Deals of the year

After leaving behind a very tense election in 2017, key rival parties sealed a gentleman’s agreement with a handshake that promised to push the sails through the year.

The economy rebounded, buoyed by agriculture riding the wave of better climatic conditions and investor confidence that was cemented by the big-ticket deals recorded in 2018.

According to a report by the Institute of Chartered Accountants in England and Wales, the East Africa region continues to report the highest GDP growth rate in the continent.

However, lower growth ranking for some countries in the region demonstrates how large an effect political instability can have on the economic prospects.

“For example, Kenya’s growth rebounded to 5.4 per cent this year after it dropped to 4.9 per cent in 2017. The drop was largely attributed to political uncertainty during the election period,” explained Michael Armstrong, Regional Director, ICAEW Middle East, Africa and South Asia.

Biwott

Among the biggest deals, this year has been the surprise exit of Nicholas Biwott’s family from KenolKobil, in a Sh35 billion deal brought in by a French firm.

The deal, seen by some industry players as a smart move to shift money to holding stock, was done quietly and gave no room to rivalry among family members.

It avoided public court battles that have characterised resolution of estates where the patron has passed away.

“The family has been slowly disposing of everything that is publicly known to be theirs other than Yaya, which may be in the pipeline,” a source said.

The offer by the French firm, Rubis Energie, to KenolKobil estimated at Sh36 billion, could possibly be the largest in Kenya’s corporate history.

But if it was expected to go on silently and far from the commotion witnessed in the Puma Energy deal, which faltered in 2013. The firm attempt to take a controlling stake in KenolKobil collapsed with no good reason given.

“The negotiations with Puma Energy regarding a potential acquisition of control in (KenolKobil) have been terminated,” read in part a statement by KenolKobil.

But even as the current deal looks certain to take off, it has to a certain extent been marred by controversies, including claims of insider trading with the Capital Markets Authority investigating some traders.

KenolKobil, one of the largest oil marketing companies in Kenya and region, is majority owned the late Nicholas Biwott’s family, who, while serving as the Minister for Energy, acquired the assets of Mobil when it left the Kenyan market, which later merged with Kenol.

Ohana

Besides the Biwott family, its current boss David Ohana stood to gain significantly from the deal with a Sh2.2 billion cash out for his Employee Share Ownership (ESOP) plan that gifted him with 88 million shares.

He was, however, stopped by an internal cause that capped his portion of ESOP shares to 25 per cent and the matter has since gone to court after nine Esop owners challenged the deal.

The Frenchmen said they have already received a commitment for the sale of shares from some of the key shareholders including the current chief executive David Ohana.

The successful sale of the company would mean that the KenolKobil brand will disappear in the coming months and in its place will be Rubis.

It will also mean that the retail petroleum space will be dominated by foreign firms, whereby Kenolkobil, Total (also French) and Vivo Energy (which operates Shell-branded outlets) currently dominate the market, accounting for more than half of the petroleum products sold in the country.

Vivo

Oil marketing firm Vivo Energy acquired Engen’s operations in eight African countries including Kenya for Sh20 billion. Vivo, which runs Shell-branded outlets in the region, said the transfer of Engen’s business to Vivo would be completed by March 2019.

The deal will see owners of the Engen walk away with Sh6.3 billion in cash and a five per cent shareholding in Vivo Energy.

The Ndegwas

The former Central Bank of Kenya Governor, the late Phillip Ndegwa’s family stole the year with the late announcement that the lender National Industrial Credit would merge with the Kenyatta’s Commercial Bank of Africa to form Kenya’s third largest bank.

This was not the only deal by the famous billionaire family, the Ndegwa’s. Earlier this year, the family had also announced a deal with American agribusiness conglomerate, Seaboard, to co-own listed manufacturer Unga Limited.

In February, Seaboard offered to buy the 46.15 per cent of Unga’s shares that are held by minority shareholders and listed on the Nairobi bourse in order to take the company private.

This appeared to have been part of a wider strategy to reorganise the family business by one of Kenya’s richest families, which holds shareholding in Unga through Victus Limited.

