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The East African : February 3rd 2014
MONEY AND EQUITY MARKETS FEBRUARY 1-7,2014 CAPITAL MOBILISATION Precision seeks KQ bailout as Dar By ROSEMARY MIRONDO Special Correspondent K enya Airways (KQ) and Tanzania’s Precision Air are in talks over a deal that could see the Nairobi-based carrier raise its stake in the latter, by injecting up to $30 million into it. The move comes after similar discussions between the Tanzanian government and Precision Air, in which the former was expected to inject $30 million into the struggling company, flopped. Precision chairman Michael Shirima told The EastAfrican that his airline had approached KQ, which owns 41.23 per cent of the airline, for financing, as the Dar es Salaam-based airline seeks ways to shore up its eroded cash position. “KQ was waiting for the govern- ment’s decision…. when the government gave us its final decision on the matter, KQ came up with the idea to increase its stake, over which we are still in discussion. Our aim is it get between $20 million and $30 million through equity,” said Mr Shirima. Late last year, Ernst and Young, Precision’s auditors, raised concerns over the viability of the airline in the light of surging debts, saying it must move fast to secure financing if it is to remain afloat. The company’s audit report painted a gloomy picture of the lossmaking firm, saying its liabilities had exceeded its assets by Tsh83.14 billion ($53 million). Also, for several years, it has not remitted its statutory deductions and indirect taxes to the government, amounting to Tsh19 billion ($12 million) as of March 2013, notes the report prepared by Ernst & Young, and tabled at the annual general meeting last November. “These conditions cast signifi- cant doubt on the company’s ability to forge ahead,” said the auditors. The airline has been facing cash flow challenges occasioned by an overambitious expansion plan that saw it add new aircraft. This has hurt its competitiveness, especially as it struggled to stave off competition from budget airline Fastjet, whose relatively affordable fares Business watch Dar stockmarket, London bourse, in training deal govt snubs airline Tanzania’s la≥gest ai≥line is seeking between $20m and $30m th≥ough equity have had a big impact on the local market. In 2011, KQ reduced its owner- ship in Precision from 49 per cent to 41.23 per cent through an initial public offerings (IPO) on the Dar es Salaam Securities Exchange. Over the past few years, a mix of fleet expansion and loss-making also affected KQ’s cash flow, and though the carrier raised Ksh14.6 billion ($169 million) through a rights issue, it is expected it will use a good proportion of it as down payment for the new 787 Dreamliners that it is expecting starting March and into 2016. “KQ experienced problems last year, but currently it has a healthy cash flow, and so we are optimistic it will clinch the deal,” said Mr Shirima. Additional investors Precision Air said apart from KQ, it was also talking to other investors, including other airlines, keen on taking up a stake in the airline. “We are currently in talks with three firms whose identity I cannot disclose; the arrangement is for them to expand equity, and once we get it, we are going to consider selling our aircraft and leasing them back,” said Mr Shirima. The company announced a Tsh30 billion ($18.2 million) loss during the first half of this year, and is seeking over Tsh51 billion ($30.9 million) to enable it to get back on its feet. Mr Shirima, who owns 42.91 per cent of Precision is the airline’s majority shareholder, followed by KQ. The remaining Precision shares were sold on the Dar es Salaam Stock Exchange in the IPO that failed to raise the intended capital meant to finance the airline’s expansion drive. Tanzania’s biggest airline had Our aim is it get between $20 million and $30 million through equity.” Michael Shirima, Precision Air board chairman Precision Air plane at the Julius Nyerere International Airport in Dar es Salaam. Picture: File WAYS TO IMPROVE CASHFLOW Precision chairman Michael Shirima said the company was taking measures to improve its cashflow, including downsizing, raising additional capital from current shareholders, taking on more debt, selling and then leasing back its aircraft or selling part of its stake to other sought to raise about Tsh28 billion ($16.5 million) but managed to collect just Tsh11.84 billion. Industry observers believe that it was during this time that the airline started experiencing difficulties. “They wouldn’t have needed a government bailout or a KQ injection of capital had the IPO gone according to plan,” said the source. The company’s CEO, Sauda Ra- jab, said they were currently finalising budget plans for this year, and expected to have everything in perspective by next month. investors who would then inject more cash into the airline. Due to the cashflow challenges, the airline has had to terminate some leases and cancel flights to Johannesburg, South Africa, choosing instead to concentrate on East Africa. The Dar es Salaam Securities Exchange has partnered with the London Stock Exchange in a deal that will see the former’s regulators and brokers as well as Tanzania’s Ministry of Finance and FSD Tanzania learn skills from the UK bourse — one of the leaders on the globe. The move is expected to improve Tanzania’s stockmarket performance while attracting more local and foreign investments. Moremi Marwa, the DSE chief executive said the training will enable the bourse to position itself for long-term capital mobilisation. Kakuzi stock rises 18pc after slow trading in December Kakuzi Ltd, the Kenyan agricultural cultivation and manufacturing company, saw its share price hit a 52-month high last week, to trade at Ksh113 ($1.31), gaining 18.94 per cent this year. Analysts said the bidding rally for agricultural firm Rea Vipingo has raised the fortunes of the sector, reversing the misfortunes of Kakuzi. In December last year, Kakuzi Ltd issued a profit warning, informing investors that its net income could fall by at least 25 per cent. The firm, whose shares traded at a flat price of Ksh95 ($1.1) in the last week of December 2013, cautioned that its profit after tax is expected to drop due to the sharp decline in international tea prices. Veteran businessmen exit top shareholders’ list at CFC A group of politically connected businessmen has quietly exited the top shareholders’ list at CfC Stanbic Holdings, the company that owns Kenya’s sixth largest bank, CfC Stanbic, Business Daily has reported. The veterans recently transferred shares worth Ksh4 billion ($46.5 million) that placed them among the top 10 owners in the financial services company. The shares were held through investment vehicle, Africa Liaison & Consultant Services (Alico). Umeme to phase out cash payments, as client base rises 49 “This year’s plans include the code sharing partnership between Precision Air and Air Uganda. The agreement is for both the airlines to work together on the Dar es Salaam-Entebbe and KilimanjaroEntebbe routes,” said Ms Rajab. She said that the two airlines would both sell tickets and increase passenger numbers of either airline, while offering travellers an increased choice of flights between the two cities. Additional reporting by Peterson Thiong’o Umeme workers install underground cables in Kampala. Picture: File Umeme, the power distributor listed on the Uganda Securities Exchange and crosslisted on the Nairobi Securities Exchange, has announced plans to phase out cash payments for power bills, in favour of mobile phone transactions. The power distributor has connected over 500,000 people to the national grid, and expects an annual increase of 60,000 customers every year, prompting it to shift to the mobile money platform.
January 27th 2014
February 10th 2014