to raise KES50 billion from the IPO, which will be used to finance development programs and hopefully to supplement the budgetary deficit that had been witnessed in the FY 206/07.


Pools
The offer will be split into two pools - domestic and international. The international pool will be open to institutional investors only. The price will be determined through a book-building.
Investors in the domestic pool will have to buy a minimum of 2,000 shares. This means that any Kenyan intending to invest (and i know many including mama mbogas) are keen to have a stak of this 'sexy pie' and probably make a kill when it comes for trading in may.

Market Share
Safaricom's estimated market share at the end of December was 80%. The company has nearly 10 million subscribers.

Advisors
Morgan Stanley and with local investment bank, Dyer & Blair are the transaction advisors alongside other banks as citibank.

Official IPO site
The official IPO site is here

2007: My Twelve Reflections

As the year draws to a close with the upcoming general elections many especially in the business cycles are taking stock of their ups and downs during the year.

1. The stock market during the early part of the year was abuzz and on a crazy upswing mode and many investors did make a kill.
2. New entrants into the stock market exclusive leage-Renaissance capital is already making inroads into the equity market with plans to invest more in stocks come the next years.
3. New IPOs slated for the year were realized but the mother of all IPOs is still being awaited and investors are bracing themselves for a bruising battle come the release. Despite the dragging court cases the governement is still determined to sell this cashcow and seal the deficit hole in thw budget that is over Kshs100B.
4. The shilling realized significant gains and is now on new highs with strong inflows from:
-Shs 26B purchase of 51% stake in Telkom Kenya.
-Transcentury continues to spur investment area with its new ideas from the spindoctors therein. It is now selling its shares to the strategic investor.
-The prospects of the dollar on the global front is dwindling
-Foreign investors flock to the NSE to get a stake in some of the blue chips and Kenya is the new emerging market where foreign investors are diverting their investments.
5. Equity continues to surprise us despite fears of imminent collapse with new profitability feats and innovative product and now the sale of 24.9% stake to Helios-a strategic partner. What more can we say it is going from strenngth to strength and their stocks might be worth your pennies...
6. The banking sector was abuzz with profitability and more is yer to come.These stocks are good buys dont you think?
7. The emergence of the pyramid schemes that fleeced many investors their hard earned monies and left many crying remember Deci, CLIP, Sasanet and many others?
8.Many investors woke up to the realization of the stock market as an investment destination.
10. Tourism earnings and prospects are good and the earnings from this sector are set to rise exponentially come the next year.
11. The economy grew by over 6% and whether this translated to more money in our pockets is subject to discussion.
12. Business Process outsourcing (BPO) the new craze in town for kenya as an emerging market and this is expected steer our country to the leagues of India and other fast growing economies.

more to come.......

Safaricom Hullabaloo

Now that Safaricom is striking the headlines every new day it goes without saying that this company has higher stakes and every investor worth his salt craves for a piece of its juicy cake.
Nonetheless, there have been contradictory information coming out from several quarters with the government determined to ensure its budget deficit is reduced with the proceeds from privatization programs.
Safaricom is expected to rake in 34B. Some however have hinted that the IPO will take place between 1st and 14 December so as to allow investors time to vote during the 27th December General Elections.
Everyone is watching and despite the recent court case by some ODM members the government's determination is unrelentless.

The Hot Seat that is Safaricom CEO

Being the CEO of Kenya'a most profitable company is no mean feat and many corporate CEO's are now envious of their unparalleled achievements and would wish to occupy this higher pedestal.

Safaricom's CEO

Michael Joseph has been at the helm of Safaricom since inception and with his contract coming to an end in the first quarter of 2008, picking the CEO of Kenya’s most valuable and successful company would appear as a big political concession that any regime would like to lose.

Succession Plan

Mr Joseph has been an asset to the firm, which has not put in place a well thought out and well publicized succession plan. The risk of losing a successful manager at a time when the company is preparing to go public would have made investors skittish. more

Syndicated Loans

Safaricom owes a syndicate of banks Sh12 billion and with the fast growth that the company is experiencing, it still needs the ability to tap both the equity and debt market for cash.

