Equity takes HFCK?

If Riba's story is on the mark, this is great news for the banking sector and both sets of shareholders. This should be the turning pt allued to earlier for HFCK. For Equity, they go to the top of the Mortgage sector without breaking sweat. Any downsides? Only for Equity to the extent that mortgage business is capital intensive, the housing sector may be on a bubble and HFCK npls are around ksh6bn (have implications for capital).
As a whole though, its an awesome deal for both.

KPLC break-up (at last...

As argued here and here, the power sector is now beginning to get some much needed re-engineering. By removing the distribution business, it will allow resources to be directed at reducing 25%+ losses in power output thus enhancing revenue. The distribution business will like-wise benefit via more efficient delivery due to envisaged increase in competition. It will be interesting to see how GoK will carry this out given that KPLC is a listed share. As to the impact on its price, investors might be better off waiting to see the shape the listed business will have before voting with their pockets.

The Safaricom Phenomena-ksh17bn PBT for '06!

Its now official. Its profitable (very), to do business in Kenya-just ask Safaricom. PBT rose 40% to ksh17bn, subscribers are forecast to reach 8million ( 25% of all Kenyans-not sure how they distinguish new and repeats subscribers) and Kimunya must be salivating at the prospect of doing the IPO later this yr.
The IPO is almost certain to be this year because you can just imagine the smile on voters as they walk into that voting booth thinking I got 100 Kengen Shares, 100 Safaricom shares, kweli Kibaki ni kingothi.

Thursday's Budget & the NSE

As always, Kimunya's presentation was Raila-like, populist but please read the detail. Some of the bits that will likely impact the NSE in the coming year/s are: Govt direct participation in the NSE per paragraph 38. Following its failed OFD for 19% of KenGen and the fiasco that was Mumias (for the shareholders at least), GoK wants to be able to sell its stakes in various NSE listed shares in small blocks as opposed to doing a large block at a go. Sounds good in theory, but in an illiquid market like NSE, this will only be doable if its targeted i.e. the block is partially offered to institutional investors. The issue that is causing concern is where GoK may try to shore up a share price. Opinion here is that the first is ok with safeguards, but the 2nd is a no no. Repayment of NBK's npls owed by parastatals over the next 20 years. No doubt, this will increase its liquidity and allow it to lend more. The question here is the interest repayments. NBK has been accounting for interest on npl in its P&L, in which case any subsequent repayments would not go through the P&L, but this is only if it has done this for all its npls. Another ksh13bn remains to be cleared. GoK also announced that it will be selling more its stake in NBK. Increased recapitalisation requirements for financial institutions over the next 3 years: There are currently several banks that fall under the ksh1bn that will be required. CFC-but they are already in advanced merger talks with Stanbic-for 6 months? DTK-despite doing a rights issue in December, they may need to complete their merger with Habib Bank HFCK-they are in the midst of a rights issue to sort this out NIC- they announced a rights issue on Friday Within the unlisted banking sector, there is quite a few that again will most likely merge or seek help from their shareholders. More importantly, the insurance sector is also being required to recapitalise. Sin taxes were in effect again, but one suspects that the demand inelasticity for these products is such that only a big rise in the duty would dent the profitability of EABL and BAT. Construction-related stocks will benefit from allowances on low cost housing. Finally, happy papa's day to all the fathers out there!

Nairobi-seriously good to look @

Next time you read those Economist-type articles written by some misguided fools, send them these pictures for an alternative view (spotted courtesy of mimi tu). Alternatively, they can read this from the much more balanced FT.

