EAST AFRICA FINANCIAL REVIEW

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1 EAST AFRICA FINANCIAL REVIEW OUR SPONSORSHIP PARTNER

2 April in Numbers IMBC Deal of the Month Energy Access Ventures (EAV) has doubled its portfolio size with investments in PayGo Energy, Total no. of disclosed deals in EA 2 5 Total number of announced Financial services Deals MONTHLY COMMENTARY It was a slightly quieter month of deal making with 5 corporate deals and a combined (announced) value of USD26m. The market is still dominated by M&A and PE deals at present. The financial services and energy sectors continue to lead in deal flow, taking up 34% and 21% of the reported deals YTD respectively. In Private Equity 2 deals were announced in the manufacturing and energy sectors and in M&A we saw 1 deal recorded. IMBC's deal of the month was a PE investment by Energy Access Ventures into three firms in the energy sector spread across Sub- Saharan Africa, namely PayGO Energy, InspiraFarms & SunCulture. In the oil sector, Rwanda and the Democratic Republic of the Congo signed a fiveyear joint exploration agreement for oil under Lake Kivu. The agreement covers the joint exploitation of oil resources should any hydrocarbons be discovered under the shared cross-border area of the lake. The two countries also agreed to exemption of duties and taxes paid on equipment, materials and chemical reagents imported exclusively for exploration activities. In the mining sector, the President of Tanzania, HE John Magufuli directed a new team sworn-in to probe mineral sands to conduct thorough investigations to establish the amount of containers that have been exported from Tanzania over the last 19 years. The head of state tasked the team to establish types of minerals, their monetary value and amount contained in such containers. The total value of disclosed corporate deals in EA in USDm 256 In this Issue Key Market Indicators Deal statistics Selected Deals Summary Key Events - East Africa Upcoming Events In the energy sector, the Government of Tanzania awarded a coal mining licence to the local unit of Nigeria's Dangote Cement as part of plans to lower the company's production costs and ease disruptions caused by power shortages. The coal mining licence covers 9.98 square kilometres within the mineral-rich Ngaka coal fields. In the month of March, the bourse sustained gains with the benchmark NSE 20 up 3.9% (-2.3% YTD) while trading activity remained robust with turnover at USD 121.1m (previous month USD 121.3m). Net foreign inflows declined sharply to -USD 2.9m (previous month USD 4.0m, 1Q17 USD 16.7m) KenGen observed the highest foreign investor demand at USD 2.1m, supported by the inflows, the counter is up 7.4% (12.9% YTD). The electricity generator saw South Africa s pension fund Public Investment Corporation (PIC) raise its stake in KenGen to 6.6% at the close of February Financial services counters accounted for USD 4.8m of the net inflows with Equity (10.0% YTD) and Barclays Bank (-12.6% YTD) recording net inflows of USD 1.2m and USD 0.7m respectively. Safaricom (- 6.0% YTD) at USD 3.4m and ARM (-21.9% YTD) at USD 1.5m respectively were the most sold counters by foreign investors. Notably, Banking counters dominated the top gainers list following the release of FY16 results, KCB marked a 0.5%y/y increase in EPS to KES 6.43, the counter was up 37.6% m/m (20.9% YTD) and Equity Bank posted a 4.4%y/y decline in EPS to KES 4.38, 25.7%m/m (10.0% YTD) posted the highest gains. EDWARD BURBIDGE CFA CHIEF EXECUTIVE OFFICER & IMBC EA REVIEW TEAM IMBC EA REVIEW 2

3 Experience Our Expertise Share Registrars Services a) C&R Share Registrars i. Share Registrars Services Shareholder Services/ Investor Relations Registration of Share Transfers & Transmission Share Register Maintenance Administration of AGMs/EGM Processing & Distribution of Dividend Payment Unclaimed Dividends Management ESOP Management e-services delivery ii. Corporate Transaction Services IPO, Listing by way of Introduction & Private Placement Management & Processing Rights Issues Management & Processing Bond Issue Management & Processing Share Bonus Issue Management & Processing Share Split Management & Processing Scrip Dividend Management & Processing iii.bpo Services Data Entry Data Security Back Office Management Personalized Printing Electronic Payments Processing, Distribution & Reconciliations Bulk Mail Packing, Sorting And Mailing 30 years experience from 1986 b) C&R Document Management Solutions Electronic Archiving Physical Archiving Secure Shredding & Destruction Services Consultation Services c) C&R Company Secretarial Services Company Secretarial Services Preparation & Filing of Statutory Returns Maintenance of Company Share Registers Advisory Services Kenya Office Head Office, 6th floor, Bruce House, Standard Street, Tel Pilot: (+254) Fax: (+254) Office GSM: (+254) / , for Share Registry & Company Secretarial: bd@candgroup.co.ke, for DMS :dms@candgroup.co.ke Uganda Office 4th Floor, DTB Centre, Kampala Road Tel Pilot: (+256 ) Office GSM: (+256) info@candgroup.co.ug 37

