Eastern africa newsletter june 17th 2014

Eastern Africa Newsletter – June 2014

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Advisory services:Originating and structuring Equity and Debt capital raising, IPOs, M & A transactions, Strategic Options advisory, PE advisory and Independent Research services.

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Key Africa & Global Equity Indices Performance

Key Africa & Global Currency Performance

Key Events

PART I: KEY MARKET INDICATORS

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CONTACTS OF THE EDITORIAL TEAM

Edward Burbidge, CFA

Chief Executive Officer

[email protected]

Vimal Parmar, CFA

Head of Research (SSA)

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Gerald Njugi

Senior Analyst - Corporate Finance

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Lello Halake

Research Analyst

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Practitioners of the craft of private banking

Consultancy values Kenya’s proven oil reserve at USD 10bn Foreign investors’ return lifts NSE turnover 46 pct FDIs into Kenya expected to surpass USD 3.5 billion realized in 2013 IMF chief salutes Kenya for mega rail and road projects Shilling touches 88 to dollar as pressure rises Treasury to float KES 132bn Eurobond in June Bank credit exceeds CBK target for seventh month Toyota Tsusho to invest USD 1.5 billion in agribusiness NSE raises share capital, plans futures exchange ahead of listing IMF predicts 6pc economic growth for Uganda S&P Dow Jones extends Africa-focused index offering

NSEASI Index 136.65 151.13 150.20 -0.6% 9.9%

FTSE NSE Kenya 25 174.27 193.92 194.03 0.1% 11.3%

DARSDSEI (TZ) 1,866.57 2,043.56 2,019.68 -1.2% 8.2%

UGSINDX 1,522.46 1,607.96 1,613.91 0.4% 6.0%

NGSE Al l Share 41,329.19 38,485.56 41,474.39 7.8% 0.4%

EGX 30 6,782.84 8,256.14 8,242.94 -0.2% 21.5%

JALSH (SA) 46,256.23 48,870.10 49,632.70 1.6% 7.3%

S&P 500 1,848.36 1,883.95 1,923.57 2.1% 4.1%

FTSE 100 6,749.09 6,780.03 6,844.51 1.0% 1.4%

Equity Index 2/01/2014 1/05/2014 30/05/2014 % Ch. m/m % Ch. YTD

KES / USD 86.45 87.05 87.73 0.8% 1.5%

TZS / USD 1,585.49 1,645.50 1,663.48 1.1% 4.9%

UGX / USD 2,524.93 2,517.00 2,557.94 1.6% 1.3%

ETB / USD 19.15 19.47 19.56 0.5% 2.2%

ZAR / USD 10.49 10.53 10.58 0.4% 0.8%

NGN / USD 159.95 160.79 162.74 1.2% 1.7%

EGP / USD 6.95 7.01 7.16 2.1% 3.0%

GBP/USD 0.60 0.59 0.60 0.7% -1.1%

EUR / USD 0.73 0.72 0.73 1.7% 1.1%

Currency 2/01/2014 1/05/2014 30/05/2014 % Ch. m/m % Ch. YTD

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In oil and gas, Africa Oil announced it had discovered a total of 67 metres of oil at Twiga-2 and at Ekunyuk-1 wells in Blocks 10BB and 13T inNorthern Kenya. The new discovery adds to the increasing commerciality of the oil reserves that reached a billion barrels earlier in the year;following the announcement Global Data issued a new long-term value estimate of at least USD 10 billion. In Tanzania, Swala Oil and Gaskicked-off on its IPO on the Enterprise Market segment of the DSE as the company seeks to raise TZS 4.8 billion, while Ophir Energyannounced the successful results of the Taachui-1 and subsequent Taachui-1 ST1 well in Block 1, which has resulted in a new gas discovery. Inmining, Red Rock Resources, a mining firm prospecting for gold Kenya, has raised GBP 500,000 through a convertible bond to finance itsworking capital requirements and to retire more expensive debt.

In private equity 2 investment deals were announced in the agribusiness and real estate sectors and a partial PE exit in the power utilitysector. In M&A we saw 2 deals in the IT and telecoms sectors and one rights issue in the banking sector. In the bond market we witnessed 3corporate bond issues in the mining, automotive and banking sectors with more expected later in the year (see Deals on p.4). The EA regioncontinues to enjoy a stable macroeconomic outlook with lower interest rates being expected and this might act as a catalyst for issuance ofbonds to retire more expensive debt and to finance acquisitions.

In the listed equities market, the month of May witnessed buoyant trading however the NASI edged 0.6% lower to 150.2 points. Equityturnover rose 46.2% in the month to USD 267.7m as Safaricom, Equity Bank and KCB accounting for the highest activity, represented USD151.2m of value traded. Net foreign inflows stood at USD 26.6m (previous month USD 16.4m) with KCB (USD 22.0m) and Equity (USD 13.7m)recording the highest foreign inflows for the second consecutive month. Equity Bank recorded a 9.2% gain to KES 41.8 while KCB remainedunchanged at KES 49.0. Safaricom topped the list of the most sold counters by foreign investors to record outflows of USD 9.4m. Small capswere the dominant gainers in the month with Express Kenya adding 47.4% and Kenya Orchards gaining 31.1%, while Scangroup posted thehighest decline in the month down 22.4%.