IPO

Treasury is seeking to sell 25 per cent of its 60 per cent stake in Safaricom to the public through the NSE in a transaction expected to net at least Sh34 billion and billed as the largest sale ever in the Kenyan capital market.

Telkom Kenya

Already, a number of investor including British Telkom, France Telkom and South Africa Telkom have lined up to purchase a 51 per cent stake Telkom Kenya in deal worth Sh5.6 billion. The stake is set to be transferred to the winning bidder on November 26th.

Foreign Investors Back with a Bang

Foreigners Flock NSE
Despite the recent jitters about the stock market that saw various politicians make remarks about the stock market, indications are ripe that foreign investors are not shying away from the Nairobi Stock Exchange.
Infact over the last few weeks insiders have it that foreign investors are now flocking the NSE. Their deals in some days have accounted for more than 40 per cent of the trades in a number of counters.

Blue Chips
It appears that the target of this investors are blue chips including, East African Breweries Limited (EABL), Kenya Airways (KQ), Barclays Bank (BBK), Kenya Commercial Bank (KCB), Mumias Sugar Company (MSC), Kenya Electricity Generating Company (Kengen) and recent debutant to the NSE Kenya Reinsurance (Kenya Re) amongst others.

Economic Fundamentals
It is noteworthy therefore that the re-entry of foreign investors into the local equity market is a clear indicator of the strong perception of the country’s economic fundamentals and favourable corporate earnings projections in the country despite the impending elections that has been expected to send these investors packing due to uncertainty of the election outcomes.

Political Comments
The recent reassurance by some presidential candidates on their support for the goings-on at the NSE against a backdrop of earlier negative comments on the sam market is welcome and is a positive signal to more foreign investors as well as local investors to flock the NSE in preparation for the Safaricom IPO.

Safaricom IPO
There are strong indications that various players across the global divide (From Wallstreet to Kimathi Street) are positioning themselves to invest in this most profitable company that raked in 17B profir last year and expected to beat such feats given its current products that have been positively received by customers including MPESA service. Their expansion programs are also welcome and it is a matter of time before we proudly own THE BETTER OPTION.

NSE Amidst Electioneering Frenzy

Kenya is one of the few countries in the world that has the uncanny knack of being gripped by election fever from one election through to the next national polls due to politicking amogst its leaders.

Big Investors
Traditionally the big-time investors take a wait-and-see stance during an election year and the result is sluggish economic activity, which could result in slower GDP growth. On the Nairobi Stock Exchange, which is a barometer of economic performance in the country, share prices nosedive.

Political Uncertainty
Kenya’s equity markets could face their hardest test in four years amid heightened volatility caused by political uncertainty ahead of the general election. Massive offloading of shares by individual investors in anticipation of the Safaricom Initial Public Offering could also spark market fluctuations and depress market activity.more
Already, the market is showing signs of a slow down with the benchmark

NSE Index
NSE 20Share index that tracks the performance of the 20 select listed companies, threatening to dip below the 5000 point mark.In the last one month, the NSE 20 Share index has shed an estimated 600 points, closing last week’s session at 5005.89 points compared to a high of 5611 points in early September.

Election Frenzy
The looming general election in Kenya cannot escape investors’ minds. As much as they wish to celebrate a new beginning and the anticipated Safaricom IPO, at the back of every investors mind is a dark cloud of uncertainty as to what the election frenzy will bring to the bourse.

SME Listings at East African Bourses

SMEs
Small and Medium Enterprises play a vital role in any emerging economy. In Kenya the emergence of microfinance banking has catapulted the growth of SMEs.

East African Exchanges
NSE, DSE and USE collectively the East AfricanExchanges have plans to allow the listing of SMEs through relaxation of the stringent listing requirements that characterise these marts. The tough floatation rules have hindered most SMEs from floation their shares through IPOs.

SME Listings
The listing of small and medium-sized enterprises (SME) is expected to provide more shares at the market, allowing investors to diversify their investments and help spread liquidity, which has at times distorted the valuation of some shares.The development, which will also be replicated by Kampala and Dar-es-Salaam bourses, will catapult the region into the same level with developed and middle level economies which allow listing for SMEs as a way of enhancing their contribution to the economic growth.