Despite the muscle of Victus’s controlling 50.93 per cent stake and James Ndegwa, a family member who chairs the Capital Markets Authority, the deal did not sail smoothly as planned.

Opposing investors successfully blocked the bid by the Americans when some shareholders declined the Sh40 per share offer price with claims that each share was worth Sh67.

“It remains the intention of Seaboard to proceed with its proposal to seek delisting of the company from the Nairobi Securities Exchange at an extraordinary general meeting to be convened in due course,” the firm said.

However, it’s the deal with the Kenyatta’s to merge the asset finance bank, NIC (partly owned by the Ndegwa family) and CBA Bank (owned by the Kenyatta family) that has been the talk of the town as the year came to close.

The merger of the two banks is expected to create an entity with Sh444.3 billion in total assets.

Though details of the deal’s value have been kept under wraps, insiders estimate it at several billions of shilling and may also include share swap. Earlier, CBA had in February acquired Crane Bank Rwanda from Uganda’s Dfcu (Development Finance Company) Bank.

The move gave the bank a footing in the Rwandan market without going through the tedious and lengthy process of starting a greenfield operation as a commercial bank in the country.

It also strengthened CBA’s position as a regional bank, with operations in Tanzania (11 branches) and Uganda (two branches). It entered the Rwandan market in 2016 with microfinance licence and offering mobile banking services – MoCash.

Imperial Bank and Chase Bank resolutions

Although the NIC/CBA banks deal has been the most lucrative in the market, two other banking deals have redefined resolution of failed lenders.

The Central Bank Governor Dr Patrick Njoroge invoked his power and announced the country’s first carve-out deals, where good assets and an equivalent portion of liabilities is scooped out of a failed lender and given to a good bank.

The State Bank of Mauritius carved out 75 per cent of Chase Bank’s good books, while Kenya Commercial Bank (KCB) took hold of 35 per cent of Imperial Bank’s good books.

Although details of the KCB deal remain scanty, large depositors are coming to terms with KCB offer, which will trim billions of their deposits held for three years.

The vulture capitalists

Kuramo Capital has been busy this year sealing major deals including the acquisition of GenAfrica, Sterling Capital, Real Estate Company- Century Developments, and online microlender, Pezesha African Ltd.

The estimated value of this deal is not known to the public but insiders estimate it to run into billions of shillings.

Kuramo Capital made its name in 2016 when TransCentury, founded by Mwai Kibaki-era investors, was unable to repay Sh8 billion Eurobond.

The American firm, according to a United States Securities and Exchange Commission filing, is owned jointly by Adewale Francis Adeosun, Kamal Devinderpal Pallan, Shaka Mwangi Kariuki and Jide James Zeitlin, indirectly through Keffi Group VII LLC.

The Sh33 billion company has made bold bets that informed its acquisitions and business reorganisation, including firing men and women at the helm of struggling firms it acquired may prove lucrative going into 2019.

Centum

One of the Kuramo deals helped Centum post a 27 per cent rise in net profit by booking Sh1.2 billion sale of GenAfrica, a subsidiary that has about Sh150 billion in assets under its management.

“GenAfrica has been operating in the Kenyan capital markets for the past 22 years (for 17 years as Genesis Kenya Investment Management),” I&M Burbidge stated.

Centum has made a name for itself with its strategic portfolio and creation of multi-level subsidiaries that run in the dozens. When it offsets such businesses, its topline shoots before it makes other acquisitions into the basket of billionaire Chris Kirubi.

However, it has turned to fire sales to report profits amid a tight debt profile of maturing credit lines.

Centum Investment also sold its 25 per cent stake in Platcorp Holdings – which owns Platinum Credit – to Suzerain Investment Holdings, a consortium of Platcorp’s management team and an existing shareholder.

Centum’s stake in Platcorp Holdings is owned by its vehicle, Kilele Holdings.

The firm also pumped money to defend its stake in Sidian Bank and has only served to bite its money as the bleeding lender required more capital to operate in a tough environment.

The investment firm pumped Sh1.1 billion ($10.9 million) into its banking subsidiary Sidian in a rights issue that is meant to boost the lender’s core capital.