Kenyans and pool investment

With limited research it’s difficult to establish the phenomenon of investment clubs both at home and in the diasporas. A good example of the clubs being referred here is the Tran century group. In the UK and US I have come across well-established groups such as Ubuntu, KCIG, ACP.
The idea of an investment club is borne from the need to pool resources, learn, minimise risk, maximise returns, networking and exchange ideas. Illustratively, the idea is widespread in the UK and there is a large number of clubs that have come together.
Despite the awareness within the Kenyans in UK, the concept has not translated into reality although the benefits outweigh the risks and would enrich individuals and the community disposal income.
From research, various barriers have emerged as to why this is the case.
Amongst them, include;
· Immigration issues
· Mistrust-supposedly this is informed by past experiences
· Fear of unknown
· Individual short term goals
· After quick money or short cuts hence the rush to the illegal pyramid schemes despite the risks involved
· Tribalism which is prevalent even in the Diaspora
· Ignorance
· Cultural practice- many assume there is job security in the west. Whilst advertisement and latest trends lure others more so the younger generation into spend now, save later lifestyle common in the west. In some instances, people have questioned the rationale of spending 2 to 3 hours researching or even sitting down in a club meeting.
· Commitments phobias-there are those that I have spoken to who are afraid to come together in a long term deal instead preferring loose partnerships.

Regardless of these barriers, coming together as either a group of friends or family vis-à-vis with unknown or strangers both have their pros and cons. Nonetheless, with both experiences, the latter is more advantageous than the former in terms of; professionalism, diversity, values, boundaries, contacts, educational opportunity, decision making, rationality, influence, skills, operations, management etcetera. Some disadvantages may include; egos getting on the way, lack of commitment, hidden agendas, bonding take longer, it also takes longer finding or identifying like-minded individuals.

Therefore with this in mind the question is, what will take to break these barriers and can Kenyans as with other communities (Chinese/Indians/Nigerians) come together.

Results Catch-up

KCB: saw 38% rise in Q1 after tax profits helped by strong loan growth (ksh16bn year on year (44%)) which drove 22% rise in interest income and 24% growth in Fees and commissions. Gratingly for those who like to see banks doing their intermediary role, KCB is driving loan growth forward without concomitant rise in loan loss provisions. KCB’s current momentum (it plans to open 10 new branches every year and expand regionally to Sudan, TZ and Ug in that order), explain the recent share spilt.
Equity: A doubling of income (both interest income and fees) led to a massive 226% rise in PAT from prior yr’s Q1 and led to questions about sustainability. The bank has now acquired a ksh6.9bn loan to help further expansion as it looks to enter the mortgage sector.
NBK: Saw Q1 PAT fall by ksh7m to ksh152m on falling net income. NBK has finally had ksh20bn of its Ksh33bn NPLs written-off by GoK. Though there will be no immediate impact, earnings will improve in the long-term as a cleaner balance sheet allows it to lend more. This will and is atracting speculators in the short-term.
KQ’s 15% drop in PAT for FY was a surprise when it shouldn't have been i.e. CEO Titus had flagged this earlier in the yr. The surprise was in the reasons for the fall (weaker dollar and fuel costs). The dollar is weaker compared to prior yr, but was only below the average rate of 72 for around 2 months of KQ's financial year. Fuel costs can be hedged to a large extent.
DTK: After tax profits doubled from year earlier with strong income on a growing loan book supported by only a slight increase in expenses . DTK is issuing a rights issue for its TZ business.
Its AKD stable mate, Jubilee also announced FY which grew by 51% on growth across all income streams. For its shareholders, there is a final dividend of ksh3.25 and 1 for 4 shares held bonus share issue to look forward to.
Finally, NIC Bank's strategy of niching the market seems to have paid-off in FY06 with PAT growing by 59%. NIC continues to innovate and its contrary strategy means it will make money at times when others may not. As with other growing medium-sized banks, NIC will need to recapitalise at some pt (possibly via a long-term loan or rights issue) as affirmed by Fitch ratings agency.

Is an East African Community viable or achievable?

