Online Followings

It’s that months again. December is always another excuse to over spend and be lazy before we discover the financial dents made, rush to make new resolutions or not and go back to our usually misery in the new year. I’ve been away for a while now and I intend to end this hiatus soon.

When I notified my online acquaintances of my planned absence, someone told me that it will be suicidal to my online followings. That once I stop posting regularly on a blog I risks losing most of my readers/followers. The concept is a bit complicated and even some big online media houses are grappling with it.

Basically, it takes a while and a bit of effort to develop an ample readership on ones blog. Generally a blogger has to do some linking here and there, post comments on other related blogs; tweet new posts links, among several other things. Above all your posts need also to be palatable to your target audience eyes (I admit business like posts tend to attract very few readers around here)

Making any money from this kind of readers is like milking an elephant. Google adsense or any other affiliate marketing won’t help. Even online media sites are grappling with this. The economic slump hasn’t made it easy for them both online and hard copy. With the exception of the Wall Street Journal, which seem to have succeeded in get very loyal online subscribers who are willing to pay-up.

Back to my losing readers, I don’t think it’s an issue for a blogger. Every blogger’s dream is to top charts with readership and definitely becoming an authority in whatever field they write on. However we have very little control over these parameters. Over time blogs tend to gain and lose followings, but it never translate to much. Blogging to many is a pass time hobby like any other.

While I Was Away – Quick Hits

While I was away, on a rather ‘short-lived’ sabbatical, several things took place that I would have wish to discuss here, but couldn’t or wouldn’t. Here are some quick links to Kenyan business headlines I found interesting:

- Kenya clans in the Great Rift started 'rearm for 2012 poll'

- KenGen’s PIBO result unraveled Kenya’s inequality

- Safaricom barred retail investors from bond offer

- Jinchuan terminated purchase of Tiomin Kenya - Kwale and contributed largely to a massive US$ 31.5 million loss in Tionim’s Q3 results

- NSE’s automated system collapsed soon after launch [we never learn]

Hope I would get time to do a full post soon. i leave you with a slide show of some pictures i took from an Art stand at the Kenyatta University Culture week event.

Sabbatical

As I start a new year in my life, I’ve decided to take a break from blogging (this includes interacting on debate-type forums with my good friends at twitter.com and elsewhere). Several posts, tweets and discussions down the line; I have discovered something about myself that I think others knew before I caught on: I can get fairly absorbed in this cyber-interaction thing. There are others things, for the time being, I want to spend more time with. Life can get quite hectic sometime with work, family and its general happenings.

I will still be commenting and reading yours (you know yourselves). When I come back from this sabbatical, I’ll have a new perspective and ready to get what is trapped in my heart and head out.

I can still be found on email at kainvestor@gmail.com. I hope to continue nurturing friendships already made via these mediums.

KenGen PIBO: Greenshoe Option Kicks In

As highly anticipated, the KenGen PIBO has likely been oversubscribed and the green shoe option will be put to effect.

Greenshoe Option:
“A provision contained in an underwriting agreement that gives the underwriter the right to sell investors more shares than originally planned by the issuer. This would normally be done if the demand for a security issue proves higher than expected. Legally referred to as an over-allotment option” – Investopedia.com

Upon oversubscription of the initial Ksh.15 billion, the Company has an option of increasing the offer amount to up to Ksh.25 billion (an additional ksh.10 billion). The main contributors to this oversubscription are institutional investors, but we’ll be getting the final results of the sale p on October 30th. The bonds will be listed on the NSE on November 9th.

The offer closes on Tuesday 29th next week and despite doing a summary of the offer information memorandum the first day the offer opened; I’ve managed to be caught in the last minute rush. Like a typical Kenyan “naomba serikali ituongezee siku kadha” (I’m [shamelessly] asking the government to add a few more days to the offer!) #FAIL

KenGen PIBO: Information Memo Highlights

KenGen’s 10 years public infrastructure bond offer (http://www.kengen.co.ke/PIBO/) opened yesterday with little enthusiasm from local investors [blame it on the short publicity period]. I had previously posted the main features of the bond offer here. The offer's information memorandum is out, both in hard-copy and soft [courtesy of ribacapital.com]. I skimmed through it and came up with the following highlights:

