IPO’s: Hapa, Na Pale, Na Hapa, Na Pale
I think we’ve talked about this issue on this blog before and the issue is the coalition illusions growing budget deficit. I’ve said it is going to slowly bankrupt the treasury. However, others have disputed this notion and don’t think that it’s costing that much (I believe the figure I used was that it was eating up about 80% of the country’s cash).
Anyway, I think I posed a question in one of the comment sections and I asked someone where the government was going to get the money to keep funding this obscenity? I suggested a few scenarios like raising taxes or borrowing, but at some point, you can’t keep taxing people over the hilt.
I suppose we have to remember that governments are not income generators. The only place governments get their money from is taxes. However, once that avenue stream has been exhausted, they are only a few options left:
1) Borrow (in the case of Kenya, borrow from donor countries or institutions like the world bank and IMF, but often times, these loans come with several restrictions & since we are in the middle of a financial crisis, this revenue stream is certainly going to drop precipitously).
2) Print (however, with inflation already at 30%, this is not a wise choice right now)
So, it looks like the government has decided to fast track it’s IPO listings because it’s beginning to run out of money and as I asked before, what’s going to happen once all these parastatals are listed? where will they get the money from?
However, there’s another danger looming on the horizon in regards to these IPO’s. Generally, you use money raised from public listing to make investments into your company so that you can increase productivity levels and make even more money, but if the government is now using this IPO money to pay for it’s exorbitant salaries, these parastatals are not going to be able to make the capital investments they need because the money is not really going to them.
The second point I want to make in regards to this issue involves a question of trying to develop a stock exchange in country with a weak rule of law system. I’ve said before that running a publicly listed company in America can bring one great financial rewards (most of the billionaires in America run publicly listed companies). However, if something goes wrong with these publicly listed companies and you are either the CEO or a director, you could get into a whole lot of legal trouble, both from the government and by lawsuits from private shareholders.
Look at Stanley O’Neal( the former head of Merrill Lynch). He just had to transfer his house to his wife because he is facing so many lawsuits that he is now trying to protect the “few” assets he has.
Anyway, let me get back to tying this in to what I’m seeing in Kenya today. There’s a bread company (DPL Festive Limited) that’s now looking to do an IPO. They’re trying to raise Ksh. 500 million. Now, I can see where some of the founders of these companies are coming from and it’s not a pretty place.
These guys have figured out that they can raise lots of cash and do whatever the hell they want to do with it and not suffer any legal consequences because the regulatory environment is so weak. Lets say I owned this company DPL Festive — who is going to stop me from diverting part of the Ksh. 500 million raised into a foreign bank account? Okay..the share price may dip after that, but who cares? my money would have been safely stored away by that point. Who is going to come after me if I did that? Amos “never prosecute” Wako? I don’t think so.
I keep reading all these Kenyan blogs and they’ll have long discussions about the stock price and P/E ratio’s and blah, blah, blah, but none of them have talked about the ability of the founders of these companies to just outright steal that money. I mean, if you have a company in Kenya, this has to be one of the first things on your mind: how to get your company listed so that you can “grab” that money (from the public) and use it for your own personal benefit (and they’d be no repercussions if you did that). This is why IPO’s in Kenya are so attractive! Why isn’t anyone talking about this?
**Update: This is an update on a story I did about the Congo where I said that Laurent Nkunda, the rebel leader was working on taking over that entire country and he was going to do it with the help of the Rwandese army under the tutelage of Paul Kagame. I also said in the post that Kabila would be unable to stop this military advance because Kabila had never acquired the fighting experience of either Nkunda or Kagame and Kabila did not even have his own army. Now, this analysis appears to be coming true and the international press has picked up the folding story of on-going war in the Congo.
Good post on how much the GNU is costing the country. I do not expect any meaningful management of the situation until after 2012. The expenditure is only set to grow as some ministries such as metropolitan finally get their bureaucracies in place. A bureacracy can be a frightening thing to behold once it gets spending. Wait until constitution review expenses are factored in…
Parastatal IPOs may be a good thing (eventually). While it is true that none of the funds will go towards deepening their businesses, the increased public disclosure will offer some medium to long term benefits. In addition, their capital raising capabilities will increase. Without its listed status, Kengen would find it twice as hard to raise funds through the corporate bond route they are going down now.
On the bread company boys, I agree with your argument that it is possible to siphon funds. However, a crime needs not only opportunity but also motive. What we have seen so far is that entrepreneurs who list their businesses have gone ahead to try and grow the companies even further as opposed to stripping their own creations down to the bone and taking off. This is particularly true of the Asian owned businesses such as ARM and Scangroup. We must look into the bread boys and see if they have sufficient motivation to grow the business in future. A good indicator is the valuation they apply at the IPO stage and the percentage listed vis a vis how much they have invested in the business over time. I am approaching it with an open mind until I see the prospectus
Kacyznky:
My point is, even if they give you a “prospectus”, how will you know what’s in it is real?
