Sell TransCentury, buy Fahari I-Reit for long

Tuesday February 9 2016

NSE Indices: The NSE blue-chip index last week closed at 3,833.07 points. This was a gain of 59 points from last week’s closing mark of 3,773.17 points.

The NSE All Share Index ended the week at 141.38 points while the NSE 25 Share Index closed the first week of February at 4,051.90 points.

TransCentury: Investors should keep off this stock or sell. With a cloud of fog reigning over TransCentury’s financial position, investors looking to make an entry stand more to lose than gain, while those still holding on may have to endure a long-term hold without any tangible benefits.

“With the conversion price standing at Sh46.50 versus the market price of Sh7, an investor is likely to not opt to convert this debt into equity and receive the principal and the interest,” says Ms Elizabeth Ndung’u, a research analyst at Genghis Capital Ltd. She adds that if an investor were to opt for a conversion, the interest would be 6 per cent compounded over a five-year period.

“This would equate to about 32 per cent, which would see TransCentury spend approximately Sh1.8 billion in its profit and loss account as finance costs for the bond,” she says.

TransCentury is expecting to make a full year loss after it issued a profit warning for a second year in a row after posting a Sh676.1 million half year loss. This loss though was an improvement from the Sh1.6 billion loss it made the previous year.

In the same vein, it is facing the possibility of defaulting on its Sh8.1 billion convertible Eurobond that it floated in 2011 and which is due on March 25 this year. In late 2015, TransCentury doubled its shares from 600 million to 1.2 billion shares with an anticipated rights issue that was meant to aid in clearing the Eurobond debt.

In mid-January, TransCentury’s chief executive officer Dr. Gachao Kiuna resigned from the company and was immediately replaced by the firm’s head of corporate finance Mr Ng’ang’a Njiinu in an acting capacity.


When the firm debuted at the NSE in 2011, it was valued at Sh13.35 billion from 267 million listed shares at Sh50 per piece. After listing, the stock rose to its all-time high of Sh57 per share before embarking on a downward trend that is now threatening to turn it into a penny stock.

Currently, the investment firm has shed over 80 per cent of its value since 2011. Alarmingly, by May last year, TransCentury’s founding investors had lost a combined Sh5 billion in paper wealth since the listing of the firm on the local bourse.

On Friday, TransCentury closed the market at Sh7.05 per share. This was a drop of 2.13 per cent from Sh7.20 per share with 1,200 traded shares. The counter had opened the day 2.78 per cent in the red at Sh7 per share. Over the past one year, TransCentury has touched a low of Sh6.60 per share from a high of Sh19.75 per share.

Stanlib I-Reit: Last week, Stanlib announced that it had finalised its first investment in Donholm Greenspan Mall property. This acquisition is estimated to have cost Sh2 billion of the Sh3.6 billion that was raised during the Reit’s IPO.

This came as regulatory filings revealed that the National Treasury had bought 6.5 million shares worth Sh262 million in the Fahari I-Reit, which was Kenya’s first issue.

This was equal to a 7.2 per cent stake acquisition by the Treasury. Subsequently, according to Ms. Ndung’u, investor should consider a long-term buy for Stanlib’s Fahari I-Reit.

“The Fahari I-Reit investors will benefit from a stable income of which 80 per cent of the profits after taxes and excluding unrealised fair value gains will be paid out as dividends,” she says.

On Friday last week, Stanblib I-Reit closed at Sh20 per share from 6,300 traded units. Incidentally, this was its debut price on the NSE and was a loss of 1.23 per cent from Thursday’s price of Sh20.25. Since listing on the NSE, the I-Reit has peaked at Sh23.75 per share and sunk to a low of Sh19 per share.