African Markets and Investments

Blue Financial Services is a micro-finance institution (MFI) listed on the JSE AltX and Botswana Stock Exchange.
The Group offers innovative and ethical credit solutions to formally employed but under-banked and underserved employees.
Blue currently operates in 12 African countries including Kenya through 281 branches, staffed by more than 3,000 employees.

Blue has identified its market as being the salaried i.e. teachers, soldiers, nurses, policemen, civil servants, and employees of enlisted companies etc. who are lower income earners and normally do not have access to loans due to the size of loans they require, as well as the lack of security, especially in other African Markets and South Africa in particular, however in Kenya, this segment is served by the likes of Equity, Krep, Faulu etc.
This explains why Blue is a small operation in Kenya.

Blue’s success can be attributed to providing employees with a range of products that include salary advances, term loans, home improvement finance, mortgages, small business finance and micro-insurance.
They collect by getting into agreements with employers to make deductions before these staff are paid their salaries, therefore ensuring that they collect early and in a more sustained manner, the same way that PAYE is deducted.

Blue’s goal is to take advantage of the significant opportunities offered by Africa’s largely ignored frontier markets.The company has plans on expanding its operations in Mozambique, Angola, Cameroon and Ghana.

Blue plans to move its listing from AltX to the JSE’s main board and may consider listing on the new Africa board, which launched on the 19th Feb on the JSE South Africa.

The group is also looking at taking additional listings on the Namibian, Kenyan and Zambian stock exchanges as it grows its presence in these countries.
However, this decision will be finalized once the group releases it financial results for last year in April.

Blue has a market capitalisation of about R2bn (Kes:16Bn) and ranks as the 122nd largest listed company in SA.

Last month, Absa became Blue’s second largest shareholder after it bought a 16% stake in Blue, after clients of Absa Capital defaulted on their single stock futures contracts.

KEY TRADING DATA (ZAR)
Share price (31 December 2008) R4.40 per share
52 week high R7.00
52 week low R3.30
Number of shares in issue(net of treasury shares) (million) 584,589,765
Market capitalisation R2.4 billion
3 month average daily volume 414, 765 shares per day
3 month average daily value R2 ,401,990.57
Currency conversion
1$ = R9.89
1£ = R14.66
1R = Kes 8.00

MAJOR INVESTORS
ABSA Bank (A member of the Barclays Group)
American International Group (AIG USA)
International Finance Corporation (IFC USA)
Public Investment Corporation (South Africa)
Stanlib (South Africa).. A member of Standard Bank (Stanbic)

Download the Blue Pre-Listing information memorandum.

City Trust ltd announced a bonus of 1:10 on 14-Oct-2008. Books Closure 02-March-2009.Posting 18-March-2009.Trading of new shares 23-March-2009.

Eaagads ltd announced a bonus of 1:1 on 26-Nov-2008. Books Closure Subject to approval.

Limuru Tea ltd announced a bonus of 1:1 on 18-Dec-2008. Books Closure Subject to approval.

Equity Bank ltd announced a share split of 1:10 on 12-Feb-2009. Record date 25-March-2009. [not exactly a bonus, but I just listed it anyway.]

NIC Bank ltd announced a bonus 1:10 on 19-Feb-2009. Books Closure 19-March-2009. Posting/Crediting date 29-April-2009

Well, this sure is the season. But in this current environment, its pleasing to see companies, reduce their cash payouts as the days ahead look gloomy, but still maintain a balance by rewarding shareholders with non – cash incentives, in the form of bonus shares.

What’s more, dividends are taxed, but the gains enjoyed by disposing off the bonus shares are not taxed, so it’s a win-win for both the company and the shareholders.

The World Bank’s Board of Governors has recently approved a first phase of reforms to increase the influence of developing countries within the World Bank Group, including adding a seat for Sub-Saharan Africa to allow developing countries a majority of seats on the Executive Board, and expanding voting and capital shares.

“Expanding the developing world’s voice is central to delivering effective aid and promoting shared prosperity and development within a 21st Century economic reality,” said World Bank Group President Robert B. Zoellick. “Adding another seat for Africa, reaching developing country majority on the Board, expanding developing country shares and laying the groundwork for further reforms represent real change. I’m pleased our reform process is on track. I encourage shareholders to take action now on governmental approvals of the voting share changes, and to continue their efforts at further, more ambitious, reforms.”

These reforms were initially agreed at the World Bank Group’s Annual Meetings in October 2008, ahead of the Spring 2009 target. With the Governors’ approval, the amendment to the Bank’s Articles of Agreement to increase basic votes, which benefit smaller shareholders, now moves to the 185 member countries for final approval. In order to take effect the amendment must be approved by 3/5 of member countries with 85% of votes.