Unless you know the Founder or CEO, they are no real indicators of what people will do with their money.
Look at Madoff — this guy sent out detailed statements about where people’s money was, the trades he had put in for them, everything! and yet, it was all a hoax.
Anyone can tell you anything they want, but I would not give my money to those Indian bread makers.
Interesting… I like the comment “This is particularly true of the Asian owned businesses”….
So from your comments “Asian owned” = honest, ethical business?
how is that different from
“Asian owned” = thieving, liars? Aren’t they just 2 sides of the same coin?
Kacyznky, that is exactly the type of thinking that Madoff counted on, when he went recruiting first at Jewish country clubs and philanthropies.
BTW, the BD article mentions that they used to be in plastics before an accident that made them switch to bread. Hmm… why? What happened in the accident?
Caveat emptor!!
Nadhanihiiblogimechorwanamngosomjanjaanajifanyamirondioatudanganyefalayeye.
@KE Thats probably the longest word in Africa – huh? You know what language that is? I bet you’ve never seen that before in you life – have you?
Working Stiff:
Hmmm….I missed that part of the article (about them being a former plastics company) — very interesting.
I began to think about this issue when I saw companies like Access Kenya being listed and I was like, why would such a small company go public so quickly? And then I figured it out.
The owners went to school, lived in and worked in England for many years. They know they could never list such a company on the London Stock Exchange. The competition is too stiff and the laws for public companies are very rigid. One screw up could land you in jail or in civil court for years.
And I’m not being high minded about this. I’ve said before that if I had a small internet company, I’d list it on the NSE because I could do whatever I wanted to do with the money and nobody would ever prosecute me. You can’t do that in the west.
Look at Madoff’s sons. They are now “divorcing” their wives because they too are trying to protect their assets by transferring them to their spouses, but I’m sure the government will accuse them of engaging in a fraudulent conveyance. i.e. trying to hide assets AFTER you realize that you are in legal trouble. You’re not allowed to do that.
The founders of DPL festive (a freaking bread company for God sakes!) are thinking the same thing. I wouldn’t give those Muhindi’s my money to save my life.
And of course a brokerage company or “investment” bank is going to get them listed. Afterall, all those guys care about is getting their fee’s.
Maishanki:
Um.
You’re going to have to explain yourself.
Working Stiff:
Hmmm….I missed that part of the article (about them being a former plastics company) — very interesting.
I began to think about this issue when I saw companies like Access Kenya being listed and I was like, why would such a small company go public so quickly? And then I figured it out.
The owners went to school, lived in and worked in England for many years. They know they could never list such a company on the London Stock Exchange. The competition is too stiff and the laws for public companies are very rigid. One screw up could land you in jail or in civil court for years.
And I’m not being high minded about this. I’ve said before that if I had a small internet company, I’d list it on the NSE because I could do whatever I wanted to do with the money and nobody would ever prosecute me. You can’t do that in the west.
Look at Madoff’s sons. They are now “divorcing” their wives because they too are trying to protect their assets by transferring them to their spouses, but I’m sure the government will accuse them of engaging in a fraudulent conveyance. i.e. trying to hide assets AFTER you realize that you are in legal trouble. You’re not allowed to do that.
The founders of DPL festive (a freaking bread company for God sakes!) are thinking the same thing. I wouldn’t give those Muhindi’s my money to save my life.
And of course a brokerage company or “investment” bank is going to get them listed. Afterall, the only thing those guys care about is getting their fee’s.
Maishanki:
Um.
You’re going to have to explain yourself.
As my friend, the right honourable member of parliament for Kipiripri Amos Muhinga Kimunya said, the stock market is not a fish market. Add to working stiff’s caveat empetor…
Once an IPO comes into the market, investors look at the prospectus, decide if returns are greater than the risk (even of absconders), find the funds and buy. There is no one compelling them to do any of this. And long may it continue as we continue to grow and progress our nation Kenya.
Maishinski
you are being unfair 
Maishinski
I get you. I know that language lakini sitaimba! Inabamba sana.
I like PRIVATE enterprises since you have a choice!
Unlike the government forcing me to invest in whatever they choose (e.g. maize stocks)… I can choose NOT to buy shares in a firm…
KE: Pity… but your investment choices are yours…
Then stay out of Mhindi firms… I have spoken out against merali (don’t trust the jamaa & he was in league with moi & cronies) firms but I have made money in each & every Mhindi firm…
Please note… I avoid firms with ‘political connections’… coz that is short-lived.
ARM: Great profits to date… Regret: I sold too early and didn’t buy more! Expansion into Zambia, S.Africa & Tanzania!
