Privatization of Public entities with KES 200 billion assets
The government is set to sell 11 parastatals with a combined asset value exceeding sh200 billion. This initiative, backed by the International Monetary Fund (IMF), aims to reform public entities, making them more efficient and less reliant on government funds.
Treasury Cabinet Secretary Njuguna Ndungu recently unveiled plans for a new privatization program under a newly enforced law, targeting the divestment of government shares in profitable and financially strained state-owned enterprises. Under the proposed plan, five profitable entities, including Kenya Pipeline Company (KPC), Kenyatta International Convention Centre (KICC), Kenya Literature Bureau (KLB), Kenya Cooperative Creameries, and Kenya Seed Company, are slated for sale. The government intends to offer these shares to strategic investors or through an initial public offering, subject to public input, regulatory approval, and legislative ratification.
The financially troubled entities on the sale list include the National Oil Corporation of Kenya (NOCK), Rivatex East Africa Limited, Numerical Machining Complex (NMC) Ltd, Kenya Vehicle Manufacturers Ltd (where the government owns a 35% stake), Mwea Rice Mills, and Western Kenya Rice Mills
ACQUISITIONS
Sri Lankan Investors Take over operations of James Finlay Kenya
Sri Lankan investors, Browns Investments PLC, have successfully assumed control of James Finlay Kenya, marking the completion of the acquisition process. The official announcement came on Monday, jointly made by Browns Investments PLC and James Finlay Kenya, revealing the seamless management transition.
A statement released to the press declared,
“Browns Investments PLC has announced the completion of its acquisition of Kenyan tea estates business James Finlay Kenya from Finlays.”
The sale of James Finlay Kenya was initially disclosed in May 2023, with Finlays opting for Browns Investments PLC as the preferred buyer. The choice was rooted in Browns' commendable track record of steering its tea estates towards sustained growth, coupled with a commitment to sustainability and community welfare.
As outlined in the press release, the comprehensive sale encompasses all facets of James Finlay Kenya Ltd, except the Saosa tea extraction facility, which will retain Finlay's ownership and be rebranded as ‘Finlays Extracts, Kenya.’
Headquartered in Colombo, Browns boasts a rich heritage in managing plantation businesses, owning renowned entities like Maturata Plantations, Hapugastenne Plantations PLC, and Udapussellawa Plantations PLC. Recognized as one of Sri Lanka's largest tea producers, Browns oversees 49 individual estates sprawled across more than 30,000 hectares, providing employment to over 10,000 individuals.
In a noteworthy commitment to the local community, Browns and Finlay, as part of the sale agreement, have pledged to offer 15 percent of shares in James Finlay Kenya for public sale through the Kipsigis Highlands Multipurpose Cooperative Society, acknowledging and honoring the enduring support of the community
CAPITAL MARKETS
1. Morgan Stanley blocks Kenyan firms from the global index
Morgan Stanley Capital International (MSCI), an international trading indices firm, has announced a ban on new Kenyan companies joining its global stock market platform. The decision, attributed to dollar shortages and financial turbulence plaguing Kenya, marks a hindrance for local firms seeking to sell shares to foreign investors.
Furthermore, MSCI has extended its freeze on the periodic reviews of the dollar-denominated MSCI Kenya Index, impacting not only Kenya but also Bangladesh, Egypt, and Nigeria. This move follows feedback from market participants citing deteriorating liquidity in Kenya's forex market, making it challenging for foreign investors to repatriate capital. The quarterly reviews typically conducted every February, May, August, and November, play a pivotal role in reflecting the current state of the Nairobi Securities Exchange (NSE). They allow for the introduction or removal of constituent companies and adjustments to their weighting within the index.
The freeze on these reviews acts as a cautionary signal to foreign investors, discouraging inflows and hindering potential market improvements. The MSCI's decision in August 2022 already restricted changes, including migrations between size segments and additions of newly eligible securities, with a halt in updates to the Foreign Inclusion Factor (FIF).
2. Treasury relaxes listing conditions at the Nairobi Securities Exchange
Companies aiming to be listed on the Nairobi Securities Exchange (NSE) must now demonstrate profitability at least once in the last five years, marking a significant shift from the previous requirement of showing profits in three of the last five years. The alteration in regulations, outlined by Treasury Cabinet Secretary Njuguna Ndung'u in the new guidelines on public offers, listings, and disclosures, aims to provide greater flexibility for companies, especially those previously hindered by the stringent profit criteria. Notably, companies aspiring to list on the SME Market Segment are exempt from the profitability prerequisite but must present a comprehensive business plan demonstrating the potential for future profitability. In addition to the relaxed profitability requirement, the new rules expand the scope of entities eligible to issue securities to include limited liability partnerships, whereas previously, only companies were permitted to do so. The regulatory overhaul consolidates the three existing market segments :Main Investment Market Segment, Alternative Investment Market, and Growth Enterprise Market Segment into two categories: the Main Investment Market Segment and the SME Market Segment. These changes coincide with the government's plans to privatize 11 state-linked entities, valued at over Sh200 billion.
MARKETS
Investors convert Sh600 million Centum Re bond into apartments
Centum Real Estate successfully settled a substantial portion of its Sh2.95 billion bonds by offering bondholders the option to be compensated in the form of properties, providing a unique resolution to its debt situation.
