THE STAR
LOCAL 13
Monday, December 23, 2013
!business
UP TO DATE, ACCURATE BUSINESS INFORMATION
NEWS YOU CAN USE, EVERY DAY
Can YOU outsmart
the expert?
ALY KHAN’S
STAR
PORTFOLIO
BENSOUDA DERISKS THE
EQUITY MARKETS
CRISIS: Violence has erupted in South Sudan hitting operations of businesses including Kenyan owned ones.
Regional insurer says
no to S Sudan covers
BY LOLA OKULO
AFRICA Trade Insurance agency
had to turn down issuance of covers to major businesses and banks
operating in South Sudan because
the country is yet to sign the treaty
to join it.
ATI, a major political risk insurer in the region started in 2001
with the backing of seven African
countries and the World Bank to
boost trade activities, currently
conducts business in Kenya, Benin, Burundi, Democratic Republic
of Congo, Madagascar, Malawi,
Rwanda,Tanzania, Uganda and
Zambia.
“This line of insurance falls under the heading of political risk
insurance and ATI is therefore
not permitted by its treaty to offer
this cover in countries that are not
members,” said ATI chief executive
George Otieno.
South Sudan has however been
in talks with the organisation and
even attended a meeting hosted
by ATI for its members last year
in Nairobi where they announced
their intention to join to help woo
investors into the country.
“This year we had some serious
enquiries relating to transactions in
Southern Sudan which we had to
turn down because of the membership issue. These included a large
pan-African bank that wanted to
invest in the energy sector in that
country but unfortunately, we
weren’t able to cover the transaction because it was a political risk,”
said Otieno.
Political risk covers and risk mitigation tools that would easily allow traders access credit were not
available in most African countries
and in the few where they existed,
it was at high premiums that locked
out many companies and traders.
Some African countries therefore
came up with the idea of an agency
that would provide these covers
and services at a more affordable
rate that would encourage investment into Africa hence the crea-
tion of ATI. South Sudan has been
rocked by fighting and tension
since last Sunday night.
The fighting affected many businesses among them Kenyan owned
ones including Kenya Commercial
Bank, Equity Bank, Resolution
Insurance, UAP and national carrier Kenya Airways which had to
suspend flights into the country as
Juba Airport was closed for two
days.
Political violence, terrorism and
sabotage cover insures against
business related losses such as interruption and any ensuing loss of
profits or property and physical
damage associated to a particular
event such as a coup among others.
“While the country is yet to complete membership, we are in discussions with them about moving the
process forward. I think in the current environment, they would be
wise to fasttrack membership in
order to gain investor confidence,”
said Otieno.
KenGen shareholders approve plan to raise Sh30bn
BY STAR REPORTER
SHAREHOLDERS of Kenya Electricity Generating Company have
approved plans by the company
to raise new capital to finance
power projects in 2014.
This will see the company issue
2.2 billion shares in the market
most likely through a Rights
Issue in the first half of 2014. At
the current price of Sh15, this
would be expected to raise Sh30
billion. The company has a total
of 2.2 billion shares listed at
the Nairobi Securities Exchange
meaning that the Rights Issue
would be in the ratio of 1:1.
Ultimately, KenGen plans
to raise its share capital from
Sh5.5 billion to Sh25 billion
through creation of 7.7 billion new shares. The 2.2 billion
new shares approved is the first
tranche in the capital raising
project by Kenya’s largest electricity producer seeking to raise
$4 billion (Sh350 billion) for new
projects over the next four years
through a mix of debt and equity.
The new projects comprising mainly a mix of geothermal
and wind energy are expected to
boost KenGen’s power generation capacity by 400 megawatts
by 2014.
“M
y decision to apply for an adjournment today was
not taken lightly, and I have explained fully to the
judges the reasons for my exceptional decision,’’
read Fatou Bensouda’s statement in a signal that
the prosecutor’s case against President Kenyatta
had unravelled.
It had become increasingly clear that what was essentially a
witness-based prosecution had encountered a witness attrition rate
that had made it impossible to prosecute the case. Ms. Bensouda’s
statement whilst careful not to surrender the ICC’s hand was exactly
that a surrender. The ICC process had represented the ‘’bleeding edge’’
of risk for equity investors at the Nairobi Securities Exchange and
Bensouda has therefore, de-risked Kenyan equities.
The nature of risk in the c21st is that is fast moving, more diffuse
and asymmetric than ever before. Events in Juba whilst fluid confirm
that South Sudan has deteriorated and that a whole lot of folks are
busy triggering ‘’stop losses.’’ South Sudan GDP expansion in 2013 was
expected to be +30 % in 2013 after an oil cut-off slump of -55% in
2012. I do not need to tell you how deeply engaged Kenya has been
with South Sudan or of the potential and consequential Losses.
Earlier this month, The Risk analytics and research firm Maplecroft
issued their Political Risk Atlas 2014 (PRA) which identified ‘’East Africa
as an emerging flashpoint of geopolitical risks.’’
According to that report;
‘’East Africa has eclipsed Central Africa, as Sub-Saharan Africa’s
riskiest region.’’ East Africa is already host to ‘extreme risk’ Somalia
(ranked 5th), Sudan (ranked 6th) and South Sudan (ranked 10th),
Maplecroft ranking shows. The Maplecroft Ranking works from 1-10 0
where 1 is the most risky place in the world. Kenya and Ethiopia have
been elevated to “high risk.”
If you were taking the temperature of the neighbourhood, then you
would have to agree to its spiked several degrees higher.
Maplecroft noted that Kenya had risen from ‘medium’ to ‘high risk’
on the back of increased regulatory volatility and cited mining;
‘’These unexpected policy shifts signal that mining firms investing in
Kenya face an elevated degree of regulatory uncertainty.”
A survey from Vancouver-based Fraser Institute ranked Kenya at
96th position in its annual survey of country’s based on its and gas
regulations.
One unnamed executive surveyed by Fraser said bluntly: “Kenya
is horribly unpredictable. Success in neighboring countries has
made them distrusting of investors and they have been too quick to
assume they have the leverage to tax operators that have yet to find
any resources. They also overstate success stories to back changes
in the law. Government officials have little interest in effectively
communicating with companies.”
We will be selling a eurobond in January.
I wrote this in early November;
‘’So the key metric to watch is the credit spread. That is a market
driven measure and it is dynamic. Bond holders take no prisoners.
Once, we issue our eurobond, we have essentially given the
international markets a vehicle to price Kenya’s credit spread on a
daily and a real time basis. I am exaggerating a little but not much.
The global markets will be poring over every single utterance on a
real time basis and that spread about which I spoke will start moving
around. And if the markets feel for example that we do not hold sacred
the sanctity of contracts, our spread will start moving. Prime Minister
Tony Blair gave talking points every morning to his cabinet and no
minister was permitted to stray from those points. We will surely need
a similar process because when you sell more than $1b of bonds to
international investors that bond holder constituency immediately
becomes primus inter pares and that you can take to the bank.’’
Shares go up and down and readers are advised that this column represents Mr Satchu’s personal opinions.