Aga Khan firms: I have NEVER lost money in every IPO or Rights!
Nation Media – Kenya’s premier media group. Far better than moi’s Standard group.
Diamond Trust Bank – Great bank with great potential. Very efficient & profitable. Regret: I sold my shares way too early! Then bought them again!
Jubilee – The best insurance firm. I wish KenIndia was public as well. “Black Kenyan” insurance firms collapsed like dominoes in the 1990s & 2000s.
TPSEA (Serena): Come rain or shine…. the best of the best. Even Annan stayed there in early 2008. The ‘Serena Talks’ in the news daily.
Access Kenya: Jewish owners BUT great performer! hats off to them!
City Trust: Only share with staying power. Small firm but they keep expenses to the minimum. No fancy office… just growth!
Carbacid: The largest ‘controlling’ shareholder is BC Patel. Among the best dividends from this firm. kenneth matiba has 22% but he was fought off (thankfully) coz he would have bankrupted the firm! The shares have been suspended pending a takeover dispute between BOC & CMA. Carbacid is just a victim of circumstances BUT the dividends continue!
I might have missed some of the Mhindi firms. I am not sure…
Now for my regrets… a firm run by kyuks… Olympia Capital. The Rights were sold at 14/- & the price is now 10/-. They took the money from the rights & bought shares in/from their family companies. Corporate Governance is almost ZERO.
I also like most Multi-nationals… e.g. BAT, EABL, Bamburi & KQ as investments… Forget about share price movements & you will see the professionalism come through for these firms through their performance!
BAT – dominant & efficient. Great dividends.
EABL – What can i say? The best of the best!
Bamburi – Well run. Competition is no longer EAPCC but ARM (among listed firms)…
KQ – If not for KLM, it would have gone to the dogs.
Most ‘foreign’ banks e.g. BBK, SCBK, etc Those who bought shares during the IPO or in the 1990s have done very well.
Compare them to NBK & KCB which were losers… KCB was run down during alexander kaminchia & arap bii’s days… It took Gareth George & Terry Davidson to resurrect KCB…
Even HFCK (heavy gov’t influence back in the day) was a disaster for many years. It’s only after Equity Bank (spectacular bank!) came in that their fortunes seem to be improving.
KE: Regret… buying shares in Kenya Finance Bank which was run down by some kyuks (francis nyammo & company). They almost took down Pan African Insurance as well. The Sanlam group saved PAI from bankruptcy. KFB closed down… I lost everything.
I ran over to CFCFS (at the time owned by CFC Bank then controlled by PK Jani’s family – Mhindis) from francis thuo & nyaga (Asante Mungu for small mercies!).
So when you look at investing on the NSE, I am actually in favor of the Ms… Mhindi & Multinational firms. Could it be my experience?
Finally, I lucked out when I sold most of my Uchumi after Suresh Shah (the then MD) left. During his time Uchumi used to pay us 5/- dividends.
It was an old kyuk mzee (who is still around) who told me during Suresh’s final AGM… “Kijana, when Suresh leaves, I will leave”… wise words…
The came chris kirubi (a kyuk)… he sold himself Uchumi’s properties, sold his properties to Uchumi, became a major supplier to Uchumi through haco industries… And Uchumi became BANKRUPT. Shares were worth ZERO.
Note that after Uchumi collapsed, ck sold out the S. Africans as his biggest cash cow was dead… talk about killing the golden goose!
Another loser of mine was AfricaOnline – I am not sure who ran it at the time but I know it was started by Ayisi Makitiani… though I think it was run by the same group that ran down Motor Mart.
Another success story of mine is CMC… it has been run for donkey’s years by Martin Forster (MD) & SZ Shah (Finance Director)…
As Kaczynsky said… another is ScanGroup… It was hilarious when the idiots who masquerade as MPs complained about the ‘low’ NAV of ScanGroup… when ScanGroup clearly said it is the “Brand, Creativity & Intellectual Property” that creates the value in ScanGroup!
Well… I am glad I bought the shares at the IPO.
Wow… I got carried away (& nostalgic)… but the point is… that INVESTMENT in PRIVATE firms is your decision…
When the government invests, they do not consult me… Kenyans are ‘brainier’ than the (current & past) governments at making their own financial decisions.
As for political decisions… the Kenyans as a group are idiots!
(Why else would they continue voting in thieves – kenyatta, moi, gumo, nyammo, jirongo – as MPs, presidents, etc)
I swear… some of you guys are plain *****… So what if DPL was originally a plastics firm…?
Maybe the business was not as profitable as the food business… A smart entrepreneur ‘mutates’…
Maybe it was vertical integration/expansion… I don’t know…
Nokia (yes, that NOKIA) was originally a wood-pulp mill…. then company was involved in many sectors, producing at one time or another paper products, bicycle and car tires, footwear (including Wellington boots), personal computers, communications cables, televisions, electricity generation machinery, capacitors, aluminium, etc.