The analysis is primarily based on what has occurred so far and what is envisaged and will evaluate EAC on LE PEST context.
Economics: Theory says that by coming together and lowering customs, you increase trade between the countries. By allowing free movement of labour, you’ll essentially get lower labour costs as the labour pool increases. There will a bigger market for the companies within and externally attractive and giving EAC some clout. Bigger means economies of scale in terms of pooling of resources and know how. Against this, note that all 3 countries suffer from extreme infrastructure dilapidation, underdeveloped and unequal economy growth rates and markets; have no real manufacturing bases either for value-adding activities on local resources or FDI-related. As for the reduction customs duties and free movement of labour, it’s possible as Nation Media would tell you to have non-monetary trade barriers. You could also add into the mix:
Taxation- there is a move towards harmonising this starting with VAT, however corporate and personal taxes are bigger more complicated pieces.
Monetary policy-important because it does impact interest rate which in turn impact exchange rate and inflation. Having a common currency will test monetary policy.
The donkey/horse analogy: Will Kenya (being the larger economy), have to slow down its pace so that Ug/TZ can catch up? Germany’s re-unification and subsequent 10yr recession is a prime example of what happens when you merge two unequal economies

If an EAC entity is ever to work, then the economics has to work and should probably be the litmus of a future EAC.


Political: A political union would probably go as far as the East Africa Assembly has gone i.e. a talking shop that is far removed from the realities on the ground. It should however lessen the tribal politicking that we have in Kenya and to some extent in Ug.
This piece is probably the most difficult to envisage because our politics are in dire straits in all 3 countries. In TZ and Kenya, democracy is skin deep and even shallower in Ug. Thus a union will effectively be merging problem political entities.

Social: Do we share commonalities that can bind us together? We all speak (to various degrees) Swahili and are neighbours. And erm, that’s probably it. Anecdotally, at university, we had a mixture of the 3 main nations and really got on well with Ug-ians. It probably helped that many had been to Nai and had generally travelled. The other point is that many Ugandans and Kenyans are well educated with a grasp of external issues that many not be as present in TZ.

Technology: As with general infrastructure, there is a lot of potential ala underdevelopment. The good thing, all the countries face the same challnges and can hopefully develop common solutions. this is however capital intensive.

Legal: TZ, Kenya and Ug share legal systems inherited from a common colonial master and these have with few exceptions, remained broadly the same. Rwanda amended its Belgian inherited constitution in 2003 and now has a constitution that is context specific i.e. tailor-made for Rwanda especially the innovative Gacaca Courts. Burundi is operating a transitional constitution that marries its Belgian with customary laws as well as forward-looking amendments such as 30% inclusion of women in the legislature. Given these backgrounds, it’s a sure bet that a new constitution would have to be written initially maintain national vetoes. Cue more banana and orange campaigns.

Environmental: The major cities in all 5 countries would become magnets for the various countries populous that will no doubt be looking for greener pastures. Given the chronic lack of planning in Nai, Kala, TZ (the benefit of the move from Dar to Dodoma is still unknown) means more slums are likely and general pressure on resources (especially social amenities). And who will oversee NEMA-type activities?

Bottom-line: Two wrongs don’t make a right. If there is going to be a successful EAC entity, let’s develop it piece by piece starting with closer economy integration alongside the technology/legal aspects and build up to the political piece over time.

Marriage and Kenya's economic wellbeing/future

This article got me thinking about something that is an increasing phenomena in Kenya, but is rarely talked about amid all our many other problems. To what extent does the increase in divorces and single-parenthood impact our ability to forge forward as an economy? Although no real data is readily available on divorce rates in Kenya or even trends, anecdotally, its obvious that this has increased as has separation/desertion. As afar as singleparenthood goes, available data suggests this around 25% of all families which is not as bad as USA (34%).
Sheer economies of scale would suggest that stable married/come-we-stay couples would be able to earn more and create an environment under which children would flourish and be successful. The inverse is not always the case i.e. that single parent families and divorce couples don't lead to successful children, but it does mean that the success path for the children is much more difficult.
The question is, is Kenya supportive of marriages?

HFCK Rights Issue-its turning point?

