Investments, Divestments, Expansions, Spin-Offs….The Easter Gift to Kenya’s Capital Markets

equity

EYEING GIGANTIC EXPANSION: Equity Bank to double it’s reach in the region

NAIROBI-The March- April Period in Kenya’s Capital Markets represents perhaps one of the most captivating and interesting periods in the Financial Markets calendar where Corporates report their past performance (most Corporates’ Year end is December).

And as each Corporate’s results make headlines, optimists and skeptics alike drown themselves in the bearish and bullish language of each corporate’s future.

The Market speculators, having taken positions a month earlier (usually buy or hold positions), cross their fingers, hoping to make a kill as long as profitability and topline revenue growth is above 0%, and outlook is judged as ‘Positive’.

In the year 2015, the period fully coincides with the Easter Holiday, and similar to the Christian celebration of Jesus’ passion, death and resurrection, several corporate stories hover around business units not performing per expectations (or completely drowning in losses).

They also revolve around  investments paying off, realization of ‘core’ against ‘non-core’ business units, and to most of the corporates, discussions around what is the next step post the 2014 performance beckons.

Usually, shareholders at this time ask the fundamental question, what next? And the Board of Directors, senior management recommend several measures to grow revenues, enter new markets, spin off non-core business units, cut-down operational costs and the whole nine yards.

The past week represents this period in Kenya, and the Corporates did not disappoint in the iconic altar of sacrifice and celebration that is their corporate announcements and Easter, whichever way you want to look at it. We look at some of several corporates that made headlines below, and what it means for shareholders, customers and corporates alike:

Equity Bank plans KES 200 Billion African Expansion, eyeing 10 countries

Equity Bank plans to expand to 10 countries in the next five years at a cost of KES 200 billion, it announced on March 31st, weeks after posting KES 17.1Bn profit making it the country’s most profitable lender.

The lender said it had already signed loan agreements for Sh36 billion ($400 million)—and Tuesday created additional shares worth Sh20 billion to be used in the acquisition process.

The bank which currently operates in five countries said it will raise the remaining Sh160 billion through a rights issues or a secondary initial public offering.

Equity plans to enter Ethiopia, Burundi and the Democratic Republic of Congo in the next two years before expanding southwards to Mozambique, Malawi, Zambia and Zimbabwe.

The bank will turn to West Africa after five years, eyeing Nigeria, Ghana and Cameroon.

The shareholders however capped the cash to be spent in each at Sh9 billion ($100 million).

Equity currently operates in Kenya, Uganda, Tanzania, Rwanda and South Sudan with Uganda being the only market it did not start from scratch. All the subsidiaries recorded profits last year, the first time in the last five years.

Acquisitions will be funded by long term borrowings from international development companies including the International Finance Corporation and the Africa Investment Bank.

Its long-term borrowing stood at Sh25 billion at the end of last year, up from Sh719 million the previous year.

EABL exits glass bottles business, divesting CGL to South African Glass Giant

East African Breweries Limited (EABL) has announced it will transfer all its shares in Central Glass Industries—its 28-year-old subsidiary from which it sources beer and spirits bottles— to Johannesburg-based Consol Glass. Analysts say the move could be aimed at reducing an expensive outstanding loan of over $200 million (Sh18.4 billion) that the brewer received from its parent company Diageo in 2011.

“After a thorough strategic review, we have made the decision to exit the glass business in order to focus on our core business and un-lock additional value for our shareholders,” said Charles Ireland, the EABL managing director.

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Charles Ireland, EABL Managing Director

 

Consol Glass is a privately-owned company (its major shareholder is an equity investment fund called Brait) and is currently the leading glass packaging manufacturer in Southern Africa.

The company has four factories in South Africa and recently bought a stake in a Nigerian glass manufacturer, Glassforce.

EABL said the deal, whose value has not been made public, could be complete in the next two months subject to regulatory and shareholder approval.

