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East Africa Financial Review

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East Africa Financial Review EAST AFRICA FINANCIAL REVIEW JUNE 2018 June in Numbers MONTHLY COMMENTARY IMBC Deal of the Month Swiss Re’s c. USD 48 million acquisition of a 13.81% stake in Britam Holdings. The Editorial Team EDWARD BURBIDGE | LOREINE DOTTI | KEVIN KURIA June capped the first half of the year with three disclosed deals valued at c. 137 million, a decrease that followed May’s drop to 5 deals from 11 in April. This brought the number of deals The number of disclosed deals in as at the end of 1H2018 to 34, 2 deals short of the 36 deals posted in the first half of 2017. EA Deals recorded in the 1H2018 were valued at c. USD 603 million down from the c. USD 1,234 3 value of deals disclosed in 1H2017. As alluded to in our May 2018 edition, we are optimistic that we will see a pick up in deal flow towards the end of the year on account of increased origination and resumption of deal cycles that begun in late 2017 and earlier this year, following the impact of prolonged election periods The total value of all disclosed corporate 12 months ago. We are particularly keen on deals in the technology, media and deals in EA in USD m telecommunications sector which has had a resurgence in 2018. Mainstay sectors such as financial services and manufacturing are, however, expected to continue dominating the corporate deals landscape. In Part IV of this edition, we take a look back at our capital raising seminar, which we held in c. 137 conjunction with the ISBI Institute at the Strathmore Business School between June 21st and 22nd. The seminar was a good success with full participation and participants leaving with valuable insights into the capital raising process from both industry and academic experts. The seminar was sponsored by I&M bank and RSM Eastern Africa. IMBC’s deal of the month is Swiss Re’s c. USD 48 million acquisition of a 13.81% stake in Britam Holdings. The transaction marks the third acquisition of shares in the insurer in the last 6 months following AfricInvest and the IFC which acquired 14.3% and 10.4% stakes, respectively, in the insurer earlier this year. It also marks the 7th transaction in the insurance sector in 2018 which now accounts for 21% of all disclosed corporate deals in 1H2018. In the energy sector, it was announced that the World Bank approved a USD 455-million loan to Tanzania under its International Development Assistance (IDA) programme to support financing of power projects. The financing from IDA, which gives grants or low-interest loans, will also fund construction of high voltage transmission infrastructure to connect Tanzania to regional power markets in Southern and Eastern Africa. If you are bearish or In the mining sector, Shanta Gold announced it will conduct further exploration near its main bullish long enough, you mine in Tanzania after cutting costs in the past year to cope with tougher mining laws. London- listed Shanta announced a programme for "targeted drilling" for gold, for the first time in three will eventually be right. years, near its New Luika mine in northern Tanzania. New Luika has total reserves of 3.64 - Anon. million tonnes at an average grade of 4.4 grams per tonne, equating to 515,500 ounces of gold. In the oil and gas sector, French oil major, Total, announced that it expects hydrocarbons production from its licenses in Uganda to commence in 2021, if final investment decision (FID) is taken for the Tilenga project, in northern Lake Albert region this year. The estimate matches that of partner CNOOC which earlier reported a similar expectation. Uganda, in 2009, discovered 6.5 billion barrels of hydrocarbons in the Albertine Rift basin near its border with the Democratic Republic of Congo. In the listed equities market, the NSE 20 Index declined by 11% during the first half of the year In this Issue closing at 3285.73. Foreign investors sold Safaricom (USD 89,412.2K), KCB (USD 38,370.6K) and EABL (USD 31,945.1K). On the other hand, Britam witnessed the highest net foreign inflow at USD 6,944.1K while Barclays recorded a net foreign inflow of 5,478.2K. Turnover for YTD • Key Market Indicators was recorded at USD 1072.02M. Safaricom ranked top amongst the top 20 by market • Deal Statistics capitalization with a market cap of USD 11,702.3m. • Selected Deals Summary Edward Burbidge, CFA & IMBC EA Review Team • Highlights from the Capital Raising Seminar • Upcoming Events JUNE 2018 I&MBC EA REVIEW | 2 PART I: DEAL STATISTICS (1/2) Total No.of deals in