Edward Burbidge, CFAChief Executive Officer, & BC Newsletter Team

2

PART II: MONTHLY COMMENTARY

Interest Rates

Inflation and GDP growth

OTHER KEY MARKET INDICATORS

As expected, we saw a pick up in dealmaking across the region this month. In particular a very successful placing completed byUmeme in Uganda and Kenya. C. USD 86m was raised in short order providing a significant further exit for global PE firm Actis.This follows a successful and IPO and cross listing and is an excellent example of how painless transactions can be whenentered into by a strong company and progressive shareholders that act in the long term interest of all shareholders. Also

good proof that a private equity exit of significant proportion is quite achievable through a listing – once time has been given for sufficientliquidity to build, in this case 17 Months.

Key Global Commodity Performance

Other Key Events

UK billionaire to fund East African firms Uchumi files application for cross-listing on Dar bourse NBK plans staff stock ownership to retain talent StanChart reports second-fastest profit growth in Q1 I&M budgets KES 1billion for Uganda entry Companies seek approval from Rea Vipingo shareholders Dubai group signs Runda mall lease Equity bank 25% stake put up for sale by Helios US hotel chain opens in Nairobi Developer plans Kericho’s biggest shopping complex Fitch rates Ethiopia B; Outlook stable KKR Buys Rose Farm in First Africa Deal Luxury jet company to open its Africa office in Kigali

Gold 1,201.50 1,292.00 1,254.00 -2.9% 4.4%

Oi l 98.44 100.07 103.40 3.3% 5.0%

Si lver 1,950.00 1,928.00 1,900.00 -1.5% -2.6%

Copper 7,394.25 6,723.00 6,995.00 4.0% -5.4%

Commodity 2/01/2014 1/05/2014 30/05/2014 % Ch. m/m % Ch. YTD

2014 2015 2014 2015

Kenya 6.6% 5.5% 6.3% 6.3%

Uganda 6.3% 6.3% 6.4% 6.8%

Tanzania 5.2% 5.0% 7.2% 7.0%

Rwanda 4.1% 4.8% 7.5% 7.5%

Burundi 5.9% 6.0% 4.7% 4.8%

Ethiopia 6.2% 7.8% 7.5% 7.5%

Source: IMF, World Economic Outlook

CountryProjected Inflation Rates Projected GDP Growth

Country/Region Current Base Rate Previous Base Rate

Central Bank of Kenya (Kenya) 8.50 % 8.50 %

Bank of Uganda (Uganda) 11.00 % 11.50 %

Bank of Tanzania (Tanzania) 7.58 % 7.58 %

South African Reserve Bank (RSA) 5.50 % 5.50 %

Central Bank of Nigeria (Nigeria) 12.00 % 12.00 %

Central Bank of Egypt (Egypt) 8.25 % 8.25 %

Bank of England (UK) 0.50 % 0.50 %

Federal Reserve Bank (USA) 0%-0.25% 0%-0.25%

European Central Bank (EU) 0.15 % 0.25 %

3

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Practitioners of the craft of private banking

PART III: SELECTED DEALS (1/3)

4

Deals Statistics:

1Based on deals as calculated by Burbidge Capital2The top six sectors which recorded the highest number of deals

Source: Burbidge Capital Research

2119

6

3

0

5

10

15

20

25

M&A deals PE deals Farmouts PE exits

No

. of

dea

ls

Investment type

Total number of deals in East Africa - 2014 YTD1

7; 18%

7; 18%

10; 26%

6; 15%

5; 13%

4; 10%

No. of deals per sector - 2014 YTD2

Oil & gas Mining Financial services

Agribusiness Automotive Real estate

16

17

12

6

10

0 2 4 6 8 10 12 14 16 18

Jan

Feb

Mar

Apr

May

Mo

nth

Number of deals

Total number of deals per month in East Africa - 2014 YTD


5

Date Buyer Seller Investment size Sector

Investment

type Synopsis

8th May 2014 Banco Products

(India)

USD 17.7 million Cement

manufacturing

Banco Products (India) announced that it's board has considered

and approved a sale of its entire stake in the Tanzania-based Lake

Cement at a consideration of USD 0.38 million. The board also

noted that subsidiaries of Banco Products (India), viz, Lake

Minerals (Mauritius) and Nederlandse Radiateuren Fabriek have

also considered and approved a sale of their combined entire

stake in Lake Cement at a consideration of USD 17.3 million.

12th May 2014 One Africa

Media

BuyRentKenya.com IT M&A One Africa Media (OAM), a South African company, has bought a

minority stake in property website BuyRentKenya.com for an

undisclosed amount. The capital injection will enable the company

to improve and increase users to the website. Founded in 2012,

BuyRentKenya.com is an online portal that facilitates users to post

adverts for land sales, rentals, access to brokers and holiday offers.

12th May 2014 Red Rock

Resources

GBP 500,000 Mining Convertible

bond

Red Rock Resources, a UK mining firm prospecting for gold in

Kenya, has raised GBP 500,000 through the sale of one-year

convertible notes that will pay investors a 10% coupon. The funds

will be used to improve on its working capital and to retire more

expensive debt.

13th May 2014 Pan African

Investment

Company

Mobius Automotive Convertible

debt

New York-based Pan African Investment Company (PIC) has backed

Mobius, a Kenyan car manufacturing startup, with an undisclosed

capital in the form of a convertible debt. The funds from PIC, which

is owned by an American billionaire Ronald Lauder, will help

Mobius deliver on its promise to produce Africa’s cheapest car. The

funds are expected to finance the assembly of the first 50 units of

Mobius II vehicles before the the end of 2014 and also the

establishment of a distribution network.