Consol has been supplying glass to EABL spirits subsidiary United Distillers Vintners (UDV) for several years.

Consol’s entry into Kenya will expose them to new customers including Pepsi and Coca-Cola —CGI’s present clientele— and new ones like Keroche Breweries which this week scaled up its output capacity 10 times.

The brewer in October shut down CGI for three months for refurbishment in move that cost approximately Sh1.3 billion. “The refurbishment programme has been on course longer and is not related to the divestiture announcement,” Ireland stated, adding that they will not be divesting from other subsidiaries in the near future.

Construction of Centum-Gulf Power Coal-powered plant to begin in September

Centum’s future continues to shine bright after it was announced that the construction of the 1,000-Megawatt coal-fired thermal plant in Kenya’s coastal region is expected to start  in September.

Amu Power Company, a consortium comprising  of Gulf Energy and Centum Investment, has already secured financing for the project from both international and local lenders.

The project will cost about US$2 billion, of which some US$500 million will be funded by equity and the balance through debt.

Once completed, the project is expected to add 981.5 MW to the national grid, for the next 25 years, boosting the country’s energy supply for both industrial and household needs.

The ability to finance the project affirms investor confidence in Centum, the former government owned investment outfit that was struggling to make a name for itself in Private Equity ventures in the 90s, making a total about-turn post full privatization in 2007, rebranding to Centum and attracting top-talent and managers in Private Equity and Investments, and taking the fight for top PE deals to the fore, competing against seasoned and well capitalized firms like Helios and Actis.

Rea Vipingo plans diversification into power generation

Agricultural firm Rea Vipingo will invest Sh1.3 billion in power generation and expansion of vegetables production after delisting from the Nairobi Securities Exchange.

The new investment will be undertaken by British brothers Richard Robinow and Jeremy Robinow who are set to fully acquire the company, making it private.

Rea Vipingo’s current main business is production of sisal which it sells in the international markets including China.

The company plans to diversify into power generation using sisal waste, a concept that is becoming widely adopted by global firms in the agriculture sector like the sugar – ethanol/cogeneration concept and US Firm IGS use of wheat and rice stalks to produce construction material.

The Robinow brothers also plan to expand production of vegetables, a venture that will cost between US$10-US$15Million.

 

Kenya Power eyes Value Add in KES1bn County Fibre Optic Cables expansion

Kenya Power, Kenya’s Electricity distribution and transmission company plans to extend its fibre optic cable connections to cover all counties as it seeks to quadruple its earnings from the new revenue stream to KES1Bn by the end of next year.

The State-owned utility firm earned KES250 million revenue in  year June 2014 from leasing out extra capacity on its fibre optic network.

kenya power

GETTING MORE WORK: Kenya Power plans to cover all counties in the country with fibre optic network

 

Kenya Power is seeking a contractor to supply and install 1,300km of high-speed Internet wires along its electricity lines to expand on the existing 1,800km, after which the contractor will have about eight months to complete installation works.

Kenya Power has since 2010 fixed about 1,800km of optical fibre along its high-voltage power lines, traversing through 24 of Kenya’s 47 counties.

The new project will see the firm increase this coverage to most of the remaining counties, excluding areas like Mandera, Wajir, Moyale and Turkana that are not connected to the national electricity grid.

The power firm mainly uses the high-speed Internet network to manage its national grid. Its goal is to install a reliable connection between Kenya Power’s county offices and the Nairobi head office.

The electricity firm does not, however, use all the capacity and has over the years been leasing out the extra capabilities to mobile telecommunication firms and Internet service providers.

Its current customers include Safaricom, Liquid Telecom, Jamii Telecommunications, Wananchi Group and Airtel. Kenya Power in 2002 was licensed as a network facility provider by the communications sector regulator allowing it to its lease excess broadband capacity to players in the telecoms industry. Kenya Power is cashing in on growing high-speed Internet use, evidenced by subscriptions that stand at more than 14 million.

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