Regional Bourses Agree
The opening up of the regional bourses to SMEs by late 2008 was agreed on by the Kenya, Uganda and Tanzania heads of stock exchanges at the East African Securities Exchange Association (EASEA) meeting held in Kampala on September 7. This will spur the trading in the yer to be established over the counter market at these stock exchanges.

Kenya Diaspora Indispensable in Development

Remittance home

The Kenyan government has been courting kenyan investors abroad thanks to their pivotal role in economic recovery strategy through direct investments and economic development. Their role in development is crucial in replenishing the national coffers through their remittances.

In Kenya, it is estimated that at least $1 billion is being remitted annuallyup from about $750 million in 2005. Between 45 per cent and 65 per cent of the money is received informally and therefore not captured in official records. They are indeed the top foreign exchange earners.

IMF says that these remittances are now the single largest source of forex ahead of tourism and horticulture in Kenya and, in Sub-Saharan African (SSA) countries, the transfers exceed Official Development Assistance(ODA) from development partners.

Sub Saharan Africa (SSA)

Kenya has emerged second to Nigeria among African recipients of foreign exchange remittances with households headed by women leading beneficiaries of offshore money transfers from individuals. These diaspora kenyans are influencing the macroeconomic variables back home including the exchange rate (Impacting the shilling), inflation rate and interest rates either directly or indirectly.

In absolute terms Kenya, Nigeria, and Senegal are the largest recipients of remittances in the region. Remittances from african diaspora form a quarter of all exports for at least four countries on the continent. For Lesotho, Cape Verde, Uganda, and Comoros, for instance, remittances have since 2000 amounted on average to more than 25 per cent of export earnings. In 2005, remittances to the 34 Sub Saharan Africa (SSA) countries reporting are estimated to have been about US$6.5 billion.

In kenya, the money is largely used by relatives to fight poverty through education and health support as well as investments in real estate and shares listed at the Nairobi Stock Exchange.

Diaspora at NSE

Kenyans professionals and entrepreneurs abroad have continued to play a crucial role in investments back home and for those who wish to return latter and enjoy their hard earn savings there preferred channels of investments has been the NSE and the property market. Infact 40 percent of new home buyers are Kenyans residing abroad acording to real estate developers.

The phenomenal growth of the NSE in the last 3 years and the price rally realized at the NSE last year, 2006, and partly in 2007 has seen many diaspora kenyans also remit their savings for investments in shares and other availabe options at the Nairobi Stock Exchange. Kenya Capital Investments Group is one such investment group that has consistently blogged on their activities and investments at the NSE. As some would say the future of ivnestments therefore lies in investment groups and why not given then feats realized by Trancentury in a span of less than ten years.

SSA vis other countries

Remittance flows to SSA are relatively small, 4 per cent of total remittances to developing countries and just 33 per cent of those to India, which receives the most. In contrast, countries in Latin America and the Caribbean received 25 per cent of all remittances, as did the countries of the East Asia and Pacific region.

Private Public Partnerships (PPP)

In 2006 the mutually beneficial relationship between the Capital Markets, the Government of Kenya and the Private Sector came to the fore with the raising of approximately Kshs. 12.04 billion, through the Initial Public Offerings (IPOs) of Kenya Electricity Generating Company, Scangroup and Eveready and the sale of additional shares in Mumias Sugar Company (MSC). As a result of the IPOs, the number of Central Depository and Settlement (CDS) accounts has increased from 86,820 on February 1 2006 to 634,420 on February 14 2007, a six fold increase. These developments alongside the implementation of Automated Trading System (ATS) has spurred interest at the NSE from locals and diaspora kenyans.

Therefore...

The Kenyan Diaspora has increasingly become an important part of the Kenyan Economy. Through remittance, the Diaspora has become the leading foreign exchange earner for Kenya. This has led to concerted efforts to actively involve them in the economic transformation of Kenya through Kenya diaspora investment forums.

Future Prospects

Experts have estimated that the remittance can be increased to over 3.4 Billion dollars a year if effective investmentment strategies are put in place with the argument being that Kenyans in the Diaspora look for investments elsewhere because investing in Kenya under present conditions is very risky. The report on Kenya Diaspora Investment Forum alongside other concerted efforts ( including Kenyans Abroad Investment Fund-KAIF) to address diaspora needs should be clearly scrutinized and their recommendations implemented.