The company, in a proactive move, made an early repayment of its bonds, combining cash payments with property transfers. Kenneth Mbae, the Managing Director of Centum Real Estate, disclosed that a remarkable Sh600 million of the bond was resolved through investors choosing to acquire units in Centum's Riverbank and Loft Residences projects. This innovative approach not only facilitated the debt settlement but also contributed to a surge in sales for the company's real estate ventures.
The decision to settle a substantial portion of the bond debt through property transactions indicates a forward-thinking strategy by Centum Real Estate. Bondholders with a principal amount totaling Sh2.3 billion opted for cash settlements, while those interested in the Riverbank and Loft Residences projects seized the opportunity to acquire units and contribute to the company's debt reduction. The Riverbank apartments, featuring one, two, and three-bedroom units within the Two Rivers development complex, proved to be an attractive option for investors, with prices ranging from Sh15 million to Sh28 million. Additionally, the Loft Residences, offering four-bedroom duplexes, added to the mix of the mixed-use development with units priced from Sh37.5 million.
BUSINESS
The government seeks to ban the importation of fully built cars to secure jobs in its leasing program
A special audit conducted by the Treasury has recommended a ban on fully built imported vehicle units (FBUs) from the State's multi-billion-shilling car leasing program.
The program, initiated in 2013, aimed to boost job creation and local investments. However, the audit found that FBUs, vehicles fully manufactured abroad and then imported for sale, were compromising these objectives. The recommendation to either suspend leasing FBUs or promote local assembly has raised concerns among car manufacturers and leasing firms participating in the lucrative scheme.
The Treasury audit also proposed the introduction of locally assembled electric vehicles into the leasing program, suggesting a pilot deployment for non-operational tasks. This move aligns with global trends toward sustainable and eco-friendly transportation solutions. Despite the program's success, currently in its seventh cycle with over 8,000 vehicles predominantly leased to the National Police Services, the audit revealed operational inefficiencies.
ECONOMY
Emergency loans secured by the Treasury from the CBK surged past Sh80 billion
Emergency loans secured by the Treasury from the Central Bank of Kenya have surged past the Sh80 billion threshold this month, signaling a pressing short-term cash flow crisis.
The most recent data highlights that the outstanding overdraft reached a historic high of Sh85.12 billion on November 10, only to see a slight reduction to Sh81.01 billion a week later. This development underscores the severity of the financial predicament, with the Treasury having utilized over 83 percent of the Sh97 billion limit allocated for the current fiscal year ending in June 2024.
The emergency loans from the Central Bank play a pivotal role in helping the Treasury address immediate cash needs during periods of financial strain. These funds are crucial for meeting urgent payment obligations, including salaries, and covering other high-priority recurrent expenditures such as debt repayments.
Section 46(3) of the CBK Act specifies that the Government of Kenya's overdraft facility is limited to five percent of the gross recurrent revenue, as indicated in the latest audited financial statements.
The borrowing cap for the overdraft facility has been set at approximately Sh97 billion, as outlined in a recent presentation by the Central Bank to the National Assembly. This represents an increase from Sh80.05 billion for the fiscal year ending June 2023 and Sh75.45 billion the preceding year.
Notably, the current utilization of emergency funds comes with a cost, as the annual interest rate stands at 10.5 percent—the highest in seven years. This elevated interest rate aligns with the Central Bank's strategy to combat rising inflation by increasing the cost of money.
WHAT YOU MUST HAVE MISSED
Government introduces a regulatory fee on online forex brokers
The Treasury has introduced a regulatory fee on online forex brokers, opening an extra revenue stream for the Capital Markets Authority (CMA). In changes to online forex trading regulations, Treasury Cabinet Secretary Prof Ngung’u said that brokers would now be required to remit an annual fee to CMA. "The Capital Markets (Online Forex Exchange Trading) Regulations, 2017, hereinafter referred to as the "principal Regulations", amended by inserting the following new regulation immediately after regulation 25," Prof Ndung'u said. According to the new regulations, both dealing and non-dealing online forex brokers will remit an annual three percent fee to the CMA, based on their gross revenue and including commissions and rebates. A dealing forex broker or market maker is a broker that takes the other side of a client's trades, by setting the bid and ask price and waiting for a trader who would like to take advantage of these set terms.
Kenyans to continue paying for the housing levy
Kenyans will continue paying the Housing Levy as the High Court suspended its judgment that found the law unconstitutional until 10th January 2024 to allow the government to move to the Court of Appeal.
“We have no doubt this court has jurisdiction to grant orders of stay pending appeal even after declaring a certain decision unconstitutional,” Justice David Majanja said in a short ruling. Justices Majanja, Christine Meoli and Lawrence Mugambi ruled that they were of the view that they do not have the last word on the matters at hand.
In their 160-page judgment, the judges held that Section 84 of the Finance Act, which amends the Employment Act to introduce the Housing Levy violates the principles of taxation for making distinction between formal and informal sectors, thus creating unequal and inequitable principles.
London-based fintech and payment solutions company Verto has entered into a partnership with UBA Bank
The company provides a platform for local startups, small businesses, and corporates in Kenya to seamlessly send, receive, and exchange money across more than 190 countries. Kevin Nganga, the Country Director for Verto in Kenya, emphasized that this collaboration aims to foster the growth of fintech, building upon the $3 billion. The partnership with UBA Bank strategically positions Verto in East Africa to address the increasing complexities of international trade, particularly in managing diverse currencies, according to Mr. Nganga. Kenya, having gained global recognition for its revolutionary mobile money ecosystem, is now a pivotal player in the digital payments space.