16th May 2014 Pan Africa

Insurance

Family Bank Banking Pan Africa Insurance has bought an additional 1.41% stake in

Family Bank bringing its stake to 5% and signalled an intention to

raise its shareholding further. The insurer says it has its eye on a

slice of the booming lending business besides seeking to expand

its bancassurance. Family Bank has announced plans to launch a

second multi-billion-shilling rights issue this year, which could

offer Pan Africa a window to raise its stake by absorbing shares of

investors who fail to take up their full rights.

16th May 2014 Old Mutual &

local investors

Faulu Kenya KES 4 billion

(USD 46.5 million)

Banking Faulu Kenya has raised KES 4 billion partly to fund an expansion

drive that will result in the micro-lender doubling its branch

network and introduce agency banking. The bank cobbled up the

funds entirely from its shareholders. Old Mutual is the majority

shareholder in Faulu with a 67% stake, while the 33% is owned by

local investors.


6

Date Buyer Seller Investment size Sector

Investment

type Synopsis

20th May 2014 NSSF-Uganda,

Investec, other

institutional &

retail investors

Actis USD 85.5 million Power utility Partial PE

exit

British-based private equity firm Actis announced that it has sold

part of its Ugandan subsidiary's stake in local power distributor

Umeme Ltd for USD 85.5 million to institutional investors in a

heavily oversubscribed secondary offer on the Uganda Securities

Exchange (USE) and the Nairobi Securities Exchange (NSE) reducing

it stake from 60% to 21%. Uganda's state-run pension fund,

National Social Security Fund (NSSF), and South Africa's Investec

Asset Management were now the leading institutional investors in

Umeme.

20th May 2014 Africell

Holdings

Orange Group Telecoms M&A French telecom giant Orange Group has agreed to sell its Ugandan

subsidiary to Lebanon-based Africell Holdings for an undisclosed

amount as part of an ongoing review of its international assets.

The Group entered the Ugandan market in 2008 and it holds a 95%

stake in Orange Uganda. This deal, when completed, will make

Uganda the fourth operational market for Africell besides Sierra

Leone, Gambia and the Democratic Republic of Congo where it

already has operations.

26th May 2014 Phatisa & Africa

REIT

KES 500 million

(USD 6 million)

Real estate PE Johannesburg-based Phatisa private equity (PE) firm and Nairobi’s

Africa REIT are set to develop a KES 500 million residential estate

on the outskirts of Kenya's capital Nairobi. The partners have a 50%

stake each in the joint venture dubbed Westpoint Heights that

marks Phatisa’s first real estate project in Kenya through its Pan

African Housing Fund (PAHF), a multinational PE fund which it

manages.

28th May 2014 African Banking

Corporation

KES 650 million

(USD 7.5 million)

Banking Corporate

bond

African Banking Corporation’s (ABC Bank) KES 650 million bond,

which was issued to preferred investors, has attracted a 157%

subscription with investors willing to lend it KES 1.02 billion. The

bank will take a total of KES 1 billion as the bond had a ‘green shoe’

option (allowing absorption of the excess cash) of KES 350 million.

The bond, which boosts its supplementary capital, will give it room

to continue growing its loan book.

30th May 2014 Bank of Africa-

Kenya

KES 1.7 billion

(USD 20 million)

Banking Rights issue Bank of Africa-Kenya has raised KES 1.7 billion in a rights issue,

giving it headroom to expand business as it prepares to engage a

strategic partner for further capital injection. The Malian bank has

been operating on thin capital margins, resulting in stifled

business growth and on the brink of breaching statutory ratios.

The bank, majority owned by BMCE of Morocco, was likely to invite

an additional shareholder during the year to boost its capital

levels. The bank is currently increasing its branch network to

expand its retail business.

5th June 2014 KKR & Co. Afriflora USD 200 million Agribusiness PE New York-based private equity giant KKR & Co. made its first direct

investment in Africa after it announced that it had bought a stake

in Afriflora, an Ethiopian flower company, making it a significant

player in the East African country's blossoming cut flower export

industry. KKR made the investment from its USD 6.2 billion

European fund.

PART IV: OTHER NEWS (1/4)

7

Treasury to float KES 132bn Eurobond in June

The Treasury has said Kenya will issue its inaugural Eurobond in June after settling a long-running row over the KES 1.4 billionAnglo-Leasing payments. National Treasury’s principal secretary Kamau Thugge, told the Parliamentary Accounts Committee,which is preparing road shows for the KES 132 billion (USD 1.5 billion) bond, that they deposited documentation with thesecurity exchange after due diligence. The fundraiser has been delayed by volatile markets and by the dispute over the Anglo-Leasing contracts, which Parliament argued were issued by past governments and violated laws and regulations. Treasury saidthe government decided to settle the debt because of the rising interest rates and to protect Kenya’s reputation as a countrythat meets its contractual obligations. This would help protect the country’s assets abroad and maintain the current creditrating. Funds raised through the Eurobond will be used to retire a USD 600 million (KES 52.2 billion) syndicated loan, for whichKenya said last week it had received a three-month extension to the May deadline and for development projects.