Kenya as an Emerging Capital Market (Part II)

Capital Market
Capital markets are an essential part of the financial sectors of modern economies. Providing alternative savings tools to savers and non-bank sources of financing for enterprises. The markets promote economic growth through improved efficiency in savings mobilization.
Nevertheless, in an economy of many private enterprises, many firms list in the market while many that qualify to do so do not due to fear of losing management control amongst others.

Banking Sector
Banks, in their dual role of being investment advisors as well as lenders may tend to indirectly discourage the stock exchange as a means of raising capital. For the Nairobi stock exchange, there is both inadequate marketing of itself trough efficient investor education programs as well as lack of a sufficient number of products listed at the bourse to attract more investors both local
and foreign although the current focus on upcoming Safaricom IPO is creating excitement across the globe even in Wall Stree cycles.

Factors in the Emerging Kenyan Capital Markets
There are factors that have to be addressed in terms of the stage of development of the Kenyan market. Countries with big equity markets have less volatile, more price efficient
markets with substantial degrees of liquidity. Most emerging markets, as in Kenya, are highly concentrated. As a result they tend to be undeveloped, and are small and illiquid, exhibiting pricing volatility and error. The more integrated the market to international markets, the less volatile the returns.

Institutional Investors and stability
A factor that drives markets strongly is the level of institutional arrangement and the regulatory framework. In Kenya, this may have neccessitated the need to allocate more shares to institutional investors referred to as 'Qualified Institutional Investors' to encourage market stability as opposed to more retail speculators who would sell at ther slightest of scare.

Emerging markets and development
The rise of emerging markets is changing the traditional view of development as follows.
-First, foreign "investment" is replacing foreign "assistance." Investing in the emerging markets is no longer associated with the traditional notion of providing development assistance to poorer nations.
-Second, emerging markets are rationalizing their trade relations and capital investment with industrialized countries. Trade and capital flows are directed more toward new market opportunities, and less by political consideration.
-Third, the increasing two-way trade and capital flows between emerging markets and industrialized countries reflect the transition from dependency to global interdependency.

Prospects?
Emerging markets like Kenya are the "key swing factor" in the future growth of world trade and global financial stability, and they will become critical players in global politics. They have a huge untapped potential and they are determined to undertake domestic reforms to support sustainable economic growth. If they can maintain political stability and succeed with their structural reforms, their future is promising.

So what?
The accelerated information exchange, especially with the aid of the Internet, is integrating emerging markets into the global market at a faster pace.

Investor Education and Protection Key Amidst NSE Growth

Growth: The Nairobi Stock Exchange has grown by leaps and bounds in market capitalization and number of listed firms thanks to an increased Offers For Sale by private and public companies including Kengen, Scangroup, Eveready, AccessKenya, Kenya Re and Mumias Secondary offer. Alongside these Initial Public Offerings (IPOs) there have been increased rights issue by companies starting with the suspended Uchumi others are KCB, Diamond trust, Housing Finance, Olympia capital, NIC Bank amongst others. The activity at the bond market has also realized improved performance over the last few years and expectations are high for this emerging market with a focus by the Wall Street leading investment banks.

Heightened Activity: In the past one and half years, activity at the stock market has risen tremendously, drawing many new investors and the number of CDS accounts rising to over 600,000 occassioned by by heightened interest in IPOs during the financial year 2006/07 and this is expected to rise meteoriclly with expected increase in listings during the FY 2007/08.

Limited Knowledge: However, many Investors have limited knowledge on how the stock market works. Other than being attracted by the possibility of quick gains, the investors are sometimes shocked to learn that the prices also go down.
Most investors do not have much knowledge of the factors behind share price formation. But stockbrokers, fund managers or stock market analysts have more superior information on what goes on with share prices. They often have the technical know how on how to undertake technical and fundamental analysis. Further, they have the proximity to corporate decision makers and the shakers and movers of the Kenyan investments cycles as well as the Board of Directors and management of most listed firms who can confide fundamental information to guide their investment endeavors.

These information ranges from major announcements, mergers and acquisitions, profitability, rights issues, bonuses, dividends, splits, new products, new business deals, management changes and much more.

