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The East African : May 19th 2014
The EastAfrican 42 FOUR MONTHS OF LOW ACTIVITY Market patterns affect EA bourses The bou≥ses tend to be busy in the thi≥d and fou≥th qua≥te≥s of the yea≥ By BERNARD BUSUULWA The EastAfrican ket, players are optimistic of a rebound in public equity transactions during the second half of 2014, despite fears that controversy over share allocations in an integrated stock market is likely to affect demutualisation. Analysts blame the scarcity of A initial public offerings (IPOs) between January and April on seasonal market patterns that favour higher transaction activity in the first six months of the year, leaving the first two quarters starved of transactions. Many companies tend to rely on annual financial results of the previous year to project performance indicators and determine future capital needs, a practice that pushes fundraising into the second half of the year. The reluctance among many firms to undertake major transactions at the beginning of this year has been blamed on lower growth in revenues and profits in 2013. In Uganda, major IPOs expected between July and December include Crane Bank Ltd, which plans to list on the Uganda Securities Exchange (USE), and MTN Rwanda on the Rwanda Stock Exchange (RSE). But the much anticipated listing of Quality Chemicals Industries Ltd, Uganda’s pioneering producer of HIV/Aids and malaria drugs, appears uncertain, with the firm’s local and foreign shareholders still divided over a new shareholding plan. Although Crane Bank’s listing was widely anticipated by the end of June, industry sources said bookbuilding campaigns undertaken by the lead transaction advisor and sponsoring broker took longer than expected, and the unimpressive results for 2013 have slowed down the transaction. While book-building A broker trades on the Nairobi Securities Exchange. Picture: File campaigns have attracted leading private equity firms in Europe and the US — an investor segment expected to buy nearly 50 per cent of available shares prior to the offer period — details about the proposed share price and number of shares available for sale are still unclear. Whereas Crane Bank Ltd’s credit portfolio grew by 13.9 per cent to Ush655.6 billion ($259.7 million) by end of December 2013, profit before tax fell by 37 per cent to Ush65 billion ($25.8 million) during the same period, a setback that ended 18 years of consecutive profit growth. Lengthy internal discussions at MTN Group have reportedly delayed MTN Rwanda’s entry into the bourse. Market insiders also anticipate notable transaction activity in “We plan to execute one IPO after the first four months of 2014. But we believe Gems rules need to be relaxed further to encourage listings on that platform.” Patrick Mweheire, executive director at Stanbic Uganda the rather sleepy Growth Enterprises Market Segments (Gems) at the USE and Dar es Salaam Stock Exchange (DSE) after months of limited interest among potential issuers. Progress on demutualisation of the region’s stock exchanges — an integration process for local bourses prior to full implementation of the EAC Monetary Union — appears steady but debate among stockbrokers over ownership of shares in a regional stock market could overshadow previous gains. “We are hopeful about Crane Bank’s listing before the end of July. We also anticipate two transactions on the Gems platform at the USE before the end of the year. Issues of ownership in the demutualisation process have proved controversial, with stockbrokers unable to find a suitable compromise on the matter. In spite of that, stockbrokers still believe in the principle of a demutualised regional exchange owned by trading firms and not the public,” said a source at the USE who chose anonymity. “We plan to execute one IPO af- ter the first four months of 2014. But we believe Gems rules need to be relaxed further to encourage listings on that platform. The growth of IPO transaction volumes fter four months of low activity in East Africa’s securities mar- BUSINESS MAY 17-23,2014 Da≥ to sign U≥anium deal with Mant≥a Ltd By ADAM IHUCHA Special Correspondent TANZANIA WILL sign an agreement with Mantra Tanzania Ltd to start mining uranium at Mkuju in the Selous Game Reserve. Minister for Natural Resources PERFORMANCE Kenya’s NSE 20 Index rose from 4,926.97 points at the beginning of January 2014 to 4,933.41 points at the start of March, according to data compiled by Burbidge Capital Ltd. This index closed at 4,945.78 at the end of March, equivalent to a monthly gain of 0.3 per cent. The main index at the DSE increased from 1,866.57 points to 1,958.09 points at the end of March 2014. The USE’s All Share Index dropped from 1,522.46 points at the beginning of this year to 1,503.54 points at the close of March. has also been affected by long turnaround times of 12-24 months usually pegged to specific deals,” said Patrick Mweheire, executive