(Source: Business Daily, BC Research)

IMF chief salutes Kenya for mega rail and road projects

The International Monetary Fund (IMF) managing director Christine Lagarde, has commended Kenya and Cote d’Ivoire for

starting regional development projects that are likely to drive economic growth. Ms. Lagarde said high quality infrastructure

could be a magnet for foreign investment, economic diversification and employment. Kenya is involved in the standard gauge

railway (SGR) project that is to link Kenya, Uganda, Rwanda and even South Sudan. The Lamu Port, South Sudan, Ethiopia

(LAPSSET) corridor projects (rail, roads and pipeline) that start at Lamu port are supposed to link with South Sudan, Ethiopia

and Uganda.

However, she said, the infrastructure investment needs for the Africa region top USD 93 billion annually adding, the

investments need to be carefully selected, managed and implemented within medium- to long-term budgeting. Another policy

priority was to build institutions for improved governance. The management of the resources has become a major discussion

issue in view of the conflict generated in some of the countries like the DR Congo, South Sudan and Nigeria where violent

conflict has left thousands killed. The IMF boss said Kenya offered a good example in terms of increasing financial access. In the

2013 FinAccess Survey conducted by UK-funded NGO Financial Deepening Trust and the CBK, it emerged about 75 per cent of

Kenya now have access to a formal financial sector service provider.

Source: Business Daily, BC Research)

FDIs into Kenya expected to surpass USD 3.5 billion realized in 2013

Executives from the Kenya Investment Authority (KenInvest) and FDI Intelligence unit of the Financial Times, noted investor

appetite was rising despite growing security challenges, with the ongoing infrastructure mega projects being the top attraction.

In addition, oil and gas, the hospitality, telecommunications and consumer sectors are cited as the major attractions. FDI

inflows recorded by KenInvest totalled KES 30 billion (USD 341 million) in 1Q2014 alone, while inflows into Kenya recorded a

29.9%CAGR over the 2007- 2013 period touching USD 3.5 billion in 2013, according to data from FDI Intelligence.

Kenya is expected to continue growing its status as a regional hub for international deal hunters despite the current security

challenges, seen as short term in comparison with the long term growth gains expected from natural resource discoveries and

the improved ease of doing business. The status of Kenya as a destination for FDI in Africa has grown from insignificant levels

in the past decade, to second position in 2013 after Ghana, according to data released jointly by Ernst & Young and KenInvest.

Other key sectors attracting FDI are retail and consumer products, technology and media, mainly by investors from the UK, US

and India. Over the last five-year period, the UK has been the greatest source of investment into Kenya, representing 15 per cent

of tracked FDI. The UK doubled its share of FDI into Kenya from 11 per cent in 2009 to 23 per cent in 2013. The financial

services sector accounted for 25 per cent of this FDI, with six separate companies undertaking investments.

(Source: The EastAfrican, BC Research)

Consultancy values Kenya’s proven oil reserve at KES 870bn

Kenya’s oil blocks with proven reserves so far could generate as much as USD 10 billion (KES 870 billion) and catalyse the

growth of the economy, a consultancy has said. GlobalData, a London-based research and consulting firm, said the figure is

based on estimates from findings on the successful wells that have been drilled by Tullow Oil and African Oil. GlobalData added

revenues from the blocks would translate to GDP growing by an extra 0.83 percentage points annually.



8

Equity bank 25% stake put up for sale by Helios

The UK-based Africa-focused private investment firm Helios is seeking a buyer for its 24.99% stake in the Kenyan-listed

banking group Equity Bank, according to an unsourced news report from Jeune Afrique. The French piece noted that Helios

hopes to triple its USD 178.7 million initial investment, made in 2007, and pocket around USD 500 million from the sale. Equity

Bank assets went up from KES 78.9 billion (USD 900 million) in 2008 to KES 277.7 billion (USD 3.2 billion) in 2013 and

recorded net income of KES 13.3 billion (USD 150million) last year, the report said.

(Source: Merger Market, BC Research)

Shilling touches 88 to dollar as pressure rises

The shilling remained under pressure to briefly touch the KES 88 level in May. Currency dealers said there was low activity inthe market from both the buy and supply side as both parties took a wait-and-see approach, a factor that pulled back theexchange from the low level last seen 28months ago.

The shilling has been under pressure from end-month dollar demand by the energy sector, companies repatriating profits whileat the same time global currencies have strengthened. The spate of bombings has impacted the tourism sector which isexpected to starve the market of dollars as cancellations, especially for the high season, continue following travel advisories.Despite the weakening of the national currency, economists say that it has shown some resilience.

StanChart head of research in Africa Razia Khan said the shilling’s depreciation is within the range that had been expectedwhere other East African currencies have depreciated a lot more. She added that on the positive side a weaker shilling willboost Kenyan exporters especially those shipping goods and services to neighbouring markets. Tea earnings in particular isalready under intense pressure from low international prices and farmers would be relieved by a higher exchange rate to thedollar. Given that Kenya is a net importer, a weaker shilling should make goods, singularly oil, more expensive. Ms. Khanhowever says the shilling’s depreciation will only be one factor and not the main one in the increase in the cost of goodsexpected in the second half of the year.


NSE raises share capital, plans futures exchange ahead of listing

Nairobi Securities Exchange (NSE) shareholders are expected to increase the number of shares and allocate KES 500 million for

setting up a futures exchange ahead of the planned listing slated for next month. Changes in the capital structure were

approved at the firm’s 60th AGM held on April 25 in Nairobi. Shareholders will now increase the bourse’s authorized share

capital to KES 850 million from the current KES 25 million. This will be done through creation of some additional 825 million

shares of KES 1 par value, meant to give NSE enough shares to sell to the public and raise money through the planned initial

public offer (IPO).