Standard and Poors Rating: From 2002 to 2007, the main NSE index rose 787% in dollar terms, according to Standard & Poor's, the investment research firm, making it one of the world's best-performing markets.

Anecdotes Doing Rounds: In the year 2006/07, stories of overnight wealth creation have created a huge frenzy for shares from people who have never invested in the stock market before. When KenGen, the state's biggest electricity company, listed its shares last year, there were queues at brokerages all over the country. Local media reported how small-scale farmers were selling their cattle to buy the shares. Banks suddenly offered "share loans" to people who had been considered unworthy of credit. This even extended to other subsequent IPos although with the market correction witnessed in early 2007 many have held back until prospects look rossy again.

Kengen IPO: The KenGen IPO was more than 3 times oversubscribed, and 70,000 people were allocated shares. The price quadrupled (Rose from 11.90 to everage at 40) on the first day of trading. Demand for a stake in last year's other big listings - including Eveready, the battery maker, and Scagroup, an advertising company - also dwarfed supply. By the end of the year, 15bn shillings of new money had poured into the market. This year AccessKenya was also oversubsribed as well as the state monopoly reinsurer-Kenya Re that realized 334% oversubscription. This implies that investors will get as low as 200 shares. However Qualified Institutional investors were favored by the allocations and got substantial portions.

NSE 20 share Index: In 2006, the NSE 20 Share Index had risen 60%. The NSE's resurgence began towards the end 2002 after emerging from a nine-year bear market. From a low of 1,000 points, it more than doubled in President Mwai Kibaki's first year in power bursting through the 6000 mark for the first time. This can be attributed to the following:

-A sound macroeconomic variables-Interest Rates, Inflation rates, exchange Rate.

-Economic growth figures of around 6% with positive future prospects for 2007/08.

-Tax collection has nearly doubled with plans to increase government revenue from taxes with the installation of Tax registers and stringent tax rules which are paying off.

-Vast sums of money have poured in from the diaspora with heightened marketing by government, NSE, real estate businesses and other ventures.
-Increased online blogs devoted to stock market investments and the investing in the emerging markets of Africa. This has created interests amongst foreign investors targeting emerging markets.

Information Asymmetry: The company insiders including brokers, Investment banks, fund managers have more information unlike any other average Kenyan stocks investor on the street and will always capitalize on this to make informed decisions. When the degree of information asymmetry is high, then there is more uninformed trading. This leads to price volatility that is unrelated to fundamental value of the listed company. But in an efficient market, no market player (investor, stockbroker or dealer) has an opportunity for making a return on a share that is greater than a fair return for the risk associated with it. I think Kenya however cannot be described as an efficient market.

Investor Education: The above neccessitates the development of comprehensive investor education programs by the NSE and the Capital Markets Authority (CMA) in their bid to enhance the growth of the capital markets, encourage most listings as well as attract more first time investors. It is noteworthy that there are hundreds of analysts and thousands of traders receiving new information on companies through electronic and print media and as such might not make any meaningful decisions within such a short time.

However, in emerging markets, policy makers and regulatory agencies should take up the case on behalf of investors who may not be aware of their entitlements. The quality of information is important for market liquidity. Quality accounting disclosures, for instance, are considered means of reducing information asymmetries and increasing the ability of equity traders to effectively execute stock trades when needed and at reasonable costs.

Investor Protection: In trying to bridge information gap, the International Organisation of Securities Commissions has championed investor protection as one of three core objectives. Investor protection has a positive effect on the efficiency of corporate governance, breadth and depth of capital markets and economic growth.

Further, there is need for proper and effective investor education programs being in place to woo many to stocks market investments that have been the preserve of those in the financial field and elites.

Securities and Exchange Commission: The SEC's Office of Investor Education and Advocacy in the US provides a variety of services to address the problems and questions you may face as an investor as well as help the to invest wisely and avoid fraud. This is a neccessity in our economy that is emerging from corruption quackmire and economic stagnation phase towards an era of heightened growth, equity investments and unparalleled stock market activity.

May the Real Owners of Safaricom Stand Up?