If this piece in the East Africa is true, HFCK's rights issue due next month will be the event that clearly tells us what the future holds for the mortgage lender. As the only standalone mortgage lender in Kenya, HFCK has struggled to hold on to its market share as stronger more liquid banks continue to enter the mortgage market. The fact of the matter is that, HFCK has no future as a standalone entity given its low profitability, ongoing NPL burden and of course a more competitive market.
Last year's aborted takeover move by the G29 drew investors attention to its potential as a takeover candidate. Potential suitors would be other banks with interest in gaining entry into this sector notably;

1. Equity-but it might prefer to grow its own mortgage business organically
2. KCB-perhaps to build on its S&L venture, however unlikely given its own expansion plans
3. G29-given the share price is almost back to the level when they applied, and their reasons for wanting to buy HFCK remain valid, they might do so now. Of note, is that Jimnah Mbaru, one of their founding members holds 7.32% of the HFCK according to most recent data from Hasinet.
4. Foreign bank-not sure what would be the rationale unless to access HFCK's branch network and customer base as there are banks with either a wider network or larger customer base.

In any case, if the worst case scenario does occur i.e. rights issue are not taken up by its largest shareholders (CDC, govt (NSSF), shareholders should only look out that they don't get stampeded as they exit the share...

What next for Kenyan roses & greenbeans?

Kenya is the 2nd largest exporter of flowers in the World and the 2nd largest supplier of vegetables to the EEC. Horticultural products now account for more of our agricultural exports than coffee and only second to tea. The industry employs over 135,000. See more here and there.

Watching the BBC the other day it occurred to me that Kenyans could find that they are no longer able to export agricultural produce to the EEC and other western markets. The multi-pronged attack on our horticulture exports is being done by three seperate but powerful lobby groups. The environment green team who have now coined the carbon footprint to signify the environmental impact of human activity. In the case of horticulture produce, they are saying that transporting this produce from Kenya by air has a serious and detrimental impact on environment. Then there is the Soil Association which has just sent out a consulting document arguing that Kenya's fresh greenbeans among others should not be classified as organic because the length and distance over which they are transported means they can't be organic. Organic produce is any produce that is grown by natural means i.e. sans fertiliser or modification and such earn a premium price because is seen as being more healthy.The final lobby group are the UK farmers who are saying that these produces can be grown in the UK and hence supermarkets should be promoting UK grown over the foreign export. Never mind that the reason the UK produce is to do with higher production costs.

The question is who is fighting the corner for our produce? Not our ambassador Muchemi who I have never seen being interviewed when Kenya has featured. The only lobby group that seem to be doing anything are anti-poverty NGOs like Oxfam, who correctly argue that if the issue is reduction of CO2 emulsions, putting a light bulb off saves more than foregoing fresh greenbeans from Kenya and is in any case counterproductive as it has impact on poverty reduction mechanisms. In the absence of effective politicians, lobbyists and the media have now become the drivers of change in countries like the UK, US and some of their EU brethren. Isn't it time for Kenya/Africa to create a lobby group that will fight our interests in western capitals?

Portfolio Management

What is portfolio management? What constitutes a good portfolio? A portfolio in my opinion constitutes any form of investment or savings that is geared towards generating returns and or income today or in the future. Portfolio management should then be the alignment of your investments with your financial goals over your chosen time horizon. One’s approach to share trading (if its part of their share-trading), should generally inform how you manage your portfolio. As with share trading, defining and getting basic essentials is a must. So for example, ask yourself;

• What do I want to buy?
• What is my risk/reward appetite i.e. what risk will I take to get my required income/capital growth?
• Why this investment-i.e. do I understand it sufficiently?
• At what price?
• I my after growth or and income?
• How do I maximise this growth/income?
• What proportion of my disposable income do I want to put in this investment?
• What are the opportunity costs if any, of this investment compared to others?
• For how long, when/why/how do I sell the investment?

