Budget 09: Capital Markets Proposals

Following Uhuru’s budget reading there has been a renewed investor interest in the NSE. The NSE 20 share index surpassed the 3,000 mark after a 14 days continuous rise. Analysts are predicting further improvement in the market activities in days to come. It seems the 09/10 budget reading brought some life into this market. Below are the proposal indicated there in:

- Increase in stockbrokers and investment banks minimum share capital from Ksh.5 million and Ksh.20 million to Ksh.50million and Ksh.250 million respectively by December 2010. This could see some mergers, acquisitions and entrance of foreign investors to achieve this new capital requirement.

- Industry players to publish half and full year (audited) financial statements in at least two national dailies (It’s about time we saw what this guys do)

- Monthly reporting to CMA and submission of quarterly portfolio reports

- Agents restricted to only one broker for easier scrutiny

- Approval from CMA before any change in the shareholders, Directors, CEO’s and other key personnel of a brokerage firm

- All brokers will be required to get an indemnity insurance of an amount not less than five times their daily average turnover to compensate investor losses due to irregularities. (the cover is a bit low and may not be able to cover all claims – from experience)

- As incentive to firms that list on the NSE, the listing fee will be halved to 0.15% from 0.3% of the value on issue. Similarly, withholding tax on long term bonds of 10 year or more maturity has been reduced to 10% from 15%. (this incentives are not good enough and no significant change in likely to be seen)

- Proposed amendments on the Retirement Benefit Act to limit investments by pension schemes (such as NSSF) to only invest in government securities and bonds from public institution could see reduced activity at the NSE.

You can also read the full budget speech here and a PWC-Kenya Budget Bulletins here.

Budget 09 - live

Sin Tax, Zain & KCB

As usual, this year’s Kenya budget reading will not miss a dose of ‘sin tax’ for smokers and beer lovers. How effective these ‘sin taxes’ are is still a matter of contention, but this Mercatus Centre policy paper discourages them. In summary it says:

- Sin taxes are the result of anticompetitive behavior rather than true public-interest concerns. Most of them are used by industry leaders to fight back at their competitors (EABL, Keroche, tax stamps)
- Sin taxes are not used for their intended purpose and consumer of the taxes product don’t have control over the raised funds (which ends up funding political agendas anyway)
- The weight of sin taxes fall disproportionately on the poor
- Consumers of sin products are usually not responsive to increase in prices and may only substitute the product for a lethal alternative – defeating the objective
- Then there is the issue of same products from neighboring countries finding their way into the market albeit illegally.
- The effectiveness of ‘sin tax’ is thus trivial and a total failure (it even feeds immorality!)

No more Zain (Again!)

Zain Group is reported to be looking to sell its African unit, Celtel International. It’s said that Zain has been approached with a USD12 billion deal to sell Celtel to an unnamed French company. Zain has also received inquiries from firms in India and China. And still on Zain, its Zap money transfer service has been approved in Uganda and will be now be operational across East Africa.

Another first from KCB

KCB has announced a tender for an internet acquiring gateway, which according to @moseskemibaro is an indication that the bank would be offering an e-commece services platform locally. Following the passing of the ICT bill into law earlier this year e-commerce is now easier in Kenya and KCB may be the first to launch it. (ok let me not indulge more lest I become a ‘corporate cheerer’)

KCB: Big in the East

Talk of going regional and KCB Group comes first to mind. The rate at which Mr. Martin Oduor is expanding the bank regionally can only be said to be phenomenal. Last week there were opening their fifth outlet in Southern Sudan and sealed a Ksh.38.4 billion ($452 million) mortgage deal with the Government of Southern Sudan. The S&L (KCB’s mortgage subsidiary) deal to finance construction of 1,750 houses for Southern Sudan civil servants is the biggest deal a Kenyan firm has ever got in any of its East Africa subsidiary.

Compared to other indigenous banks, KCB regional expansion strategy/ implementation eclipse them all. And it’s been paying off. KCB's businesses in Tanzania and Southern Sudan have already crossed the profitability threshold, while the one year-old Ugandan subsidiary is likely to break even this year.

A look at the Groups 2008 financials indicates that KCB Uganda assets grew to Ksh.2.4 billion after operating for a year, with its banks loan portfolio, reaching Ksh.660 million, while deposits grew to Ksh.1.48 billion. KCB Sudan returned a pre-tax profit of Ksh.530 million while KCB Tanzania, which reached a breakeven point last year, recorded a pre-tax profit of ksh.32 million.

In Kigali Rwanda, KCB is also the first to be cross-listed (listed) on the Rwanda's Stocks Exchange. This would see KCB’s stocks trade in four securities markets in East Africa; Nairobi, Kampala, Dar-es-Salam and Kigali.

The bank further plan to open 30 additional branches in Kenya and 20 more in Sudan, Tanzania and Uganda. Other Kenyan banks that have ventured into the larger Eastern Africa region include Equity (Uganda); NIC (Tanzania); and DTB (Kampala/ Dar)

Notice that most of these banks have shied away from Ethiopia and Somali (for security reasons: but isn’t the piracy money worth the risk). For Ethiopia I’m yet to understand why Kenyan banks don’t even mention their intentions to go there, probably due to the big government there. But I can bet KCB Group will be the first to set office there.

*Opinion*

From a personal experience with KCB’s below par service, my opinion is skewed towards investing in the banks stocks and not considering to be their client (unless you travel a lot across Kenya or East Africa)