director at Stanbic Uganda, transaction advisers for Actis’s latest equity divestiture from Umeme Ltd. Regulators are equally optimistic about IPO transaction activity, but some are worried about low levels of initiative among market players. “I anticipate notable activity at the Rwanda Stock Exchange with the entry of MTN Rwanda, while the DSE is likely to post better performance on its Gems segment. But we still need to push market players to generate more equity transactions that will attract bigger investors, boost incomes for regulators and reduce reliance on government support,” said Keith Kalyegira, chief executive officer at the Uganda Capital Markets Au- and Tourism, Lazaro Nyalandu, said last week that the agreement will be signed before the end of June. This, he said, will pave way for the company to develop the first ever uranium mining project in Tanzania, expected to generate in excess of $640 million per annum. “The state will make sure that all other remaining issues to be signed including the Mining Development Agreement (MDA) are finalised before the end of this financial year” he said. The project is owned by Man- tra Tanzania Ltd and operated by Uranium One Inc of Canada and its parent, Russian state-owned nuclear enterprise, JSC Atomredmetzoloto (ARMZ). According to Mr Nyalandu, the extraction of uranium will take place in an area covering 350 square kilometres within the Selous reserve in the heart of the southern Tanzania tourism circuit. Mantra obtained the environ- mental impact assessment certificate for the project in October 2012 following approval by Unesco’s World Heritage Committee for the minor boundary modification of the World Heritage part of the Selous Game Reserve. Mineral resource estimates for the project, as of November 2012 specified measured and indicated resources of 35,900 tonnes of uranium oxide, inferred resources of about 10,000 tonnes of uranium oxide. But the extraction of the miner- als would result in production of 60 million tonnes of radioactive waste during its 10-year lifespan and up to 139 million tonnes of uranium if a projected extension of the mine is implemented. B≥ics, young middle class to thank fo≥ Af≥ica’s economic boom By PETERSON THIONG’O The EastAfrican THE EMERGENCE of the BRICS (Brazil, India, China and South Africa) in 2008, kickstarted an economic boom in Africa that has seen the continent produce seven of the world’s fastest growing economies. The boom has pulled millions out of pov- erty and pushed a few others into the middle class, a factor that helped make the continent a popular investment destination. Last year, deals worth $2 billion were closed with the major ones being the $100 million Alfutaim acquisition of CMC Motors in Kenya. And it is not just the economic boom fuelling the new wave of mergers and acquisitions(M&A). Africa has the world’s youngest population. More than 60 per cent of the over 1 billion Africans today are below the age of 25 and while the population in the West is ageing, more of the continent’s people are joining the labour market and by extension becoming potential buyers of goods and services. Second, after years of economic closure, Africa is opening up to the world and also improving its own regulatory environment. Although Africa contributes only 3 per cent of global M&A deals, the region has seen extended activity, with East Africa emerging as one of the key destinations. Last year, for example, M&A deals worth over $2 billion were closed in the region. The allure of a growing middle class, the increased opening up of the markets and im- proved regulatory environment have raised the appetite for M&A deals in the East African region. Private equity firms have been the key $2b Amount spent on mergers and acquisition deals in EA drivers of the new focus buying a sizeable number of companies in the region. Everyone wants exposure to the middle class. Compared with a decade ago, today there is a thriving private equity industry in Africa, valued at approximately $30 billion. There are more than 50 private equity funds entirely dedicated to the continent, which are invested in infrastructure in Africa including road tolls, dams and airports There are now more than one billion mid- dle class consumers in Africa, and the promise of the ever-deepening consumer pocket is luring more foreign interest. “When you add to the mix the efforts made by the region’s governments to improve regulatory regimes, it is no surprise that African M&A is surging,” says a Deloitte report on the M&A market in the region. “Although political risks are present in some countries in the region, taking a longerterm view, Africa is considerably more stable than it has ever been.” The energy, mining and utilities sectors took the lion’s share of M&A deals during the period under review, dominating both the number of deals made and the value of the transactions.
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