One can then use this when considering various classes of investments, so for:

1. Savings: Ask yourself, what do you want to save for, how much do you need to save and for how long? You then need to look at rates on offer, accessibility (most banking industries will put a premium on a long-term saver who doesn’t require short-notice access to their funds). In some banking industries (notably UK), rates on savings are available tax free and thus taxation comes into the equation. Finally, choosing to save may mean that you miss out on higher returns in shares, thus there is an opportunity cost.
2. Bonds: Unless they are inflationary-linked, bonds (and especially gilts) are no different from savings. Again the key here will be length, amount of disposable income that you need to tie-in to this type of investment and rates offered (corporate bonds will generally offer higher but riskier returns). Because of the minimum amounts that one has to commit for bonds, the inflation risk, the opportunity cost in terms of alternative forms of investment is higher.
3. Unit trusts: These are funds that invest in a variety of shares (usually listed ones), economic sectors, countries or other tradable commodities and instruments. By their nature, they are allow you to diversify your risk, give you access to markets that you won’t otherwise be able to access and for the cash rich, time poor or otherwise financially illiterate, manage your cash. One buys into a unit trust thus getting units based on the price at the time of the investment. Before buying, look at the UT's costs and returns over say year to date or last calendar yr against similar UTs or other investments. UTs are off course risky even when investing in a cross-section of instruments (including fx, commodities, bonds and shares) and will often have a minimum amount that one has to invest. The opportunity cost is thus higher given losses can be incurred and that one might be better off investing in specific shares. Certain UTs will also entitle you to periodical dividends, tax free capital gains and these will need to be taken into account. Further, UTs also have entry and exit fees as well annual management fees that will in certain countries account for as high as 10% of original amount invested and this thus needs to be borne in mind because it will in most cases mean one has to stay longer to be able to make the returns. UTs are generally recommended for giving one access to forms of investment that one can’t ordinarily access.
4. Shares: Primarily will generate capital gains as well as dividends. These are covered elsewhere in this blog. However, there are opportunity costs, should one invest in a particular share as opposed to another, is this time better than 6 months from now, are money markets/bonds a better opportunity? Should one go for dividend yield, absolute dividends, capital gains or a mixture?
5. Land/Plots: This will apply more to Kenya than elsewhere. Prime issues to consider are liquidity (will depend on location), holding period, usage (farming, holding asset, future real estate development, own home), legal constraints e.g. on subdivision or certain developments. The opportunity cost of buying land will be driven by these issues e.g. if land is bought on an illiquid locale with intention to build future own home, price appreciation will be low and it maybe better to invest the cash elsewhere. Where the land/plot is used for farming again are there better more liquid alternatives?
6. House Ownership/Mortgage: Yes liquidity is important to note, but whether in a developing or developed economy, house ownership of any form remains a lucrative albeit capital consuming investment. Where there is sufficient capital to build one’s own home, or where paying a mortgage for the same, the opportunity cost is broadly the same. Taking into property appreciation (annualised) plus intangible benefits such as the comfort of owning your place, does this more than outweigh annual mortgage/rental costs? For those developing real estate (to generate rental income and capital appreciation) as a form of investment, are there better returns in more liquid and less involving forms of investment?
   Overall, portfolio management requires that every formof investment you undertake gives you the best returns in that class and that you consider liquidity, investment horizon and opportunity costs.

Worth Sh30m per year?

Classic from the STANDARD!