4 PART I: KEY MARKET INDICATORS Key Africa & Global Equity Indices Performance Equity index 1-Jan Feb Mar-17 % Ch. m/m % Ch. YTD NSE % -2.92% FTSE NSE Kenya % -0.33% DSEI (TZ) % 8.19% ALSIUG % 2.03% NGSEINDEX % -4.13% EGX % 4.58% JALSH (SA) % 0.25% FTSE % 2.02% S&P % 4.65% NSE all index (NASI) % -1.58% Key Africa & Global Currency Performance Key Events & Press East Africa Gold-backed asset trades KES 1.1 m worth of units on day one at NSE M-Akiba bond starts trading at the Nairobi bourse Treasury cuts 2017 growth forecast on credit squeeze World Bank pushes for PPP to curb homes deficit Kenya s oil revenue to go directly to Treasury Currency 1-Jan Feb Mar-17 % Ch. m/m % Ch. YTD KES / USD % -0.48% TZS/USD , % -2.56% UGX/USD , % 0.17% RWF/USD % -1.65% ETB/USD % -1.36% ZAR/USD % 3.01% NGN/USD % -0.48% EGP/USD % 0.97% GBP/USD % 2.42% EUR/USD % 2.80% Government Securities Interest Rates 91- Day T-bill 364- Day T-bill 2- Year Bond 5- year Bond 10- year bond Yield Yield Yield Coupon Yield Coupon Yield Rate Rate Country/Region Current Base Rate Previous Base Rate Central Bank of Kenya (Kenya) 10% 10% Bank of Uganda (Uganda) 11.00% 12% Bank of Tanzania (Tanzania) 8% 10% South African Reserve Bank (RSA) 7.00% 7.00% Central Bank of Nigeria (Nigeria) 14.00% 14.00% Central Bank of Egypt (Egypt) 14.75% 14.75% Bank of England (UK) 0.25% 0.25% Federal Reserve Bank (USA) 0.75%-1.00% 0.50%-0.75% European Central Bank (EU) 0.00% 0.00% Inflation and GDP growth Country / Region Coupon Rate Kenya 8.78% 10.93% 12.02% 14.04% 10.87% 13.33% 13.18% 13.45% Tanzania 7% 13.56% 17.61% 7.82% 12.66% 9.18% 18.55% 13.50% Uganda 10% 14% 15.25% 17% 15.58% 16.75% 16.26% 16.63% Projected GDP Growth Projected Inflation (%) Kenya 5.50% 6.47% 5.51% 5.02% Uganda 5.53% 5.87% 5.05% 5.00% Tanzania 7.24% 6.79% 5.00% 5.00% Nigeria 0.65% 1.57% 17.00% 16.00% South Africa 0.80% 1.60% 5.50% 5.50% Sub-Saharan Africa 2.85% 3.58% 10.00% 9.18% UK 1.05% 1.65% 2.50% 2.60% USA 2.20% 2.08% 2.56% 2.66% Euro Area 1.51% 1.59% 0.96% 1.23% I&MBC EA REVIEW 3

5 Month No. of deals PART III: DEAL STATISTICS (1/2) Total No.of deals in EastAfrica YTD M&A PE Bond Issue IPO Joint Venture Investment type 3 Private Placing Total number of deals per month in East Africa YTD April 5 March Feb 8 8 Jan Number of deals Every portfolio benefits from bonds; they provide a cushion when the stock market hits a rough patch. But avoiding stocks completely could mean your investment won't grow any faster than the rate of inflation. Suze Orman I&MBC EA REVIEW 4