NSE shareholders agreed to consolidate the 850 million shares into 212.5 million shares of KES 4 to ensure price stability after

floating the shares. NSE chief executive Peter Mwangi, told Reuters in an interview that the bourse will offer 81 million shares

or 38 per cent to the public through the IPO. NSE is owned by 22 shareholders who control 90 per cent of the shareholding,

while the Treasury and the Investor Compensation Fund jointly own the remaining 10 per cent stake. The approvals will be cast

in concrete once the Capital Markets Authority (CMA), the industry regulator, gives the final go ahead.


Bank credit exceeds CBK target for seventh month

Lending to the private sector overshot Central Bank of Kenya’s target for the seventh consecutive month in March as analysts

sounded an alert on the gathering inflationary pressures. Borrowing in the year to March exceeded the target by KES 70 billion

to stand at about KES 1.6 trillion.

The Monetary Policy Committee (MPC) reported after its latest meeting that credit grew by 22.66 per cent in March, over a

comparable period in 2013 breaching the set target of 17.3 per cent. In February, credit grew by 21.46 per cent against a target

of 15.3 per cent while in January it expanded by 20.47 per cent against a 15.5 per cent target. “I think one begins to worry about

inflationary pressures when credit expansion exceeds the target for several months. Perhaps it might be time to tighten, but I

know CBKmay also be thinking about economic growth,” said Vimal Parmar, Head of research at Burbidge Capital.

MPC has linked banking credit expansion not only to the financial institutions themselves but also to the increase in mobile

money transactions with several banks channeling loans through mobile phones. MPC, however, said the credit expansion was

being monitored closely to ensure it does not end up triggering price escalation.



9

Toyota Tsusho to invest USD 1.5 billion in agribusiness

Toyota Tsusho East Africa, plans to put USD 1.5 billion in the next five years into agribusiness investments, in a move expected

to increase mechanisation and value addition to agriculture in East Africa. The first phase of the investment has started, with

the introduction of agricultural machinery to large and small scale farmers. Under this phase, the company has introduced Case

IH agriculture equipment for the regionalmarket.

The machinery includes tractors for harvesting, planting, tillage, spraying and hay and forage equipment. Key targets for these

machines include rice, sugarcane and wheat farming where there is a high input of human labour. The next phase of investment

will be the construction of a fertiliser factory at a cost of USD 1.2 billion in two phases. The company won a government tender

to construct a fertiliser factory in February 2014.

(Source: The EastAfrican, BC Research)

I&M budgets KES 1billion for Uganda entry

I&M Holdings will spend nearly KES 1 billion to set up operations in Uganda, chief executive Arun Mathur has said. I&M’s entryinto Uganda is meant to complete the banking group’s presence in East Africa’s three biggest economies. The Nairobi SecuritiesExchange- listed I&M Holdings already has operations in Kenya, Tanzania, Rwanda and Mauritius.

The bank reported an after tax profit of KES 5 billion for the period ended December 2013, a 21.9% y/y increase. I&M istargeting acquisition of a Ugandan lender or the start of a greenfield operation. The expansion will be financed either a rightsissue or from the group’s cash reserves. The bank does not yet have a firm timeline on the intended entry into Uganda, wherethe lender will mainly focus on corporate customers. I&M Bank will join Diamond Trust Bank, Kenya Commercial Bank, Equityand Cooperative Bank that have already established presence in Uganda to tap the emerging opportunities.


NBK plans staff stock ownership to retain talent

National Bank is seeking to create an employee share ownership plan (ESOP), the lender will be asking for shareholders’

approval for creation of the shares that will be issued at a discounted price to employees. The plan will have to be approved by

the Capital Markets Authority (CMA) as the issue amounts to dilution of current shareholders. Shares held under the scheme

will be limited to five per cent of the total ordinary issued shares in order to ensure they do not distort the market. National

Bank joins other listed firms such as Kenya Airways, EABL, Equity Bank, KCB Group, KenolKobil, ARM Cement, Scangroup,

Safaricom and Housing Finance, whose ESOP plans have been approved by the CMA. The move seeks to turn employees of the

bank to part owners in order to entrench their loyalty and commitment to the company.


Companies seek approval from Rea Vipingo shareholders

Investment firm Centum and two British brothers have launched a charm offensive among Rea Vipingo shareholders, seeking

approval for their competing buyout bids for the agricultural company. Centum and REAT, which is owned by British brothers

Richard and Jeremy Robinow, have both dispatched acceptance forms to Rea Vipingo shareholders who will be legally bound by

whichever offer they consent to in writing. Shareholders have been sent the forms alongside an independent report by the

agricultural firm’s board on the competing offers. The dispatch has, however, left out a third bidder for the company, Vania

Investment Pool, whose lower approved offer appears to have been knocked out of the race to buy the land-rich company.

Ordinary shareholders of the agricultural firm are expected to weigh the opportunity costs and risks that each competing offer

presents before signing up for either bid.

Centum’s current offer stands at KES 75 per share, valuing the Nairobi Securities Exchange-listed firm at KES 4.5 billion. The

investment firm already owns 296,500 shares of Rea Vipingo, a 0.49 per cent stake. Rea’s board, in an independent opinion to

shareholders, says that the risk in Centum’s offer lies in its demand that it get an acceptance rate of more than 25 per cent to

proceed with the acquisition. The Robinows’ latest offer stands at KES 70 per share with a possible top-up of KES 15 per share,

which is expected to arise from distribution of gains from the sale of the company’s land holdings within five years of takeover.

