Taxing corruption
So Parliamentdealt another blow to the war on corruption by denying the Kenya Anti-Corruption Commission with the authority to investigate crimes that happened before it was formed (2003).

KACC as a body has aimed high (going after high profile figures - CEO's, Ministers) but mostly caught small fry leaving many Kenyans dissatisfied and who now consider the Commission to be a waste of money

But there’s another public institution - the Kenya Revenue Authority (KRA) that has achieved milestones in the war of corruption that KACC can only dream of. They have gone after untouchables, and some lawyers and MP’s have had their accounts and salaries frozen and asset seized. Now if only they could publicize this.


RICO in Kenya?

Why not legislate a tax on corruption, so if you’re named, you could lose 90% of property, leaving the accused with 10%? This is humane, but is as good as taking back everything - and bypassing court processes. Hitting Pattni with a tax bill would end 10 years of court injunction and delays and realize some significant gains in cash recovered.

Kenye Re slipping away
My strategy to bypass the IPO of Kenya Re not working as well as I thought. I placed orders at 13 shillings, only for the share to zoom. It's tempting to buy the shares at 17 or 18 and then the balance when they drop (if ever).

Unit Trust get more accessible
Market leader, Old Mutual, has lowered their minimum entry amount for unit trusts from Kshs.500,000 to Kshs. 200,000 (about $3,000). The offer runs till December 2007.

A to Zz

Applause: A clap and sympathy hug to the Kenya Re advisors, just as I am typing this at 3 a.m.; they also had to burn the midnight oil to update the prospectus and keep everything current. Still there are a few typos there and errors there

Auditors? : prospectus has statement from pricewaterhousecoopers, but not KPMG who are the Kenya Re auditors. And their statement was signed on May 28 (so was their audit/investigation reason for the delay)

Directors : or lack thereof. There’s no mention of the former managing director and finance director (how can former directors have 2.5X the loans that current directors have?). Instead there are mentions that no current directors had no unusual dealings with the company

Dividend: Kenya Re has been paying 1 shilling per share previously, but they project just Kshs. 0.25 for 2007 (out of an EPS of 0.89)

Earthquake: yesterday and evacuation of high rise buildings gave me a chance to stroll down and get a copy of the prospectus

Employees: are only 115, but they get a raw deal and have to buy a minimum of 2,000 shares like everyone else. Plus they were almost retrenched.

Fluff to ZZZZ: insurance is a boring (through lucrative) business. And a good chunk of the prospectus is taken up by narrative on the insurance sector, reinsurance sector, and how Kenya Re is supposed to make money. Association of Kenya Insures should get paid for how much of their content (a 2005 report) is used in the prospectus

Investments: Kshs. 3.3 billion in property, 615m in mortgages (doubled from 2005), 2.2 b in quoted shares (1/3 is KCB, ¼ is BAT, 1/5 is Barclays), 2.1 b in government securities

JKIA: Kenya Re has land along the passenger terminal road at the airport where it plans/hopes to put up a hotel for transit passengers.

Kenya National Assurance: an attempt to roll it (KNAC 2001) appears to be largely responsible for increase of the IPO cost by over 100 million to a budgeted Kshs. 289 million shillings. (Kengen budgeted 400m to raise 7.8 billion). Increased advertising costs (over many months) was offset by reduced printing costs

Mortgages: Kenya Re does not come to mind when you think of mortgage companies, but they do offer finance to home buyers esp. of their residential properties like Villa Franca and South C houses.

Projections: or lack thereof. I remember the Equity listing prospectus had several calculation methods to come up with the value their shares. This one is scant, but maybe they were thrown out of whack. The fact that the prospectus pegs the US$ at 73 shillings shows how many months ago it may have been synthesized.

A Qualified institutional investor: is financial institution or investment funds (expected to buy 100,000 shares minimum). So is this, like a US IPO, where an investment bank can parcel out shares to preferred select clients?

Real estate: a big investment of Kenya Re and almost half the portfolio. But not how upper hill properties are worth much less than before owing to increased availability

A Share certificate: is still an option for IPO investors here - some people still don't believe in CDS or trade their shares (buy and hold for dividends and AGM)

Valuation: see projections

Verdict: Kenya Re is Parastatal that lucky to be where it is today (it was almost sold a mere Kshs 400m song in 2002). It still operates under the notorious state corporations act and is not immune from politics and politicians, and was subject to machinations by former directors that seem to have delayed IPO. Still it’s a good Buy, but after the IPO, and when it lists on August 28.

The Kenya Re IPO opens in a week (July 18) and, it's a good time to assess the potential gains for a retail investor who subscribes.

While the prospectus is not yet out, all signs are that this will be a massive Kengen-like IPO, a quasi-monopoly with good growth prospects & profits that will stir the investment market. (I was wrong on most counts about the Eveready IPO)

But unlike Kengen, corporate and institutional investors have been allocated a good chunk of the cake, which they won't have to fight over with retail investors. So what's left for retail?

56,000 shareholders: According to reports, retail investors have been allocated a pool of 47%. That comes to 112.8 million shares of the 240 million shares offered. So 56,400 is the expected number of
retail investors [buying 2,000 shares at 9.50 each = Kshs 19,000 ($283)]. But Kengen drew many more than that and these were retail investors applying for several thousand shares (above the Kengen minimum of 5,950 shillings). And with so many pyramids schemes crashing down, those lucky to have got any cash out will hope to repeat the magic rise of Kengen on day one on listing. Plus commercial banks are still flush with cash and will probably offer more loans to buy shares.

oversubscribed = refund: budget a minimum two hours for queuing, filling out forms. IPO opens on July 18, closes on July 31. Then wait for about a month, till mid-August for results with the new shares expected to list towards month end (August 25 or September. Depending on the retail surge, one can expect between 1/3 and ½ of the shares applied for – meaning you pay Kshs. 19,000 for 2,000 shares but end
up with 700 shares worth Kshs. 6,650. This is followed by another hour visit to the stockbroker to trace the inevitable refund cheque in September.

Is it worth it? Probably, for Kenya Re. But why not sit out the Kenya Re IPO and wait for the shares to list at the end of August? The price will have changed, but if it's around 15 shillings, then you can buy as much as you want just by calling your
stockbroker and placing an order – by passing the headache of an IPO? 19,000 shillings will not earn much in any savings account, but at least the money is
available and within reach – as perhaps other share prices will drop within reach as investors cash out to buy into Kenya Re.

Still, it is insulting that some shareholders think of retail investors as emotional cattle who buy and sell on whims and don’t do any research and analysis. And
we don’t have the extra privilege granted to institutions who, this time, won’t have to pay any money until they get their share allocation confirmed.