Specifically, this package of reforms:
* Creates an additional Chair at the Board for Sub-Saharan Africa, which means that developing countries can have the majority of seats on the Bank’s Board;
* Brings the share of developing countries in Bank voting power to 44%, aimed in particular at adding voice for the low income countries.

As a second step, shareholders have agreed that the Bank should undertake a comprehensive and intensive work program to realign bank shareholdings, moving towards an equitable voting power between developed and developing countries. Such a work program would also include voice reforms at the Bank’s affiliated member organization, the International Finance Corporation (IFC). Work on the second phase is already underway.

Participation of developing countries’ nationals in the staff and management of the World Bank plays an important role in the voice reform. Already nearly two thirds of Bank staff and 42 % of all Bank managers are from developing countries. Since Zoellick became World Bank Group President, 7 of his 9 senior appointments have been from developing countries.

My take: This release is very interesting, since there have been turf wars internationally on the role of Africa within the multi-lateral lending agencies.

Of course this is a welcome move, however is it a case of too little too late?
And what is the role of China in all these? I would wish to know.
Btw, the Chinese president just completed a 4 nation tour to Africa , visiting Mali, Senegal, Tanzania and Mauritius. Yes, Kenya is not on the map this time.

Well, I found this development (about the World Bank) a perfect serial to my post below on Micro-finance into developed nations, power is shifting and its shifting fast.
But more importantly is, what is the definition of Developing Nations? according to the World Bank.
Since they include countries that are debatable… so the above might not mean as much as you would think at least to Africa.

And of course, the group’s president seat should be the next target, it should be a deal between Europe and the US where they share the World Bank’s president seat in exchange for the IMF’s seat.
Anyway, I will post about this on a different day.
Incidentally, I am reading the Lords of Poverty by Graham Hancock… very interesting book .. I will post on it once completed since, this deserves an article on its own.

Is this the second step to a New World Order?

Can Microfinance save the world? From the current financial crisis..
Well, we are about to find this out.

Grameen Bank which was founded by the 2006 Nobel peace prize winner Prof. Muhammad Yunus of Bangladesh.

Grameen Bank in Bangladesh Brief:
- Total number of borrowers is 7.67 million, 97 per cent of them are women.
- Has 2,539 branches. It works in 83,566 villages.
- Total staff is 24,240.
-Total amount of loan disbursed by Grameen Bank, since inception, is US $ 7.59 billion. Out of this,US $ 6.76 billion has been repaid.
- Loan recovery rate is 98.32 per cent.
- And more impressively, The bank does not see any need to take any donor money or even take loans from local or external sources in future. [this decision was made in 1995]
- On deposits, Grameen Bank offers very attractive rates for deposits. Minimum interest offered is 8.5 per cent. Maximum rate is 12 per cent.

How do these statistics match up with our Equity bank? or even K-Rep bank, especially the rates they pay on deposits.
As much as this is not a comparison of apples for apples, in Kenya rates on deposits are terrible.
In South Africa, on very humble balance I am getting 11% on the deposit.

While in Kenya getting, 7% is for top clients, though this can be justified by the rates on TBills with the 3 month Bill giving about 8.5%.
Please do note, am not talking about fixed/term deposits but account balances.

The main aim of this post was that Grameen bank in 2008 opened a branch in the U.S. and since the deepening of the financial crisis, its has started on an expansion strategy across the U.S. however still focusing on its micro finance model.

My 2 cents is that developed countries should focus their stimulus plans around such concepts too, since as time has proven and India and China validate today, countries flourish on entrepreneurism and if both micro and macro entrepreneurs do not have access to funding then a country is seriously at risk of not developing, this is the reason why Kenya had a sharp growth immediately after Kibaki came into presidency because banks and other lenders gained confidence and started financing the public.

Most mega enterprises in the world today, started as small companies that would have done well with a micro lender willing to give them a financial boost.

But Grameen Bank will not have such an easy ride though, since in the US venture capital, angel funds, govt. agencies , etc focused on lending are present in droves and willing to fund enterprises.
However with the current downturn mainstream banks are shying away from lending and Grameen can plug this gap, the only challenge is that they do not have historical knowledge of this market to the extent they had for Bangladesh.

Is this the solution? yes, for the micro entreprenuers who might not fit into mainstream banks target markets but maybe not for the individuals who want access to mortgages, car loans etc., or to save the motor industry and other macro enterprises in the U.S.

All in all, Micro Finance in the U.S. that means, micro credit models, innovated in developing poor nations have made an entry into the major league, and developing nations solutions, designed by their citizens are being validated.

Is this the first step into a New World Order?

More about Grameen Bank on CNN , IHT and their website.