The brothers already own 57 per cent of Rea Vipingo and are seeking to buy the remaining 43 per cent to take full control of the

sisal producer. Rea directors say the risk in the offer lies in the fact that it is KES5 lower than Centum’s and that the additional

amountmay not be paid.



10

Dubai group signs Runda mall lease

Carrefour, a French international hypermarket chain, is set to make an entry into Kenya by leasing space at the upcoming Two

Rivers shopping centre in Runda. Two Rivers is a project by the Nairobi Securities Exchange-listed investment firm Centum,

which has lately raised its stake in real estate with an eye on double-digit returns that the sector has yielded over the past

decade. Centum CEO James Mworia said in an interview that Carrefour has booked 100,000 square feet or 16.1 per cent of the

620,000 square-feet shopping complex expected to be complete by October 2015. Majid Al Futtaim, who runs the Carrefour

franchise in Dubai, will be the tenant at the mall, bringing the Carrefour franchise. This will mark the second major investment

of the Dubai-based Al Futtaim family in Kenya following the purchase this year of motor dealer CMC Holdings. The Paris-based

Carrefour is billed as the world’s second largest retailer after Walmart. It stocks over 20,000 products including fresh produce,

clothing, electronics and household appliances.


StanChart reports second-fastest profit growth in quarter one

Standard Chartered Bank reported a 38.9% y/y rise in net profit of KES 2.5 billion in 1Q14, boosted by increased income fromlending. StanChart recorded the second fastest profit growth among Kenya’s top tier banks for the period to March, ranking itas Kenya’s third most profitable lender as per quarter one numbers, behind CfC Stanbic’s 59.0 per cent jump but ahead of KCB(28.6 per cent), Equity (20.7 per cent), Barclays (17.0 per cent) and Co-op whose earnings dipped 5.6 per cent. StanChart’s netinterest income was up 0.2% y/y to KES 4.4 billion from KES 3.7 billion in the first quarter of last year while non-interestincome increased by 3.8 per cent y/y to KES 1.7 billion. Its loan book was up 8.7 per cent to KES 127.5 billion driven byincreased lending to high-potential small and mid-sized enterprises (SMEs) which make up roughly a third of StanChart’sconsumer banking revenues.


Uchumi files application for cross-listing on Dar bourse

Uchumi Supermarkets has applied to the Capital Markets and Securities Authority (CMSA) of Tanzania for approval of its cross-

listing plans at the Dar es Salaam Stock Exchange. The retailer is already cross-listed on the Uganda Securities Exchange (USE),

where it has subsidiaries, and on the Rwanda bourse. According to the chief executive Jonathan Ciano, the retailer’s listing at

the Dar es Salaam Exchange is driven by the need to make Uchumi Supermarkets have a regional outlook and increase the

number of its shareholders in the region ahead of the retailers planned Rights issue set for 2H14.

Uchumi already has three outlets in Tanzania and is weighing options to open more outlets by 2015. The retailer’s branch

network in East Africa is estimated at thirty six outlets as at 2013.


Developer plans Kericho’s biggest shopping complex

Kericho is set to get its biggest shopping complex with the construction of Green Square Mall. The mall, along the Nairobi–

Kisumu Highway, will have a gross leasable area of 9,807.9 square metres set for completion in 2016. The project is worth KES

500million and is being financed by KCB Bank. Retailer Nakumatt has confirmed that it will be the main tenant at the mall.

Growth of pockets of the middle class in counties, coupled with infrastructure development, has opened an opportunity for

retailers and mall developers over the last few years. According to the 2013-2014 Broll report, the retail sector in Nairobi has

been characterized by low vacancies and steady demand, especially for new and more diverse retailers. The property

management firm also found that in 2013 shopping malls attracted the highest rental yields when compared with other

properties.


UK billionaire to fund East African firms

British billionaire, Lord David Sainsbury has set up an Africa-focused entity to manage his investments in the continent, joining

a growing list of high-net-worth investors looking to the region as the next frontier for entrepreneurs. Lord Sainsbury, who

owns a majority stake in London-based retailer Sainsbury’s, has formed Msingi to invest in East Africa businesses that have

high growth potential. Msingi, will identify, nurture and manage investments in start-ups and viable business ideas. The

London Stock Exchange-listed Sainsbury’s is the second largest supermarket chain in the UK after Tesco, where it operates over

1,203 supermarkets and convenience stores.



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KKR Buys Rose Farm in First Africa Deal

For private-equity giant KKR & Co., a debut investment in Africa smells of sweetheart roses. Afriflora is an Ethiopian company

that grows about 730 million of the flowers a year for export to Europe, making it a significant player in the east African

country's blossoming cut flower export industry. KKR is investing about USD 200 million from its USD 6 billion European fund

to buy a stake in the company, according to a person familiar with the transaction. The deal opens a new chapter for KKR, the

New York-based firm best-known for its hostile USD 25 billion leveraged takeover of RJR Nabisco in 1988. It also comes as

private-equity firms, seeking opportunities outside the crowded markets of North America and Europe, show tentative interest

in Africa. Private-equity investment in sub-Saharan Africa increased 43.0 per cent to c.USD 2 billion in 2013 from the previous

year, according to the Emerging Markets Private Equity Association. Investors are attracted by fast economic growth in some

countries on the continent. The Ethiopian economy grew by an average 10.6 per cent a year between 2004 and 2012, according

to theWorld Bank.