6 PART III: DEAL STATISTICS (2/2) Deal values (USD mn) in East Africa YTD Private Placing IPO Bond Issue M&A Investment type No. of deals per sector YTD 17% 4% 8% 34% 4% 4% 8% 21% Financial services Energy FMCG Logistics Health Media Manufacturing Agriculture Real estate 1 Based on deal values disclosed to the public or as estimated by I&M Burbidge Capital 2 The top sectors which recorded the highest number of deals Source: I&M Burbidge Capital Research I&MBC EA REVIEW 5

7 PART IV: SELECTED DEALS Date Buyer Seller Investment size in USD Sector Investment type Country Synopsis 04 April Distell Centum Manufacturing PE Kenya Investment firm Centum is set to book a 2017 gain of more than 8,000 % from the sale of its minority stake in Kenya Wine Agencies Limited (Kwal) to South African brewer Distell. Centum, which has in recent years stepped up its divestiture from firms it does not control, on 4 April 2017 announced it is selling its % stake in Kwal in a deal that will see Distell s ownership rise to a majority %. 11 April Treasury KCB Financial Private Placing Kenya The Treasury acquired an additional 13.7 m 2017 Ministry 4.57 Servces shares in KCB Group in the lender s dividend deal last year where part of the pay-out was in the form of the company s own shares. The new shares, which have a market value of KES468.4 m, raised the Treasury s interest in the country s biggest bank by assets from the previous % to % and cemented its position as the largest single shareholder. The Treasury s enlarged stake is disclosed in the lender s latest annual report. 11 April QG Africa Tomé Energy Joint Venture SSA Quantum Global Africa Mezzanine LP, an 2017 Mezzanine International investment fund managed by QG LP Ltd Investments Africa Management Ltd. (QGIAM), has announced the establishment of a Power Development Company, QG Power Africa (QGPA) for the development of power assets across sub-saharan Africa. This development is in partnership with Tomé International Ltd. (Tomé) and Independent Power Corporation PLC (IPC). The joint venture arrangement of QGPA is based on an exceptional match of capabilities and expertise of the involved parties to conceive and develop power projects across the sub-saharan region. 21 April Equity Pro Credit Financial M&A SSA Equity Bank Group, has revealed in its 2017 Group Bank Servces latest Annual Report that it has acquired an additional 7 per cent in Pro Credit Bank Limited at a cost of KES 2.2 Billion (USD 21 Million). The transaction now takes Equity s shareholding in the Congo Business entity to 86 per cent, having acquired a controlling 79 per cent stake back in April 2017 Energy Access Ventures PayGo Energy, InspiraFarms & SunCulture Energy PE SSA Energy Access Ventures (EAV) announced that it has doubled its portfolio size with investments in PayGo Energy, InspiraFarms and SunCulture. PayGo Energy is a distribution service that provides an affordable supply of clean cooking fuel to homes in East Africa via pay-as-you-go technology. InspiraFarms provides certified modular off-grid cold storage and food processing facilities developed to solve the myriad social and economic problems associated with post-harvest loss. SunCulture designs and sells solar-powered irrigation kits, which make it simpler and cheaper for smallholder farmers to grow high quality fresh fruits and vegetables, thus making them more successful. I&MBC EA REVIEW 6

