For Online E-newspaper
The East African : May 31st 2015
MONEY AND EQUITY MARKETS MAY 30 - JUNE 5, 2015 55 OFFLOADING SHARES Is Crystal Telecom’s sale of shares a move to dilute political risk? The fi≥m ≥eceived $7.5 million f≥om 2012 to 2014 in management fees, acco≥ding to the info≥mation memo≥andum fo≥ the IPO A SPECIAL CORRESPONDENT The EastAfrican has made more money over the past three years from its terminated management contract with MTN Rwanda than from dividends for its indirect 20 per cent stake in the mobile phone services provider. The initial public offering of C its subsidiary Crystal Telecom, which opened last week, is expected to allow investors to share in the fortunes of MTN Rwanda. Crystal Ventures owns 100 per cent of Crystal Telecom, and Crystal Telecom has a 20 per cent stake in MTN Rwanda, the country’s largest mobile phone services provider by market share. This is Crystal Telecom’s only investment so far. Crystal Telecom earns divi- dends from MTN Rwanda. It also reports 20 per cent of what MTN Rwanda makes in profit as its share of income. Crystal Ventures is the invest- ment arm of the ruling Rwanda Patriotic Front. By selling shares in Crystal Telecom to the public through the IPO, the firm hopes to raise Rwf28 billion ($41 million). Crystal Ventures received Rwf5.2 billion ($7.5 million) from 2012 to 2014 in management fees, according to the information memorandum for the IPO; Crystal Telecom made Rwf4.1 billion ($6.1 million) in profit over the same period. However, it is not clear what the management fee charged by Crystal Ventures to MTN Rwanda over this period constituted. The fees were terminated in 2014. On dividend payoff, Crystal Telecom earned Rwf2.1 billion ($3.1 million) in 2014, which was paid out on April 17, 2015, just before the IPO. “Typical preferred projects are those that can deliver a minimum return on investment of between 15 and 20 per cent, with an investment horizon from 5 to 15 years, or until the sector ma- Trucks ferrying cane to the Nzoia sugar factory. Nzoia is one of the sugar firms to be privatised Picture: File INITIAL PUBLIC OFFERING Crystal Ventures, the investment firm owned by the Rwanda Patriotic Front, has launched an initial public offering of its 20 per cent stake in domestic telco MTN Rwandacell, held via its wholly-owned subsidiary Crystal Telecom. Crystal Ventures is looking at raise around $41 million from the local bourse listing, which will run until June 5. The firm plans to use the funds to invest in the energy sector. The executive chairman of Crystal Ventures, Jack Kayonga, said everyone is eligible to buy shares. MTN Rwanda will be the third company to be listed on the Rwanda Stock Exchange, which began trading in February 2011. tures with a clear and profitable exit option,” states a letter by Jack Kayonga, the chairman of Crystal Telecom, in the information memorandum for the IPO. MTN Rwanda controls 49 per cent of the market, but its revenues have been declining as it faces stiff competition from new entrants such as Tigo Rwanda and Airtel Rwanda. MTN Rwanda’s revenues de- clined from Rwf90 billion ($131 million) in 2012, to Rwf81.5 billion ($118 million) in 2014. Net profits fell to Rwf6.1 billion ($8.8 million) in 2014, from Rwf12.1 billion ($17 million). The investment company also plans to offload shares in other companies such as Ruliba Clays, Rwanda’s sole brick and tile making company, and East African Granite Industries. rystal Ventures, Rwanda’s biggest investment company, The rationale of Crystal Ven- tures offloading its shares in these companies instead of its own shares at the Rwandan Stock Exchange has been questioned because of its cost effectiveness and denying investors a chance to spread their risks over the larger portfolio held by the holding company. It will cost Rwf735 million ($1.1 million) for Crystal Telecom to list at the RSE. Another perspective is that Crystal Ventures is raising money ahead of the Rwandan elections set for 2017. Rwanda’s President Paul Kag- ame has hinted at running for a third term, which would require a change in the Constitution since the presidential term is for two limits. For Crystal Ventures, an early IPO means it would be reducing its political risk by selling shares to the public. $0.15 Suga≥cane fa≥me≥s demand mo≥e sha≥es By SCOLA KAMAU Special Correspondent SUGARCANE FARMERS in Kenya are demanding for more than 50 per cent of shares in the planned privatisation of five government-owned firms. The farmers have been allocated a 24 per cent share now, and a further 6 per cent if the government sells its 25 per cent of shares at a later date; strategic investors are expected to own a majority share of 51 per cent. The farmers said debts owed to them should be cleared before the privatisation starts. They are also demanding Ksh12.1 billion ($123 million) in underpayment from the millers. Richard Ogendo, the Kenya Initial share price of Crystal Telecoms A similar trend has been not- ed in Kenya, where politically connected companies sell their shares or raise capital a year or two before the general election. The initial public offering of Crystal Telecom is set to close on June 5. The shares have been priced at $0.15, with at least two investment banks — Sterling Capital in Kenya and Uganda’s Crested Capital. Crested Securities has advised its customers to buy the shares in the hope that they will appreciate to $0.17 over the next year. The company said the in- troduction of mobile money in Rwanda and economies of scale enjoyed by MTN, the main shareholder, would contribute to the telco’s success. Although the offer is open to investors from Burundi, Kenya, Tanzania and Uganda, they will have to contend with foreign exchange risks, starting with potential refunds at rates different from those at the time of application. Sugarcane Growers Association secretary general, said, “The initial 24 per cent is too little. Privatisation should start by empowering us with the majority shareholding. The association has sent a memorandum through the Senate demanding for more allocation.” The association represents 353,000 small and large scale sugarcane farmers. According to Mr Ogendo, the millers owe farmers their dues for the past three months, and arrears dated as far back as 2009 are yet to be cleared. “The privatisation should wait for the court’s verdict. All our debts should be cleared before the firms are handed to new owners,” Mr Ogendo said. The government has said it will pay Ksh39.7 billion ($405 million) of the debt owed by three sugar firms: As at June 2009, Muhoroni, Miwani and Nzoia owed the government Ksh35.5 billion ($362 million), and the Kenya Sugar Board Ksh6.3 billion ($64 million). “After write offs, all the re- maining GoK debt — from Nzoia, Sony and Chemilil — will be converted to equity, and the remaining Sugar Board debt will be repaid once adequate liquidity has been created in the sugar companies and payments to staff and farmers have been concluded,” said Solomon Kitungu, the chief executive officer of the Privatisation Commission of Kenya.
May 24th 2015
Jun 7th 2015