CDSC goes e-statements:

” Dear Investor,
In an effort to better serve you, we are pleased to inform you that we are implementing an E-mail service for statements delivery, through which you will be receiving your CDS accounts’ statements via email.
You have been selected to be part of our 2nd pilot test run. Please find attached your December statement. Kindly confirm receipt, review this statement, and reply with any discrepancies or comments.

Please note that from January 2009, you will not receive statements via post if you have an email address.

Kind Regards,
CDSC “

If you are in diaspora, this is just great, and with stockbrokers going down by the month, you sure want to track your investments more closely.

DPL Festive Ltd., the bakers of Festive Bread are planning an IPO on the Nairobi Stock Exchange in the 1st Quarter of 2009, according to the Business Daily.

The Deal:
They plan to raise Kes:500 Million in capital through this IPO.
The company started with a capital of Kes:10 Million eight years ago.

The strategy:
Become the leading bread maker in the region. Towards this they intend to double their capacity to 200K loaves per day in the next year.
They also claim they will invest in product diversification and expand their product range, to other wheat based products.

At a glance:
Company is 8 years old, and now has 250 employees with 28 trucks for distribution.
Its distribution network is concentrated in Nairobi.

The deal makers:
CEO – Dipesh Shah
Chairman – Lewis Kamau [Appointed at the on-set of this deal]
Transaction Advisers – Standard Investment bank and PKF Consulting
Receiving bank – Co-operative bank
Registrar – Co-operative bank
Legal Advisors – Mboya and Wangondu Advocates
PR Firm – Scanad PR
Advertising agents – Nuturn Bates

My Synopsis:
Is it really an IPO or EXIT/Cash out for the company’s founders?
That aside;
I think this is not the best timing for an IPO, even Cooperative Bank was under subscribed, and this is a proven bank which has been growing at phenomenal rates in the recent past as well as being a very well known brand to the public.
Festive on the contrary is not a known brand outside Nairobi and therefore has to spend considerably more money on advertising to create a nationwide awareness which is crucial to a successful IPO.

Its distribution network is concentrated in Nairobi, which is a saturated market already; in terms of bread making companies, therefore the company has to spend in expanding its distribution network and also in either increasing its fleet of trucks or even outsourcing distribution for other parts of the country, considering that bread is perishable, and has a shelf-life of around 2 days, then this means they should even consider building bakeries in key areas around the country as doubling the capacity of its plant is not sufficient to service the country.

Is Kes:500 Million, enough for this, considering part of this money might end up in the current shareholders pockets as well as paying for the cost of the IPO, and that is with an assumption that the IPO will be 100% subscribed? I definitely doubt this.

The other consideration is competition for the raw materials, companies like EABL and BAT have maintained a virtual monopoly in their line of business for the past decade and more because they have control over the production of their raw materials, and ensure that competitors cannot access this raw material market, this also ensures that they can to some extent also control the prices for the raw materials. Review Castle’s reasons for exist and why Mastermind Tobacco has never cracked the market, and they all boil down to securing the raw materials.

Festive Bread on the other hand is only one of the numerous companies, playing in the bread making scene, which has very low barriers to entry, as is evident by the numerous bakeries, sprouting in estates and the bread making companies present in all key towns, Tosti,Elliot, Supa Loaf, etc are all in this game.

What plans does Festive have on securing wheat supplies at stable prices? I don’t see any, as farmers have other sources of demand and can easily sell to other companies instead of Festive. This means either Festive has to provide subsidies or even higher prices to ensure they lock the wheat supply market. With only Kes:500 Million, this is not practical and I doubt if its even on their radar.

Then there are the finer details e.g. Change of Chairman a week before going public of its intentions to do an IPO, within the next 3 months, is it possible for this man to guarantee us that he understands the business and thats the company has been adhering t o various financial reporting regulations etc. Definitely not, and this must have been motivated for reasons to make it easier to get CMA’s among other body’s approval for the listing.

These among other reasons are why I find this more of an EXIT strategy for the companies’ current shareholders, rather than an intention to raise more capital to build the company.

On this basis RIBA will be sitting out this IPO.

Zimbabwe has just launched a $50Bn Note, yes a fifty billion Zim dollar note….

Yes, I have been quiet for sometime now, ok, whom am I kidding, for a longtime. It was a mix of both, change in environment, job(a change in role twice) and of course the economic crisis (hey, everyone is blaming every thing on it, so here is my two cents).

Well, my new year’s resolution is to post more frequently at the least every fortnight, finally the launch of a fully fledged site will come to fruition sometime in early second quarter 09. That’s my deadline. After a lot of postponement…..