• It is a fixed rate long term unsecured public infrastructure bond offer [meaning?]
• NSE/CDSC is expected to operationalise electronic CSD accounts for bonds to enable investor immobilize their bond certificates [despite the fact that it will increase bond liquidity, I don’t think it’s a good idea. Look at the mess the equities market is in due to this]
• KenGen has 14 directors (3 female, 11male)
• East African citizens from Uganda, Tanzania, Rwanda and Burundi are considered as local investors.
• Proceeds of this infrastructure bond offer will be used to increase KenGen’s generation capacity by 528.6 Megawatts in the next four years.
• KenGen has approval to put a 600Megawatts coal plant in Mombasa in partnership with a joint venture partner [with KenGen owning between 40% and 49%, while the Venture partner owns the rest]
• KenGen produces (1,008.8 MW) 75% of Kenya’s electricity requirement. The rest is produced by: Iberafrica – 56 MW expected to increase to 108 MW [thermal]; OrPower4 – 48 MW [geothermal]; Tsavo – 74 MW [thermal]; Mumias Sugar Co. Ltd. – 2 MW expected to increase to 25 MW [cogeneration]
• Rabai thermal power plant [diesel powered], a new station still under construction, will produce an additional 90 MW once completed.
• KPLC monopoly as a distributor is set to be curtailed once the newly commissioned KETRACO (Kenya Transmission Co. Ltd) develops a new national transmission network [at least for the bulk consumers]
• Shareholding: GoK has the majority shareholding at 70%, while of the total 216,728 shareholders more than 63% hold less than 1,000 shares [42% with less than 500 shares]
• It’s assumed that KenGen will maintain a 60:40 debt/equity ratio even after the bonds are issued. However the bond amount would not be enough to finance the expected projects and the company will have to raise Ksh10.2 billion [US$135 million] through a rights issue, plus repatriate all its profits in the next four years towards this projects so has to remain within the 60:40 capital structure. [Dividends will then be a thing of the past!]

• Risks to note:
• Construction risk arising from delayed completion and commissioning, escalating cost of construction
• liquidity risk and default risk in respect of power purchase agreements with KPLC
• adverse weather conditions [like drought which can be mitigated by diversification of generation sources]
• change in regulations and fiscal policy in tax rates and levies by GoK [n it's still the biggest shareholder]
• KenGen’s ability to roll out capacity expansion projects is held back by KLPC’s ability to transmit the same to the consumers
• Lack of a well developed bonds market will affect investor easiness of exit

• Joint applications to meet the minimum investment amount of ksh.100,000 is allowed, but not encouraged.
• Applicants who wish to credit their bond allocation into their CDS accounts’ will have to pay an extra 30 bob [to cater for the cost of postage for a CDS account statement?]
• The placing agents will receive a 0.25% commission of the offer price of the bond allocated per applicant. KenGen’s expenses for the bond offer is estimated at about Ksh.229 million
• The memo assumes Kenya has a population of 37.2 million people [why was I counted?]
• Kenya has tax treaties with Uganda and Tanzania that are not yet in force
• There are other 73 state bonds, 8 corporate bonds issuers with 11 bonds/notes, with a total market capitalization of Ksh.326 billion as at June 2009

• Auditors’ statements to note:
• Despite PWC giving a clean bill to the financial statements of KenGen, they note that after change of accounting policy by the directors in February 2009, the company failed to comply with IAS 21 that would have seen KenGen record a Ksh.5.4 billion loss in their interim reporting ended 31/12/08. This being as a result of unrealized exchange losses and thus gives a qualified opinion on the said results.
• Its likely that a Ksh.826 deficit with KPLC will not be honored and KenGen may have to settle it
• KenGen further failed to comply with IAS 19 that require they conduct an actuarial valuation. The last valuation done by the company is dated back in 2006 and may not indicate the true picture of the company’s assets value

• The power purchase deal between KLPC and KenGen doesn’t look good to me. KPLC has constantly arm-twisted KenGen into accepting lower prices. So much for a monopoly distributor.

My Opinion: at 12.5% the interest rate is quite good and hoping everything goes as expected, it’s a sure BUY for me. However I’m concerned about the numerous assumptions they’ve taken into consideration and the recent Auditors’ qualified opinion. Looking at KenGen’s FY08 results its clear that without the deferred tax gains their profits where dropping. And with the change in accounting policy this year and non-compliance with relevant reporting standards makes me wonder if this deal is too sweet to be true. Then again this is my own opinion and should not be taken to be an investment recommendation. Please consult your financial advisor before you make your investment decision.