8 PART V: KEY EVENTS (1/2) Gold-backed asset trades KES 1.1 m worth of units on day one at NSE The Barclays NewGold exchange traded fund (ETF) debut on the bourse on 27 March The ETF is being issued by South African firm NewGold Issuer Limited, which said it will use the proceeds of the issue to buy gold bullion that will back the securities. The ETF s pricing is based on real time price of gold in international markets where one unit is pegged on the price of a hundredth of a troy ounce of gold and the prevailing shilling/dollar exchange rate. The ETF was first listed on the Johannesburg Stock Exchange in 2004, and has since then had secondary listings on other African markets including Botswana, Nigeria, Ghana, Mauritius and Namibia. I&MBC Analysis This issuance of the ETF is among the new class of products that the NSE has been planning to introduce as it looks to add to the traditional stocks and bonds trading for investors. The issue opens the door to local investors wishing to participate in the gold market, who have previously had to either trade in the commodity in its physical form or do so through offshore markets. It also provides a hedge against inflation, as the pricing takes into account fluctuations of exchange rate and the asset is valued in dollars. (Source: Business Daily, IMBC Research) M-Akiba bond starts trading at the Nairobi bourse Investors who bought the debut phone-based bond worth KES m started trading the government security at the NSE on 11 April Buying and selling of the 3-year bond at the bourse will be done exclusively via handsets, removing the need for a bank account. Investors can buy the bond for as little as KES 3,000, earning a tax-free interest of 10.0%. The KES m raised is the first tranche of the bond whose second portion worth KES 4.9 bn goes on sale in June I&MBC Analysis Data from the National Treasury showed that 102,632 people registered on M-Akiba mobile phone bond platform but only 5.5% actually invested in the inaugural digital paper. Additionally, individual investors bought the bond in different chunks ranging from KES 3,000 to KES 1.1 m, which implies that the sale was mainly dominated by big buyers and not the small mass market buyers it was targeting. The Treasury is banking on the inaugural digital paper to expand its revenue sources from the traditional pool of banks and high net-worth individuals as it prepares to fill its KES 500 bn budget deficit and retire old debts in the next financial year. (Source: Business Daily, I&MBC Research) Treasury cuts 2017 growth forecast on credit squeeze Kenya s economy is likely to expand by 5.9% in 2017, down from an initial forecast of 6.5 %, mainly because of drought and slowing private-sector credit growth. Treasury secretary Henry Rotich warned that the growth rate could dip as employers freeze jobs and pay rise to counter sluggish sales. Kenya has been suffering from severe drought and aid groups say 2.7 m Kenyans need food aid. In the month of March, the cost of food pushed inflation to a 57-month high of 10.3%, according to KNBS data. The government is investigating the effects of the controversial cap on interest rates, which bankers say have frozen smaller lenders out of the market as banks choose to invest in low-risk government bonds, according to the Treasury secretary. The credit squeeze means less money supply in the economy and sluggish demand for goods and services. I&MBC Analysis Following the passing of the interest capping law in September 2016, private sector growth dipped to 4.3% (-16.3% y/y) in December 2016, significantly below the Central Bank s credit growth target range of 12.0% %. A warning from the IMF that the cap on interest rates could slow down the Kenyan economy by up to 2.0% of projected forecasts has prompted the government to review the law. Despite subdued local demand, new export orders expanded for the 39th consecutive month in March, on the back of higher exports resulting from increased overseas demand and new export markets, according to Stanbic Bank data. (Source: Business Daily, I&MBC Research) 7 I&MBC EA REVIEW

9 PART V: KEY EVENTS (2/2) World Bank pushes for PPPto curb homes deficit The World Bank says Kenya should collaborate with real estate firms to raise access to low-income houses. In its latest report on housing, it says a Public-Private Partnership (PPP), in which the government provides land while the private sector builds the houses, could see prices fall drastically. The bank s lead financial sector specialist says the government should also support the housing sector by helping the private sector source for low-interest financing from social development financial institutions and providing basic infrastructure. To boost confidence in housing products on offer, the World Bank urged the government to ensure all deals between house buyers and developers were above board thereby averting incidents in which prospective house owners lose cash to shadowy housing companies. I&MBC Analysis According to the World Bank, a ten-fold rise in house prices since 2000 has blocked millions of potential buyers from the market, worsening Kenya s home ownership crisis with the cheapest homes in the capital of Nairobi currently priced at KES 4.0 m, up from KES 0.5 m in High prices have rendered more than 90.0% of Kenyans incapable of buying the cheapest houses and pushed more than 60.0% of those living in Nairobi and other towns into informal settlements. The government needs to build 2.0 m affordable city homes to meet a growing housing deficit and stem the growth of sprawling slums, home to 6 out of 10 urban households. (Source: NewTimes Rwanda, I&MBC Research) Kenya s oil revenue to go directly to Treasury Kenya s oil dollars from its pilot scheme, which starts in the next two months, will go directly to the Treasury accounts, according to government officials. This comes even as the Treasury plans to establish and operationalise a sovereign wealth fund. Starting June, Kenya is expected to join 44 other countries across the world as a net exporter of crude oil, with Tullow Oil initially expected to produce 2,000 barrels of crude oil per day for export, peaking at 80,000 barrels once a pipeline is up and running. The country is banking on a possible USD1.55 bn annual income from oil. Kenya s total oil reserves are estimated at 750 m barrels, commercially viable at the current price of USD a barrel. I&MBC Analysis Pending the operationalization of Kenya s Sovereign Wealth Fund, the funds expected from Kenya s Early Oil Pilot Scheme (EOPS) will go directly to the exchequer for disbursement by the Central Bank and the Treasury. The EOPS Agreement between the Tullow s Joint Venture and the Government of Kenya was signed on 14th March 2017 allowing all EOPS upstream contracts to be awarded. The first stage of the EOPS will be the evacuation of the stored crude oil, which was produced during extended well testing in 2015, to Mombasa by road. This will be followed by EOPS production of 2,000 bopd in the fourth quarter of The EOPS is expected provide important information which will assist in full field development planning. (Source: NewTimes Rwanda, I&MBC Research) 8 I&MBC EA REVIEW