Real Owners:

The past few weeks, the local media has been awash with details that the Public Investments Committee (PIC) wants the government t0 institute proceedings to establish the real owners of Safaricom one of Kenya's most profitable telecommunication company that raked in 17B pretax profit for the last financial year. Information available at Safaricom's web show that its sharehodlers are Telkom Kenya and Vodafone Plc.

5% Stake:

This parliamentary watchdog wants the much anticipated Safaricom Initial Public Offer (IPO) slated for latter this year shelved due to the failure by recent investigations to unmask the owners of a shadowy company with a 5% stake in Kenya's most profitable firm.

This therefore means that the planned sale of 25% of Safaricom shares to the public through the Nairobi Stock Exchange that was anticipated to raise close to 34B may be put on hold until the owners of Mobitelea ventures are known.

Mobitelea Ventures:

This is a shadowy company that is alleged to own 5% of Safaricom though the company CEO was quick to scoff at the report claiming that the reals owners of the company are Vodafone Plc with 40% and government through Telkom Kenya with 60% shareholding. The report says that in 1999, Telkom Kenya owned 70% of Safaricom Ltd while Vodafone Kenya Ltd owned 30%.
Mobitelea Ventures Ltd is a firm registered in Guernsey Island and whose directors are obscure through other nominees. The firm owned 10% in 2002, which was reduced to 5% in 2003 when Vodafone Plc "bought" back part of the shareholding.

Registrars:

However, the evidence available from the office of the Registrar of Companies indicates that Safaricom's authorised share capital is 1,000 with;

-Vodafone Plc having 40%

-Telkom (K) Limited 60%

-Messrs Paul B. Julan, John K. Mosonik, Augustine K. Cheserem, Ashwini Bhandari, Kenneth Hamish Keith, each had one(1) non-participating share.

Shoromo Ltd:

Last year, it emerged that in February 1998, when Vodafone Plc entered the Kenya, the UK firm had used a pseudonym Shoromo Ltd and only changed its name to Vodafone Kenya Limited on October 15, 1998. More...

For the clearly illustrated shareholding structure check out pesa tu blog.

Scheme:

Many think the claims that the shareholding structure of Safaricom cannot be clearly identified is a scheme to defraud the public. Although as a requirement, companies intending to issue shares through an IPO through the Nairobi Stock Exchange (NSE) should reveal all the fundamental information, including shareholding, that would influence any investors purchase of the shares, this remains to be seen. Kenya Re didnot reveal the details of the forensic audit report claiming that it was sub judice to the court proceedings on the same only making them available for inspection at the company premises which many may not bother.

IPO still on:

The Government has said the sale of Safaricom shares to the public will go on, as scheduled, despite recommendations to shelve it by a parliamentary committee last week.

Of Cross Border Listing and Cross Trading (Part II)

Cross trading is the emerging trend where investors seeking to diversify their portfolio of investments would seek to venture into other markets and invest in such available options as equity, bonds, commercial papers, derivatives and other available products in that market.

East African perspective:

In East Africa for example, Investors have been craving for the stock market pie with Kenya leading the pack with several IPOs having been significantly oversubscribed with others slated for the year expected to follow the same record trend. Over the last 5 years, turnover at the NSE has grown phenomenally from Sh2.9 billion in 2002 to Sh95 billion last year while the number of CDSC accounts that have been opened have in the last 2 increased from 80,000 in 2005 to an estimated 700,000 investors to date.

Insatiable Appetite for Investments Opportunities:

The rally at the NSE has produced millionaires overnight.Take the case of EA Cables price rally that produced all times high of around Shs 1000 per share among the other shares price surge occassioned by the unprecedented news of stock splits, dividends and bonuses declared by most companies including Barclays, ICDCI, Sasini, CMC, KCB, Cables etc. It is evident that investors are hungry for other viable stock market investments as seen with the latest trend of switching to the emergent high return promising pyramid schemes that have sprouted in every corner of this country. Sadly though, most of these schemes were scams meant to defraud unsuspecting investors of their hard earned monies as seen with the widespread closures, default rates and collapse of even the seemingly big wigs of the pyramid scheme-DECI. Most investors lost their monies and statitistics available shows that this ran into hundreds of millions.

Some investors who had sold their stocks, leading to a bear run had the NSE, are now back with whatever little they managed to salvage.