Stocks View

Accumulate/Buy:
Equity: Has now become a byword for perennial overachiever. Both income streams (NII and Commissions and Fees) looked strong from Q1 07. More than ever, the bank is eyeing the saccos market share and engaging it intelligently. One may get queasy about resultant non performing loans, but that depends on term over which you will hold onto the share and 2ndly, Equity has a more conservative definition of non-performing loans than required thus is able to pick up problem loans earlier-in theory. P/E may look too rich at around 32, but would only be around 20 if one was extrapolate the Q1 results to the full year. Downsides: How many of its principal shareholders will divest some of their holding come next July/Aug when the 2-year holding period ends?
NMG: Is now an East African media house in all but name tetchy govts notwithstanding. The Business Daily has been received far better than initial scepticism suggested. In saying that, I still think that it’s missing a vital constituency-namely, the NSE investors. Why not for example do monthly profiles of each of the 51/2 listed companies; interviews of key players in our economy-this is the only reason I read the Financial Post and I am sure there are others who would want to know more? NMG has a fat DPS; note that its P/E is far more sensible than that of Standard and one can feel a bonus share issue coming from next year. Downside: M7 is not Kibaki and will willingly crackdown on any perceived negativism, ditto TZ.
TPS: Yes another Aga Khan company. Tourism boom is now on and TPS are recapitalising, going regional and refreshing the brand and their hotels in earnest. Downside: usual terrorism/security advices are the main one.
Hold or Upgrade to Accumulate/Buy…
CFC: The universal banking concept means that it will continue to do well as a standalone entity albeit in need of rejig-a bank with no online proposition today needs searching questions about age and strategic aims of its management. As a standalone entity, one can hold onto its shares for the mid-long-term. However, with Stanbic on board, I believe the new entity will be the corporate bank of choice for East Africa and as such investors need to get on board.
KCB: The bad times should be behind it…Q1 was solid if unexciting though it’s getting higher fees now from increased lending. It’s another one expanding its reach beyond Kenya and successfully at that. The hold is to wait for the demobilisation of the share spilt. Downsides: Is GoK non-interference behind us (i.e. this is a politically sensitive stock in mind and thus 2007 elections represent t some uncertainty)?

Underweight/Sell:
KenGen: Once you get GoK 's incompetence being played out publicly as some kind of experiment, you know you shouldn't touch that share until govt stake is reduced. You can't commit legally to something that you can't or shouldn't do and then seek to dress as some kind of intelligent and well thought-out rescue from fiasco.

KPLC: Whole host of problems:

1. Bad debts,
2. Probably too wide a remit (I think rural electrification needs to go a smaller company with none of KPLC’s history);
3. Leakages-25% of its electricity wasted this way
4. A large unionised workforce (apparently some are paid more than their line managers)…
5. and finally the ropey margins.

Upsides: Demand for electricity will get insatiable in at current or higher economic growth rates.
Mumias: Please see previous post and comments…nothing has/will change

A cost-benefit approach in Kenya?

Recent initiatives by the GoK have led to some head scratching. Free secondary tuition fees is to some a missed opportunity to re-look at the Education needs of a growing economy e,.g. why not put this cash into a state of the art ICT university? Spending upto Sh10bn to upgrade JKIA may be more expensive than say upgrading one of the smaller airports and thus enhancing air transport within and out of the country. So how does GoK arrive at decisions?-probably it’s all about affordability. Cost benefit approach is not just about the monetary aspect but the macro-economic, social, political and environmental impacts. So for:
Constitution changes: We've spent sh8-10bn and 15years+ of agitation and still have nothing to show for it. However, if the original question had been what are the socio, economic, political, legal and environmental consequences of updating our constitution through incremental changes rather than one large overhaul maybe halfway to some achievements.
Anti-corruption drive: The impact of the failed drive to bring down corruption and convictions in major corruption cases is enormous in monetary terms, but also socially (it becomes an acceptable form of achieving your aspirations in life); politically (the corrupt want to get in power so they can continue to be corrupt, once in power don’t want to leave because of fear); environmentally (willy-nilly allocation of land and other resources thus no Ngong/Karura forest, Nairobi dam is a sewer).
Million political parties: Failure to create thresholds for forming political parties means politics becomes a way of life for many, it’s commercialised, no ideas-parties.
Lack of separation of powers: Means judiciary and its decisions are compromised and outcomes of cases have social impacts (e.g. bribing a judge to favor you in a marital dispute case), politically (e.g. politically-instigated corruption cases); economically (commercial decisions).
Stalled power sector reforms: As China, South Korea and others have found out, its far harder to increase energy generation capacity, institute conservation measures once your economy id in full throttle. Continued subsidisation of energy generation will eventually slowdown economic growth, as will the slow implementation of a separate rural electrification company
Urban policy: 50% of Nairobians live in slums and this may continue in other large towns as well. To a large extent, this is due to no urban policy looking at issues such as urban economic push (i.e. developing rural-based industries to slowdown rural-urban migration), services, housing policy and will have social (insecurity, social breakdowns); economic (concentration of wealth-generation in Nairobi conurbation) and environmental impacts (smog, polluted rivers, air quality etc).
And such an approach need not been lengthy or be costly, cabinet ministers meet every week and we do have an economic planning ministry.