10 PART VI: UPCOMING EVENTS/CONFERENCES Date Venue Theme 09 May 2017 Windsor Golf Hotel & Country The East Africa Trade & Commodity Finance Conference, organized by the Global Trade Club Review will take place on 9th May 2017 at the Windsor Golf Hotel & Country Club in Nairobi, Kenya. The conference will cover areas like Focus on the agricultural sector which forms a vital part of the Kenyan economy May June June 2017 Kenyatta International Convention Centre, Nairobi, Kenya Radisson Blu Hotel, Nairobi Upper Hill, Nairobi, Kenya Crowne Plaza Nairobi, Kenya Oil Gas Mine Africa Exhibition and Conference is a 3 day event being held from 9th to 11th May 2017 at the Kenyatta International Conference Centre (KICC) in Nairobi, Kenya. This event showcases products like automation, processing equipment & services, engineering, facilities, construction, oil & gas equipment, integrated oil & gas services and transportation, oilfield services, pipelines, construction, technology, maintenance and repairs, reservoir engineering, infrastructure support facilities and equipment, minerals, mining machinery and equipment, vehicles and earth mobbing equipment and much more etc. in the Industrial Products, Petroleum, Oil & Gas, Plant, Machinery & Equipment industries. The Sustainable Properties Africa Conference & Exhibition, organized by the Bench Events will take place from 13th June to 14th June 2017 at the Radisson Blu Hotel, Nairobi Upper Hill in Nairobi, Kenya. The conference will cover areas like Energy,Water and Waste,Materials and Design. The Africa Insurance & Reinsurance Conference, organized by the Aidem Business Solutions will take place from June 2017 at the Crowne Plaza Nairobi in Nairobi, Kenya. The conference will cover areas like competitive advantage, benchmark your strategies, deliver a better customer experience, and so much more. I&MBC EA REVIEW 9

11 CONTACT US: HEAD OFFICE: 4 th Floor, Nivina Towers, Westlands Road, Nairobi, Kenya Tel: +254 (0) (0) UGANDA OFFICE: Suite FC6 1st Floor, Crown House 4a Kampala Road, P.O. BOX 3331Kampala, Uganda. TEL: (0) CONTACTS OF THE EDITORIAL TEAM Edward Burbidge, CFA Chief Executive Officer edward.burbidge@burbidgecapital.com James Njugunah Associate James.njugunah@burbidgecapital.com Lello Halake Senior Analyst - Corporate Finance lello.halake@burbidgecapital.com Cynthia Gathaara Corporate Finance Analyst Cynthia.gathaara@burbidgecapital.com Anthony Kimani Corporate Finance Analyst Anthony.kimani@burbidgecapital.com I&M Burbidge Capital Limited is a corporate finance firm licensed by the Capital Markets Authority and a licensed Nominated Advisor by the Nairobi Securities Exchange creating long term advisory relationships & solutions across Eastern Africa. ADVISORY SERVICES: Originating and structuring Equity and Debt capital raising, IPOs, M & A transactions, Strategic Options advisory, PE advisory and Independent Research services. I&MBC I&MBC EA REVIEW EA REVIEW 11 NAIROBI KAMPALA DAR ES SALAAM ADDISS ABABA KIGALI LONDON

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