Capital Markets
From The Report: Kenya 2014
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Headlined by two equities boards and liquid options for bonds both in primary and secondary trading, Kenya’s capital markets stand out for their maturity in comparison to most African markets, although other asset classes are in the early stages of development. The Capital Markets Master Plan (2014-23) outlines a growth programme for the short to medium term, while separately the Nairobi Securities Exchange (NSE) has demutualised and is implementing a strategy that includes self-listing, in keeping with a worldwide trend as bourses seek to evolve to suit changing global market conditions. The year 2014 could prove a pivotal one for the NSE and for Kenya’s capital markets overall. A period of discussion and planning is now poised to end, with the master plan commencing its phased implementation and the NSE completing its plan for demutualisation and listing.

This chapter contains interviews with Peter Mwangi, CEO, Nairobi Securities Exchange (NSE); Paul Muthaura, CEO, Capital Markets Authority (CMA); and a viewpoint from James Mworia, CEO, Centum Investment Company.

Articles from this Chapter

Overview

Reforms and new trading options are set to transform the bourse
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Headlined by two equities boards and liquid options for bonds both in primary and secondary trading, Kenya’s capital markets stand out for their maturity in comparison to most African markets, although other asset classes are in the early stages of development. Advanced instruments such as derivatives for hedging or speculation are not yet available, but market authorities say new products are set for introduction starting in 2014. Taken as a whole, Kenya’s capital markets are the largest and…

Interview

OBG talks to Peter Mwangi, Former CEO, Nairobi Securities Exchange (NSE)
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Interview:Peter Mwangi To what extent do you expect quantitative easing to affect portfolio inflows on the NSE bourse? PETER MWANGI: The end of quantitative easing will probably have an impact. We have seen foreign participation at very high levels, with foreign investors’ contribution to turnover at about 50%. It makes a big difference for these investors if there are higher yielding risk-free assets in other markets. At the same time, investors that have been focusing on frontier markets,…

Interview

OBG talks to Paul Muthaura, CEO, Capital Markets Authority (CMA)
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Interview:Paul Muthaura To what extent do you see new product offerings driving future growth? PAUL MUTHAURA: The exceptional returns we saw in 2013 on the Nairobi Securities Exchange (NSE) were driven by fairly traditional products, with active secondary trading in the equity and bond markets. Based on continuous investment in improved market infrastructure, as well as a substantially strengthened regulatory environment, we have seen a greater number of domestic and international institutional…

Analysis

Long-term goals focus on boosting Nairobi’s position as one of the continent’s key financial centres
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Kenya’s blueprint for broad-based economic development is its Vision 2030 document, which outlines a series of long-term goals and how they will be reached. One of the key elements of the plan is turning Nairobi into a financial centre for the East Africa region. The Capital Markets Authority, the government regulator, has developed a Capital Market Master Plan, a detailed roadmap for the sector, with actions planned to 2023. The master plan aims to make Nairobi “the choice market for domestic,…

Viewpoint

James Mworia, Group CEO, Centum Investment Company, on using capital markets to finance real estate development
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Real estate development in Kenya has historically been financed by a mixture of bank financing and the developer’s own equity. Such lending is usually limited to about 60% of the total project cost, with the developer having to raise the other 40%. The situation is further exacerbated by the developer’s inability to draw down the project’s debt before its own equity has been fully drawn down. Even when a developer has the cash on hand, this has meant that it is not feasible to do multiple…

Analysis

The government finalises its foreign currency bond sale
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A major highlight for Kenya’s capital markets sector in 2014 was the government’s first foreign currency bond sale in June 2014. Successfully issuing the two tranches of a eurobond on June 16, 2014, Kenya joined a select list of sub-Saharan countries that have sold foreign-currency-denominated debt, including Nigeria, Ghana, Zambia, Rwanda and South Africa. The issue raised $2bn from international investors, making it the largest debut for an African country in the sovereign bond market. The…

Analysis

East African Breweries: Manufacturing
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The Company East African Breweries Limited (EABL), Diageo’s brewing powerhouse, is the leading producer of alcoholic beverages in the East African region and the second-largest listed company on the Nairobi Securities Exchange by market capitalisation (KSh229bn, $2.6bn). With operations in Kenya, Uganda and Tanzania, 42.8% of EABL is owned by Diageo Kenya, 4.6% by Diageo Holdings Netherland’s BV, 2.6% by Guinness Overseas and the remaining 50% is split among more than 25,000 shareholders on the securities exchanges of Kenya, Uganda and Tanzania. EABL has a combined installed capacity of 10m hectolitres (hl) across the region with production…

Analysis

Equity Bank: Banking
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The Company Equity Bank, founded in 1984 as a building society, is currently the largest bank in Africa by customer numbers with 8.4m clients. The bank is 24.5% owned by Helios Investment Partners Holdings, and it has a strong regional presence, operating in Kenya, Uganda, Rwanda and Tanzania. Equity Bank has 186 branches and 10,000 agents. In Kenya, the bank has a market share of 16.6% of total industry assets and 14% of total industry deposits. The Kenyan operation contributed roughly 85% of the bank’s assets. Equity Bank has won numerous awards. Most notably the bank was voted Best Bank in Kenya 2013 during the eighth edition of the…

Analysis

Transport
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The Company Kenya Airways (KQ) is the largest airline in East Africa by seat capacity, and the fourth largest in Africa behind market leaders South African Airways, Ethiopian Airlines and EgyptAir. It is currently managed through a public-private partnership with the government of Kenya holding 29.8%, KLM owning 26.7% and more than 40% traded on the major bourses of Kenya, Uganda and Tanzania. KQ has established a dominant presence through a growing network of routes and destinations in Africa, Asia, Middle East and Europe. The airline’s core business is operation of commercial passenger flights which account for around 85% of turnover with…

Analysis

Utilities
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The Company THE COMPANY: Kenya Power is a monopoly player in Kenya’s energy sector. Its core business activities include the transmission, distribution and retail of electricity purchased in bulk from Kenya Electricity Generating Company (KenGen, 70%) and independent power producers (IPPs, 30%). The company is largely owned by the government of Kenya with a controlling stake of 50.1% while private investors hold 49.9%. The firm’s business is structured under six administrative regions which form a network covering 41,486 km. The company also engages in the leasing out of fibre-optic cables. It has 1200 km of fibre optic on the transmission…

Analysis

Telecoms
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The Company Safaricom is the leading mobile network operator in Kenya with 68% market share of total mobile subscribers in the country. It controls 79% of voice traffic and 96% of mobile text messages. The company is the largest listed entity on the Nairobi Securities Exchange by market capitalisation, representing 25% of the market. It is 40% owned by the Vodafone Group of the UK and 35% owned by the government of Kenya. Safaricom offers voice services as well as SMS, data, device sales and a money transfer service dubbed M-Pesa. Voice contributes 60% of total revenues, albeit at a declining trend due to company efforts to diversify from this…