Legacy Leadership

Nelson Mandela is a worldwide icon because he laid down the best years of his life for his people, was freed, became president of South Africa and left a legacy of a reconciled/reconciling beacon of African democracy for the world to see. The late Boris Yeltsin is hailed in the West as a brave leader who finally ushered Russia into the post-communist world, while Russians remember him as a drunk who broke up their nation, gave away nation assets creating Oligarchs and wasted a golden opportunity to democratise Russia, create a free but fair economy and above all took them into Chechnya. Uganda remembers Idi Amin with a shudder, Margaret Thatcher is remembered as the PM who privatised everything but the Queen. Deng Xiapong is now known as the Chinese leader who kicked off its current economy turbo charge. Lee Kuan Yew's authoritarian leadership in Singapore and that of Mahathir in Malaysia pulled their respective economies into the 21st century. In Kenya, we remember Jomo Kenyatta for his oratory skills, ushering in Kenyan economics (growing while allowing stealth corruption), tribalism and uttering unprintable names political assassinations. We have Moi to thank for the mkae hivyo hivyo economics, tribal clashes at every election, Goldenberg, Pattni, roadside cabinent reshuffles and Kibaki-free primary education and continuation of Kenya economics-I think apart from political assassinations this guy is Jomo Kenyatta true heir. The question, how many of these leaders ever think about the legacy they want to leave behind or how they will be remembered and is it important. What sort of qualities do leaders who have overhauled their nations and left a positive impact need or require?

In the private sector, you have your Henry Ford for the whole assembly concept; Warren Buffet for investing in value; George Soros for UK not being part of the Euro; Jack Welch for introducing Six Sigma to GE and the corporate world and succession planning in management. Sandy Weill/Chuck Prince have transformed Citigroup despite recent underperfomance as has Ken Lewis (and Hugh Mccoll before him) at BoA. Toyoda for Toyota; Chris Gent at Vodafone is a notable company builder in the UK. James Mwangi and Peter Munga with Equity Bank are on the way to building a banking concept of note in Kenya. However, there are few other CEOs/Chairmans that one can say have transformed the business landscape Kenya. In business as in politics, vision, intelligence, and special comparative advantages are required to be a transformer.

Shareholder Activism?

Just imagine that if it wasn't for The Children Investment Fund (TCI) increasing their stake in ABN Amro to 1% and demanding that the bank either breaks up or looks for a merger, ABN Amro would today still be serenely going about its business as only the Dutch do. Tomorrow, Barclays will most likely confirm that it has agreed to merge with ABN Amro, thus acting as a white knight to save ABN Amro from being broken up. And its not as if the ABN was underperfoming, only that its strategy was not clear.

Today there are Kenyans who hold large but minority stakes in some of the top NSE stocks, the question is, would they demand for example that KQ fires its head of customer service following recent poor pefomance in this area? Or could Transcentury demand the cancellation of Manitoba's management contract with KPLC due to continued underperfomance? Only time will tell...

What a gooooooooooooaaaaaal!!!!!

Its like Maradona famous goal only faster. Watch it.