So what can Riba Capital promise going forward, I will post wider Sub Saharan Africa content and do book reviews every time I finish reading one. At least that way I will stop just buying books and try reading them too. LOL

My last read was ‘Richistan’ by Robert Frank, this is a definite good read, for those who want to know what the wealth boom in the US has meant and the lives of the new rich, the hedge fund managers, google founders etc, all these are forming a new class of the rich and this book explores their lifestyles, trust me it reads like a different world no wonder the title Richistan which implies a country of the rich only.
My most interesting take was the commercialization of philanthropy through ballroom antics and a clique of media attention seeking freaks. Its Old Money Vs New Money.
Enough of my ranting, as CT would put it.

Happy New Year and a Credit Crisis Free 2009.

NIC Bank plans to acquire 51% of the Savings and Finance Commercial Bank Ltd. in Tanzania.

The match:
This is a mid-sized bank in Tanzania (Tz) playing in the same league as NIC in Kenya. Savings and Finance Commercial Bank was founded as a non-bank financial institution in 1994 and converted into a commercial bank in 2005, it has branches in Daresalaam, Mwanza and Arusha.
So on a match basis I give it 7/10.

The move:
This follows hot on the heels on NIC’s acquisition of a 55% majority stake in Solid Securities at the end of 2007 and the subsequent formation of NIC Capital its Investment banking and Stock broking arm. NIC is on an expansionist strategy, as most banks are in Kenya, with branches popping up in every corner and acquisitions too being the order of the day. It’s currently on a branch roll out program, which has seen it increase its branch network to around 12 branches in the recent past. Though it’s still concentrated in up market areas of Nairobi, which has 8 (67%) of these branches. And sadly so is the Savings and Finance Bank in Tz, its branch network is limited to major towns.

Recap:
Equity Bank acquired Uganda’s Micro finance Ltd, I&M Bank acquired First City Bank (FCB) of Mauritius, KCB moved into Uganda, Tanzania, Sudan and Zanzibar. Barclays opening numerous branches and doubling its workforce in just an year. EABS Bank [formerly Akiba Bank] selling out to Ecobank of Ghana. CFC and Stanbic’s merger.
New kids on the block: Ecobank, UBA Bank, Gulf African Bank etc.
***My expectation is that HSBC which already has a rep office will become more active in Kenya and possibly even open up a branch in the near future or in a couple of years acquire a local player.

The History:
NIC [formerly National Industrial Credit], was incorporated in 1959, when Standard Bank Limited (“Standard”) and Mercantile Credit Company Limited (Mercantile) -both based in the United Kingdom – jointly formed the company. It was a non-bank financial institutions providing hire purchase and installment credit finance facilities in Kenya. Barclays Bank of Kenya acquired 51% of NIC’s total shares through the acquisition of Mercantile in the 1970s and Standard’s shareholding in NIC in the 1980s. Between 1993 and 1996, BBK divested its shares, selling 38% of its shares to the public in 1994, and the remaining 20% in 1996 to the First Chartered Securities Group (FCS). NIC obtained a commercial banking license in 1995. Then merged in November 1997 with African Mercantile Bank Limited (AMBank), which was then owned by FCS, by way of a share swap.
In Nov 2007, NIC raised Kes:1.2Bn through a rights issue and is using these funds on its expansion strategy. The Bank’s capital base is Kshs. 4.7 Billion and NIC Bank shares are quoted on the Nairobi Stock Exchange with approximately 21,000 shareholders of which 71% are institutional investors.

My Thots:
Expansion is good, but it killed Uchumi, when done to keep up with competition(as a fad) rather than for business efficiency and growth. I think NIC is ripe for a takeover by a bigger player keen to get into its niche market of SME’s and asset financing. However its branch network is not appealing as its concentrated in Nairobi and all players that would be interested in acquiring NIC already have branches in those locations.
Therefore, could be a good entry point for international banks keen to enter the Kenyan market the easy way and in the process snap up a stock brokerage and investment banking license, e.g. HSBC, or even a Nigerian bank, say UBA, Zenith etc who are on an African growth trajectory.
At the range of Kes:44 which is the price at which NIC is hovering around in the past few weeks, I would HOLD the share and await its end of year results and more details of the bank’s Kenyan market strategy.
The move into Tz is good, but I think its rushed, since NIC has not consolidated its business locally and could be rushing for the apples higher in the tree before getting the ones right at its reach. I also will be keen to see the contribution of NIC Capital to its bottom-line, and not just being a fancy outfit which is not contributing real money to the business, especially considering that the stock market is not doing well and the Kenyan IPO scene does not look very lucrative after the happenings of Safaricom and Cooperative bank.

These are not the times for manager’s to have hobbies, or fulfill dreams of leading diversified companies but times for consolidating and focusing on core competencies to ensure that you protect what you have before you reach out for the bread on the next table.

Further on banking mergers in Kenya:
In this Central Bank link is a history of mergers in Kenya’s banking industry from 1994 to 2005.