Centum holds a 73 per cent stake in Sidian Bank and the Sh1.1 billion cash injection means it has defended its entire stake in the rights issue.

The Rwathia village billionaires calling it quits

Peter Munga cut out an emotional picture going back 34 years down the memory lane when he toured the first branch of Equity Building Cooperative Society in Kangema town, Muranga County.

In tow was American national, David Ansell, following tidbits of Equity’s journey that has seen it grow into the country’s second-largest lender in terms of assets, boasting of 294 branches with 7.5 million customer base.

The visit was not only symbolic in nature with Ansell taking over Munga’s job, but it also signified big-ticket deals that have replaced the Kangema billionaires at Equity Bank and Britam Holdings with foreign entities, including the World Bank, AfricInvest and growth of Dutch and Norwegian Private Equity firms.

While Mr Munga substantially cut his holding in the bank to 0.4 per cent in December 2017, from 3.2 per cent during the lender’s listing at the Nairobi bourse in August 2006, foreign investors were buying into the local lender.

This year, Arise took over assets previously held by NorfInvest, which was the leading single top shareholder at Equity Bank. Arise is owned by Norfund, Rabobank and FMO as the majority shareholders.

Munga also sold his stake in Britam worth Sh1.3 billion, bringing it down from 40.3 per cent in 2016 to 26.8 per cent at a time when Britam has raised Sh9.2 billion by issuing new stocks to International Finance Corporation (IFC) and private equity firm, AfricInvest.

He further surrendered 348.5 million shares worth Sh4.8 billion he held under Plum LLP (Plum) to Zurich-based insurance giant, Swiss Re, completing his disposal of the 452.5 million shares he acquired from former owner Dawood Rawat in 2016.

Then Businessman Jimnah Mbaru sold 5.5 million shares of Britam, cutting his stake in the insurer to 10.05 per cent prompting IFC to compel top shareholders to retain a combined stake of 20 per cent in the firm.

The World Bank lending arm now has an 8.8 per cent stake in Britam, while AfricInvest was recently allotted a 14.3 per cent stake as the entry of the two institutional investors dilutes the equity holdings of the founders.

The South African Rands

The South Africans have also been busy in cementing their hold in Kenyan firms taking advantage of a debt swap to get more traction.

Old Mutual converted a Sh2.7 billion loan to UAP Holdings into equity resulting in the firm taking up an extra 6.5 per cent stake in UAP.

The transaction saw Old Mutual’s stake in UAP rise to 66.67 per cent.

UAP Holdings had taken the loan to finance its buildings in Kenya and South Sudan but faced revaluation in the country owing to the conflict in South Sudan.

The deal followed a decision by UAP to renegotiate the terms of its loans including those advanced by the IFC.

Makini Schools/ADvTECH

As the education market tosses and turns in the circles of public policy on whether to change the curriculum or not, the wealthy will not take a gamble.

Demand for private schooling has not been met by local entrepreneurs and as the market grew, the South Africans came to pitch the tent.

UK-based investor, Scholé Limited and South Africa’s Advtech in May bought a 71 per cent stake in Makini schools from Mary Okello.

Ms Okello, who co-founded the school with her husband the late Pius Okello, relinquished management of the group of schools following the deal that was valued at Sh935 million.

Advtech operates private schools in Africa and is expected to raise the already high standards at the schools.

Uqalo/Big Square

Another South Africa based firm, Uqalo, acquired an undisclosed stake in fast food chain Big Square for Sh400 million ($4 million).

Uqalo, whose other investments are a five per cent stake in Twiga Foods (Kenya) and 20 per cent stake in Kanoria Africa Textiles (KAT) of Ethiopia, is largely funded by supply chain and logistics conglomerate, Fung Group, based in Hong Kong.

The Fund has a five-year investment target that seeks to acquire minority stakes by investing between Sh202 million and Sh506 million ($2m and $5 million) in “mature businesses” through equity or convertible debt.

Uqalo says its investment will expand its footprint from the current nine stores to 30 over the next four years.  

oguguyu@standardmedia.co.ke, emacharia.standardmedia.co.ke