EastAfrica - 2018 YTD 18 15 1 1 M&A PE Rights Issue Private Placing Total number of deals per month in East Africa -2018 YTD June 3 May 5 April 11 March 7 Feb 6 Jan 3 JUNE 2018 I&MBC EA REVIEW | 3 PART I: DEAL STATISTICS (2/2) Deal values (USD mn) in East Africa - 2018 YTD1 306.88 280.37 4.7 10.9 Private Placing PE Rights Issue M&A No. of deals per sector - 2018 YTD 20% 34% 3% 3% 3% 6% 3% 3% 3% 3% 8% 5% 6% Financial services Energy, Oil & Gas FMCG Logistics Health Media Manufacturing Agriculture Real estate Mining and Construction Hospitality Professional Services Horticulture Education Information Services ICT 1Based on deal values disclosed to the public or as estimated by I&M Burbidge Capital Source: I&M Burbidge Capital Research JUNE 2018 I&MBC EA REVIEW | 4 PART II: KEY MARKET INDICATORS Yields on Government Securities 91- Day T-bill 2- Year Bond 5- year Bond 10- year bond Kenya 7.73% 11.35% 12.00% 12.65% Tanzania 2.85% 8.52% 11.30% 13.94% Uganda 10.52% 13.16% 14.65% 14.38% Interest Rates Country/Region Current Base Rate Previous Base Rate Central Bank of Kenya (Kenya) 9.50% 10.00% Bank of Uganda (Uganda) 9.00% 9.50% Bank of Tanzania (Tanzania) 9.00% 9.00% South African Reserve Bank (RSA) 6.50% 6.75% Central Bank of Nigeria (Nigeria) 14.00% 14.00% Central Bank of Egypt (Egypt) 16.75% 18.75% Bank of England (UK) 0.50% 0.50% Federal Reserve Bank (USA) 2.00% 1.50% European Central Bank (EU) 0.00% 0.00% Projected Inflation and GDP Rates Sub- South Saharan Euro Kenya Uganda Tanzania Nigeria Africa Africa UK USA Area Projected 2018 5.50% 5.10% 6.80% 2.50% 1.10% 3.20% 1.40% 2.50% 2.10% GDP Growth 2019 5.90% 5.70% 6.90% 2.80% 1.70% 3.50% 1.60% 2.20% 1.70% Projected 2018 5.20% 5.60% 5.00% 14.80% 5.30% 9.90% 2.70% 2.10% 1.40% Inflation (%) 2019 5.00% 5.00% 5.00% 14.30% 5.50% 8.90% 2.30% 2.20% 1.70% JUNE 2018 I&MBC EA REVIEW | 5 PART III: SELECTED DEALS Date Buyer Seller Investment size Sector Investment type Country Synopsis in USD 'millions 18/06/2018 Old UAP est. 27 Financial Services M&A Kenya UAP Holdings converted a c. KES 2.7 bn loan into equity through its subsidiary Old Mutual Mutual Holdings Holdings Kenya.UAP did not disclose the conversion price for the proposed debt-to-equity transaction. 12/06/2018 Swiss Re Britam est. 48 Financial Services M&A Kenya Businessman Peter Munga sold 348.5 million shares of financial services firm Britam worth Holdings c. KES 4.8 billion to Zurich-based insurance giant Swiss Re. Swiss Re will hold approximately 13.81 per cent of the issued ordinary shares of Britam. 29/06/2018 AEP Iberafrica 61.57 Energy M&A Kenya IberAfrica has been supplying Kenya Power with electricity for transmission to the national Energy grid since 1990s. The takeover of all the issued share capital of the firm includes all Africa shareholder claims against Iberafrica, said the buyer. JUNE 2018 I&MBC EA REVIEW | 6 PART IV: HIGHLIGHTS FROM THE CAPITAL RAISING SEMINAR “An experienced Private Equity investor can be a very useful partner who brings in more than just money”… This was one among many of the nuggets shared by practitioners from I&M Burbidge Capital (IMBC), I&M Bank, IFC Africa, Ethos Private Equity, RSM East Africa, Walker Kontos and ISBI Institute @ Strathmore (ISBI) with participants that attended the Capital Raising seminar held at the Strathmore Business School (SBS) between the 21st and 22nd of June. The event was organised by IMBC and ISBI. Participants of the seminar included business owners and C-Suite executives, from medium and large sized businesses in the region, who gleaned valuable insights from leading academic & industry practitioners on the capital raising process. The first day of the seminar begun with a relatable and insightful overview of the process delivered by Edward Burbidge, the CEO of I&M Burbidge Capital. Next was A deep dive into valuation methodologies and their applicability, presented by Suncan Pavlovic, the Managing Director at ISBI and Jharna Kamdar, a valuation expert and Senior Consultant at IMBC. After a hearty lunch break, the class got a comprehensive glimpse into the legal due diligence process and transaction documentation from Michael Kontos, a Partner at premier law firm, Walker Kontos. The day was capped by an exhilarating presentation on negotiation, including a live case study, delivered by Suncan Pavlovic of ISBI. The second day begun with a breakfast and networking session followed by a detailed and highly insightful presentation into tax and business structuring delivered by Ashif Kassam, the Executive Chairman at RSM Eastern Africa.
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