Nonetheless, the oversubscription of all the IPOs from 2006 to date is a clear testament to the insatiable investment appetite in the country. The strong returns posted by Kenyan equities listed at the NSE have not gone unnoticed with international interest in the country’s markets building up in recent years latest among this is the interest receive from top Wall Street operatives.

African Stock markets:

Africa has only 15 active stock exchanges which include exchanges in South Africa, Nairobi, Uganda, Tanzania, Botswana, Nigeria, Cairo, Malawi, Mauritius, Namibia, Ghana, Zambia, Zimbabwe, Tunisia with the regions equity markets incomparable in size to other emerging markets worldwide posting a combined market capitalisation of US$39.2 billion, excluding South Africa's JSE, in 2005. The JSE which is the 16th largest exchange in the world, had a market capitalisation of US$ 566billion, accounting for 94 per cent of Sub—Saharan Africa’s total market cap. As it is, the JSE’s market cap is 14 times larger than all the other African markets combined(Business Daily).

Cross Trading, Stanbic Experience:

The continued media hype in Kenya lead many streaming to the appoitment banks and stock brokers to have a stake in the much publicizedStanbic Uganda IPO. However, after the rigorous process of filling forms and paying for the shares, Kenyan investors were the losers as they were considered for residual shares after all the local investors had gotten their share. After the meagre share allotted came the issue of share certificates that reminds us of the days NSE was still without the Central Depository system.

Dividends:

Recently, after the wait, the arrival of the Stanbic Bank Uganda’s dividend payout cheques (7%) was an excitement to many investors though this was short-lived as those who received the cheques were surprised that the dividend almost amounted to nothing after being converted to the local currency which is of higher value than that of the East african counterparts. Further, the paying of Ksh.1,000 bank charges for cheque clearance inorder to cash the cheques proved much higher than its value, especially for most investors with minimal share allocation. This made the dividen almost worthless if not useless. With some intervention, the cahrges were readjusted as follows; amount below 1000 cost ksh 100 and amounts above ksh 1000 would cost ksh 150. Read Bankelele's experience!

Cross Border Trading:

As earlier alluded, most investors who thronged dealers offices and banks to buy Stanbic had not considered the perils of investing in another currency and all associated stumbling blocks. The company and even the Ugandan Authorities had not instituted a proper dividend reinvestment program (DRIP) that would enable investors reinvest their dividends until such a latter date when cashing them would be worth the rigor.

Most investors did not understand that cross trading is normally affected by the market performance in the market concerned as well as the fluctuations in the foreign currency rates. Read more

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.

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???

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?

Kenya Re to employ two top managers before IPO in April

IPO:
The sale of Kenya Reinsurance Corporation shares is likely to start in April as scheduled, Investments secretary Esther Koimett has said. However, the Government has adopted a wait-and-see attitude after the firm yesterday announced its intentions to fill the vacant positions of managing director and head of finance. The holders of the two posts were sacked last month to pave the way for investigations into allegations of financial impropriety.
The sale of the corporation’s 60 million shares was expected to be concluded by end of April but might be delayed to give the company time to reorganise its management. On January 11, the Kenya Re board terminated Mr Johnstone Githaka’s and Mr John Kinyua’s contracts. They were respectively managing director and head of finance.
Both were under suspension pending investigations.

Summarily sacked :
“They were summarily sacked and now the board has opened the positions to the public,” said Mr Evans Amalemba Juma, the acting managing director. According to Ms Koimett the need to fill the positions before listing is meant to appease investors by adding certainty in the corporation’s affairs. “We could not list with an acting managing director,” she said.
Those interested in the job have until February 16 to submit their applications to the board vie e-mail to Business Ideas, the company executive search and selection partners.
Ms Koimett and Mr Juma are optimistic the listing of the shares will go on as scheduled.
The sale is expected to raise money to cover part of the Sh18 billion budgetary deficit for the 2006/07 financial year.

The Government has already raised Sh4.5 billion from the sale of Mumias Sugar Company shares.

“We are sure it will go through before the end of April,” said Mr Juma, echoing earlier sentiments by Finance minister Amos Kimunya when he disclosed that the Government had launched investigations on corruption allegation at the parastatal.