East African production of roses is expanding to meet demand for lower-cost flowers in large supermarkets in Europe. Ethiopia

sent 1.3 billion roses to Europe in 2012, making it the second largest exporter of cut roses to the region behind Kenya,

according to the International Association of Horticultural Producers.

(Source: Wall Street Journal, BC Research)

Foreign investors’ return lifts bourse turnover 46 pct

The return of foreign investors to the Kenyan stock market accelerated in the past month with net foreign inflows hitting KES2.3 billion, helping push market turnover up 46.2 per cent. A 64.0 per cent increase on April’s net inflows of KES 1.4 billion. Thebourse had seen net outflows in all the first three months of the year, with selling mainly on big cap counters that pointed toprofit taking. Total market turnover for the month of May increased as a result, touching KES 23.6 billion, up from KES 15.0billion in April. Foreign investors have been turning their focus on frontier markets in preparation for new monetary easingpolicy in the Eurozone that will see deposit rates slashed and long-term refinancing operations initiated.

In May, the investors took overall buying positions on the big cap counters, with East Africa Breweries Ltd, Kenya CommercialBank and Equity Bank leading stocks in foreign inflows during the month. EABL net inflows stood at KES 1.9 billion, with KCB atKES 1.2 billion and Equity at KES 475.0 million in May. On the net foreign outflow column, Safaricom led with KES 827.0 million,while cement manufacturers Bamburi and Athi River Mining (ARM) saw outflows of KES 220.0 million and KES 211.0 millionrespectively.


US hotel chain opens in Nairobi

New York Stock Exchange-listed hotel chain, Wyndham, is set to open in Nairobi by the end of 2014. The New Jersey-based

group said it will open a four-star hotel under the Ramada brand in Nairobi’sWestlands suburb targeting business and leisure

travelers to the capital city.

This will be Wyndham’s first hotel in East Africa, in Africa it has a presence in Ghana, Nigeria, Morocco and Tunisia. The 89-

room Ramada Nairobi including 25 suites will increase Nairobi’s bed capacity which has witnessed increased demand for

accommodation due to its status as the regional business hub. It also features conference facilities, gym and spa. Each Ramada

hotel is independently-owned and operates as a franchise. Ramada Nairobi is owned and managed by Global Hotels

Management Africa Ltd, which already operates the Ramada Hotel & Suites Ras Al Khaimah in the United Arab Emirates.


IMF predicts 6pc economic growth for Uganda

Uganda’s economic growth should accelerate to just above 6 per cent in the next fiscal year through June 2015 despite the risk

of reduced foreign aid and unrest in the key export market of South Sudan, the International Monetary Fund (IMF) said.

Analysts have said that the East African economy has become less dependent on aid for budget support in recent years. Tax

revenues have lagged as economic growth has been slower than expected in the current fiscal year although the IMF said the

economy was still solid. The IMF said Uganda needed to curtail its public spending to relieve pressure on credit markets and

spur lending to the private sector.

The IMF’s projections for economic growth of 6.1 per cent in the 2014/15 fiscal year, and 5.7 per cent in the current fiscal year,

broadly match those of the Ugandan central bank, which predicts growth will reach 6.0-6.5 per cent in 2014/15. The bank this

month cut its forecast for growth this fiscal year to 5.7 per cent from 6 per cent. Boosting tax collections and curbing public

spending, the IMF said, would help limit government borrowing in the domestic market, keeping a lid on interest rates.

Benchmark rate Interest rates have been on hold since the central bank unexpectedly cut its benchmark rate by 50 basis points

in December to 11.50 per cent, saying economic growth was below potential.



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Fitch rates Ethiopia B; Outlook stable

Fitch Ratings has assigned Ethiopia Long-term foreign and local currency Issuer Default Ratings (IDRs) of 'B'. The Outlooks onthe Long-term IDRs are Stable. Fitch has also assigned a Short-term foreign currency IDR of 'B' and a Country Ceiling of 'B'.According to Fitch, Ethiopia's IDRs reflect a balance between weak structural features indicating vulnerability to shocks andstrong economic performance and improved public and external debt ratios since debt relief under HIPC in 2005-2007. TheStable Outlook reflects Fitch's assessment that upside and downside risks to the rating are currentlywell balanced.

(Source: 2Merkato, BC Research)

Luxury jet company to open its Africa office in Kigali

Private jet company, GainJet, which is based in Athens in Greece, is set to open its Africa representative office in Kigali in June

2014, a senior official from the company has said. Speaking at the EBACE show in Geneva last week, Ramsey Shaban, the

President of GainJet, said Kigali was a natural aviation hub, adding that the government offers investors the right kind of

incentives. Mr. Shaban said they were also attracted by the market opportunities, noting that there is a lack of true VIP aircraft

operators in Africa, especially in the Eastern and Central Africa.

The aircraft has a range of 6,750 nautical miles and is able to fly non-stop from Africa to the US and south-east Asia. GainJet

mooted plans to expand into Africa in 2011 as a founding member of the African Business Aviation Association (AfBAA). Gainjet

also has an office in London and operates a mixed fleet of VIP aircraft, including the Boeing 757, Boeing 737, Gulfstream G450

and G550, Legacy 600, Global Express XRs and Challenge 604.