Kenya to list bond internationally, AccessKenya IPO

Although minuscule in comparison to normal paper being floated in the international markets, the fact that Kenya is thinking of venturing into the international bonds market is worth a mention. Before that, what, why and how-type questions will be asked. How are bonds listed internationally? What is the rationale for raising funds internationally? Why not continue raising funds internally-after all there is plenty of liquidity in our economy?

• It is to help maintain domestic interest rates and insulate the private sector from the crowding out effect e.g. banks preference for buying t-bills instead of lending
• To increase marketability and liquidity of govt bills-the flip side is that the type of investor who will buy these will be hot money taking to the hills at the slightest sign of risk. It does however mean that the risk of default is reduced by entrenching a tighter monetary policy so no more 1993 level of interest rates...
• To create a benchmark for our corporates to raise funds in the same way e.g. KenGen who need to fund more electricity generation projects
• To raise the profile of our economy-my favorite one as Kenya would get a credit rating from the likes of S&P, Moodys and so forth and would get a regular SWOT analysis of its economy
• Typically international bonds are long-held and used to finance big infrastructure projects e.g. roads
• Is it to raise funds away from domestic eyes/pressure-quite clearly this is a real issue as you may not necessarily budget for it?

AccessKenya IPO kicks off tomorrow and I believe it will be oversubscribed given the size of the issue and despite the careful choreography of allocations. Is it worth investing in though. AK has 32% of the corporate market, and will be re-investing just over half of the raised funds into VOIP and other residential related products. There is also talk that it will be looking for some bolt-on acquisitions perhaps aimed at improving its retail offering. Numbers-wise, yes revenue and PAT have grown but an EPS of 0.47 for FY2006 would be among the lowest on the NSE. If you want to go long-term, the elephant in the room will Kenya Telecom, if you are a speculator, you need to ask yourself who will come into the secondary market given Institutionals are being catered for.

I keep wondering, our neighbour Ethiopia has a population of 80m, and yes they are mainly involved in agriculture, but why aren't more Kenyan companies (apart from Kenol) moving in?

I guess next time the WB president meets some Kenyan politician, they will have some common conversation topics along the lines of "I know I am supposed to non-corruptable, but I am human, right?"...

RVR deal goes off the rails, NMG, CFC excite

When the Rift Valley Railway deal was announced, I said that i thought that a 25 year term was economically suicidal. Rail if handled as a business, could be a cornerstone of our economy's regeneration helping generate revenues and support the growth of the our landlocked neighbours, our productive Western and Rift Valley provinces that don't have roads to match their productivity and help ease the wear and tear rote on the Mombasa-Nairobi road by HGVs. To surrender the business away to entities some with dubious history and others that are entangled in messy legal entities for 25 years without any back-out clauses smacks of desperation and will cost us in the next few years. Already, the first results show that under the new RVR tutelage, KR is underperforming in various areas with KPA having to publicly complain about yet-uncollected rail cargo, RVR are still in court with their former partners and they off course haven't paid all the fees to GoK. It is messy and I forecast that the whole deal will have to be reviewed in the next 18 months. The other point to make is that there are very few of the big tenders in any sector that this govt has done well in and I wonder whether we need to call on our "partners" World Bank/IMF to help streamline the way we evaluate these deals so that we get the right candidates.
While I was away, various companies rushed in their results to comply with the end of March rule. Several stood out. NMG with a k12 dps was awesome and those wise enough to look at price growth potential as well as dps will have NMG's shares. For me, this is the only media company worth holding over the long-term given its expansion goals. CFC is one I expect to hear more of. The 06 results show that it can do well on a standalone basis; PAT grew by 68% driven by growth in customer loan book (30%), govt securities and fees and comms. As the only universal bank in Kenya today, CFC will show momentum in the 3-4 years as it streamlines its ops. Its likely merger with Stanbic to create a top 5 bank will be the icing on the cake for its shareholders. Finally, there are rumours that Express is eyeing an strategic international partner presumably to give it capital assistance that will expand its reach. From being a loss maker 3 years ago to an international business is quite some turnaround. ARM, ScanGroup are others that announced FY06.