Why fat cats are in a rush to close deals with State

Friday October 31 2014

In the measures that are set to be presented to

In the measures that are set to be presented to Parliament for consideration, the powers to appoint board members will shift from Cabinet Secretaries to a new outfit to be known as the Government Investment Corporation (GIC) that will have sweeping powers to hire and fire parastatal chiefs. GRAPHICS | NATION MEDIA GROUP 

By JAINDI KISERO
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Officially, the government has more or less suspended all privatisation deals until after the proposed Government Investment Corporation (GIC) is created.

Indeed, the sale of government shares to third parties has been frozen in line with President Uhuru Kenyatta’s endorsement of recommendations of a task force on the reform of parastatals.

The recommendations, which propose far-reaching changes in the way parastatals are governed, are currently being implemented piecemeal.

Presidential advisers Abdikadir Mohammed, Isaac Awuondo, Wagacha Mbui, and head of public service Joseph Kinyua are steering the process.

What is intriguing is an upsurge in the number of requests for big deals. It is as if foreign investors — and, of course, their local allies — want to rush to close deals before the proposed GIC kicks in.

Indeed, with the legal framework for privatisation more or less suspended, the fiduciary controls that ordinarily operate to ensure that government transactions are fair and transparent are not in place.

The current circumstances mirror the period, during the privatisation of Telkom Kenya, when cronies of former President Moi took advantage to acquire shares for themselves, through the infamous Mobitelea Company.

Here are examples of the big deals being floated right now.

VETTEL GROUP APPLICATION

Two weeks ago, a group of Vietnamese businessmen, representing the telecommunications company, Viettel Group, romped into town and immediately lodged an application to the Treasury to be allowed to buy 10 per cent of the stake the government owns in the financially troubled Telkom Kenya.

Viettel Group, which is owned by the military in Hanoi, is among the top 15 telecommunications companies in the world.

As we all know, 70 per cent of Telkom Kenya is owned by France Telecom and 30 per cent by the government.

At privatisation, in 2007, the government owned 49 per cent, with the French having 51 per cent.

But government shares have over the years dwindled — diluted after the government failed to fork out money in successive cash calls, where shareholders were asked to contribute money in ratios commensurate with their stakes.

In their application, the Vietnamese informed the government that they were in the middle of concluding negotiations with France Telecom to buy the French company’s 70 per cent stake.

COLLAPSE

The application was framed as to suggest that if the government does not accept to sell 10 per cent to the Vietnamese, the negotiations with France Telecom may collapse.

And, the government is currently only too keen to terminate its partnership with France Telecom in Telkom Kenya.

After seven years, all the partnership has achieved is to turn what used to be one of the biggest parastatals and employers in the country into an institution permanently in dire financial straits; always seeking soft loans from its shareholders.

In their application, the Vietnamese have also sought the extension of all Telkom Kenya’s telecommunications licences for another term of 15 years.

Whether the government will want to accept the proposal by Viettel remains to be seen.

However, someone will have to explain why the deal has been allowed despite the official embargo on such transactions.

An even bigger challenge is likely to come from the Ministry of Information, Communications and Technology.

The signals are that the ministry and the Treasury are pushing in different directions over the fate of Telkom Kenya.

Sources say that the Cabinet Secretary, Dr Fred Matiang’i, is pushing for an inter-ministerial committee to manage France Telecom’s exit.

Apparently, one of his main concerns is the fate of the national fibre optic infrastructure (Nofbi), which Telkom Kenya manages on behalf of the government.

Dr Matiang’i’s concern is that the government needs to take a strategic decision on the fate Nofbi.

The second big deal on the table right now is an application by Qatar National Bank to buy shares in a State-owned commercial bank.

According to informed sources, both the Qatari minister for Finance, Mr Sheriff Al Emadi, and the CEO of the bank, Mr Ali Ahmed Kuwari, recently met top Treasury officials and expressed interest to buy government shares in one of the local banks.

BIG PLAYER

The Qataris have reportedly indicated that they want a bank with a regional presence in East Africa. The Qatar National Bank is a very big player. Only recently, it acquired an additional 11 per cent stake in a Nigerian bank, one of the largest Pan-African banks with a footprint in 36 countries across the continent.

Apparently, the Qataris are very keen to do a big deal with Kenya. It is understood that, during the recent floatation of Kenya’s maiden Eurobond, the Qatar National Bank placed a bid of $200 million (Sh17.8 billion).

It is also understood that the Qatari bank is interested in arranging a Sukuk (sovereign bond) for Kenya after the Eurobond.

Their supporters are making a strong case: if the government does not move quickly to facilitate a partnership between the Qataris and one of the State-owned banks, the Qataris will look elsewhere.

And, in the event that they choose to partner with a foreign bank operating here — Ecobank for example — such a foreign bank may pose serious threats to local banks in terms of capacity and competition for big deals.

Just which bank the Qataris target remains unclear. The government has interest in five commercial banks, namely, Kenya Commercial Bank, National Bank of Kenya, Consolidated Bank of Kenya, Kenya Posts and Savings Bank and the Development Bank of Kenya.

Indeed, the push by the Qataris to buy shares in a State-controlled bank is not without context.

In May, President Kenyatta directed the presidential task force on parastatal reforms to come up with a formula for consolidating State-owned commercial banks.

BANK MERGER

The President mandated the committee to put up a case and provide scientific justification for a merger of State-owned banks — and the creation of one large bank capable of doing big infrastructure transactions.

In July, the idea was taken to the Cabinet, which endorsed it by way of a formal resolution.

From what I gather, the team working on consolidation of the State-owned financial institutions has suggested three options.

It is not clear whether one the proposals is to sell one of the banks.

What is clear is that the work by the presidential task force is what has delayed plans by the National Bank of Kenya to float a rights issue.

Several months ago, an annual general meeting of the bank approved a rights issue.

But following the directive by President Kenyatta that State-owned banks be consolidated, plans for a rights issue have been put on the back burner.

Another deal that has come back on the table is the plan by the government to buy a stake in the subsidiary of currency printer- De La Rue of the United Kingdom.

The new push by the British firm comes even as Central Bank of Kenya is in the middle of procuring a tender for new generation currency notes.

In the past, De La Rue wanted a joint venture, whereby the government would commit to give it an exclusive currency printing contract.

But it would appear that the British have relaxed the condition; they are now ready to accept a deal that does not come with an exclusive contract.

Whichever way things go, we are headed to a period of mergers and acquisitions.