(Source: New Times, BC Research)

S&P Dow Jones extends Africa-focused index offering

S&P Dow Jones Indices (SPDJI), a leading provider of indices to the exchange-traded funds industry, has extended its emerging

markets line-up with the launch of fourteen new indices measuring the performance of African equity markets. The launch

takes the total number of Africa-focused indices launched by SPDJI in 2014 to 29. All the indices have been designed to be

suitable for a range of applications, including as underlying references for passive investment products such as ETFs, as

benchmarks for activelymanaged funds and as general indicators of broad equitymarket performance.

A select sample of the newly introduced new indices include: S&P All Africa: The S&P All Africa serves as the basis for

numerous sub-indices including regional benchmark and tradable indices covering different segments of the continental equity

market. The index is weighted by float-adjusted market cap and covers Botswana, Côte d’Ivoire, Egypt, Ghana, Kenya, Mauritius,

Morocco, Namibia, Nigeria, South Africa, Tunisia, Zambia and Zimbabwe plus companies listed in developed markets that derive

the majority of their revenue from the African continent.

S&P East Africa: The S&P East Africa is designed to serve as a comprehensive benchmark for the East Africa region within the

S&P All Africa, and includes companies listed in Kenya. S&P East Africa 10: The S&P East Africa 10 consists of 10 of the largest

and most liquid companies listed in Kenya. The index employs a 25 per cent single stock cap to reduce concentration.


PART V: UPCOMING EVENTS/CONFERENCES

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Events Date Venue Theme

Africa GRI 2014 18 - 19 June

2014

Eka Hotel,

Nairobi, Kenya

Real Estate Investing in the face of Scorching Demand: Focusing on the largely untapped sub-Saharan

region, the Africa GRI 2014 will provide sector analysis, risk assessment, partnerships and joint

ventures. The event focus will be on informal group conversations, in which all present will discuss

investment and development opportunities in Africa.

4th Zambia International

Mining & Energy Conference

24 - 25 June

2014

The New Government Coference

Complex Centre,

Lusaka, Zambia

Theme: Securing Zambia’s growth by ensuring the sustainable development of its mineral and energy

resources. Organised in association with the Ministry of Mines, Energy and Water Development of

Zambia and the Association of Zambian Mineral Exploration Companies (AZMEC), ZIMEC 2014 provides

the definitive platform for showcasing Zambia’s mineral and power potential and connecting with

industry professionals.

4th Africa Debt Capital Markets

Summit

30 June

2014

London, United Kingdom

The event will look at the latest developments in Africa’s local currency markets, the sustainability

of debt in relation to African countries’ broader economic performance, as well as a range of case-

studies focusing on recent or prospective bond issuances.

Africa Oil & Gas Finance and

Investment Forum

23 - 24 June

2014

Dubai, UAE

The Africa Oil & Gas Finance & Investment Forum 2014 will explore the environment that will attract

sustained investments and finance to African oil and gas in a time of global economic uncertainty and

changing regulatory environments. It will bring together industry leaders and government bodies

alongside investors, analysts and financial institutions to discuss future finance and investment

opportunities in African oil & gas.

Oil and Gas Africa 2–4 July

2014

Cape Town Convention Centre

(CTICC), Cape Town, South Africa

The 6th Sub-Saharan Oil / Gas / Petrochem Engineering Supply Chain Exhibition & Conference.

Previous events have delivered over 12,000 visitors attending from 34 countries. With the ongoing

discoveries being made in Africa’s on and offshore oilfields and increasing numbers of operators

working there, attendance is expected to increase significantly at our 2014 event.

AITEC Banking & Mobile Money

COMESA 2014

10 - 11 September

2014 Intercontinental Hotel,

Nairobi, Kenya

Now entering its eighth year as the region’s leading banking forum, AITEC Banking & Mobile Banking

COMESA 2014 will address the key issues faced by the region’s increasingly dynamic financial services

sector.

3rd East Africa Oil and Gas

Summit & Exhibition

15 - 17 October

Kenyatta International Convention

Centre (KICC),

Nairobi, Kenya

The 3rd East Africa Oil and Gas Summit (EAOGS) will build on the success of the 2013 Summit which

welcomed over 350 delegates from 200 regional and international companies and 30 different

countries. In 2014 this prestigious, government-led summit and exhibition will once again provide a

platform for East African ministries and the National Oil companies to engage with international and

local investors to examine the vast opportunities across East Africa.

Mining Business & Investment

Conference

16 - 17 October

2014

Safari Park Hotel,

Nairobi, Kenya

This strategic conference will be led by crucial investors in the industry to share their knowledge on

solutions that cut across the energy, infrastructure & financing challenges in the industry. MBI Eastern

Africa is now the platform that holistically represents the entire Eastern Africans Mining region.

THIS DOCUMENT HAS BEEN PREPARED ON THE BASIS OF INFORMATION AND FORECASTS INTHE PUBLIC DOMAIN. NONE OF THE INFORMATION ON WHICH THE DOCUMENT IS BASEDHAS BEEN INDEPENDENTLY VERIFIED BY BURBIDGE CAPITAL LIMITED NOR ITS AFFILIATEBODIES AND ASSOCIATES, WHO NEITHER TAKE RESPONSIBILITY FOR THE CONTENT THEREOFAND DO NOT ACCEPT ANY LIABILITY WITH RESPECT TO THE ACCURACY OR COMPLETENESS,OR IN RELATION TO THE USE BY ANY RECIPIENT OF THE INFORMATION, PROJECTIONS,OPINIONS CONTAINED IN THIS DOCUMENT.

Disclaimer

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Eastern africa newsletter june 17th 2014

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Transcript of Eastern africa newsletter june 17th 2014