Reliance Industries was in textiles but not in telecommunications, petroleum, etc… the hydrocarbon (energy) business has outgrown/outshone the textile business…
City Trust was formerly City Breweries (with a plant in Uganda). They had to ‘change’ when uber-idiot amin dada nationalized the plant – which subsequently closed down.
Richard Branson is better known in Kenya for Virgin Atlantic… and he started ‘Virgin’ in an unrelated business… Virgin was about music (Virgin Records/Megastores)… then the brand (& Branson) expanded…
Now their is Virgin Mobile, Virgin Atlantic (& subsidiaries)….
(BTW, Branson sold Virgin Records to finance Virgin Atlantic)
My favorite… for those who follow my Rants, Raves & Reviews… is Berkshire Hathaway… a textile business which is now a diversified conglomerate BUT primarily in the INSURANCE business… The genius Warren Buffet (smarter than any Kenyan I know) saw the textile business as a ‘dead end’ and moved BH into other investments…
Berkshire Hathaway traces its roots to a textile manufacturing company established by Oliver Chace in 1839 as the Valley Falls Company in Valley Falls, Rhode Island. Buffett initially maintained Berkshire’s core business of textiles, but by 1967, he was expanding into the insurance industry and other investments. Berkshire first ventured into the insurance business with the purchase of National Indemnity Company. In the late 1970s, Berkshire acquired an equity stake in the Government Employees Insurance Company (GEICO). In 1985, the last textile operations (Hathaway’s historic core) were shut down.
In a few years… some firms will no longer be what they were… the smart ones will change with the times… or you die!
Coldtusker:
Why do you conveniently forget to put raila’s name under the list of corrupt kenyan politicians? I keep telling you that the man is no angel, but Jaluo’s continue to worship him like like a King when he has done absolutely nothing for them. If he had made some changes in Kibera, I’d give him credit, but wapi? It’s very sad.
These companies are not “private” companies. Once you have an IPO, you become a “public” company. Unless of course you were trying to distinguish between parastatals that go public vs. non parastatals.
As far as DPL festive going from a plastics company to a bread company, yes, I suppose businesses can and should mutate in line with changing times, but usually, they tend to stick to industries in which they’ve had prior experience. It’s difficult to go from one industry to an extremely different one and call that a natural mutation. People tend to stay within industries that they are familiar with. You can’t be a jack of all trades. Besides what Berkshire Hathaway does is invest in companies that already exist. This is very different from going out yourself and starting a brand new company from the ground up.
In all the companies you listed above, I think you only mentioned one that has paid you good dividends over time. Are the others paying out good dividends?
I’m surprised to read that you now think that Equity bank is a spectacular bank!
I’ve become skeptical of investing in public companies, especially if you don’t have access to 24 hr price charts. Like I said before, many of madoff’s clients got dividend payouts for years. Until it all came crumbling down.
KE: “Private” here means “not government owned/controlled”… Yes, the term ‘public’ is more commonly used… No wonder English can be confusing for the non-native English speaker (not you…)
When a company (PARASTATAL) goes from GOVERNMENT (in a sense 100% owned by the public) hands to PUBLIC (direct ownership by some of the public) hands through a process called PRIVATIZATION it becomes a PUBLIC company… confusing, no?
Do you read my blog? I am a big fan of Equity Bank… All firms (incl Equity) will go thru hiccups… and when that happens people will try to tear EB down (“I told you so”) but it is still a great concept & bank!
I did mention duds I had… e.g. Kenya Finance Bank & Olympia… and I do not put money in merali firms… I did not buy Firestone (now Sameer Africa) when it came out & have been wary of them (merali firms) ever since…
Aga Khan firms rock… buy into every IPO or Rights they do…
I am getting worried that Raila is over-playing to the gallery… well, he always played the ‘populist’ part in politics…
But do you consider raila (in his current form) a greater evil than kibz & cronies?
The 2-price maize/unga is pure politics and the GNU is killing farmers (wheat & maize)… I will blog on how Kenyan politicians are discouraging Kenyan production businesses while making them simply traders!
Coldtusker:
I have said before that Raila’s decision to form an alliance with the kalenjins who’ve been perpetrating ethnic cleansing in the rift valley for the last 15 years, was extremely reckless.
Now, the Kikuyu’s in power have become even more paranoid and even more radicalized than they ever were before. They are NOT going to allow Raila and his band of kalenjin warriors anywhere near the axis of power.
I don’t see how the election in 2012 will be peaceful.
** looks like the ghanians are getting ready to rig
As the president of Burkina faso once said.:
In Africa, it’s not the voting that counts. It’s the counting that counts.
The modified saying is: In Africa, it’s not the voting that counts. It’s the counters that vote…