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<DIV><FONT face=Verdana size=2>Will this include the financing of the onward
capacity which needs to be bought?</FONT></DIV>
<DIV><FONT face=Verdana size=2></FONT> </DIV>
<DIV><FONT face=Verdana size=2>Kai</FONT></DIV>
<BLOCKQUOTE
style="PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
<DIV style="FONT: 10pt arial">----- Original Message ----- </DIV>
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black"><B>From:</B>
<A title=billkagai@gmail.com href="mailto:billkagai@gmail.com">Bill Kagai</A>
</DIV>
<DIV style="FONT: 10pt arial"><B>To:</B> <A title=kai.wulff@kdn.co.ke
href="mailto:kai.wulff@kdn.co.ke">kai.wulff@kdn.co.ke</A> </DIV>
<DIV style="FONT: 10pt arial"><B>Sent:</B> Wednesday, January 31, 2007
10:36</DIV>
<DIV style="FONT: 10pt arial"><B>Subject:</B> Re: [Kictanet] Day 8 of 10 : -
Projected Impact of OFC on theStakeholders</DIV>
<DIV><BR></DIV><BR>
<DIV><SPAN class=gmail_quote>On 1/31/07, <B class=gmail_sendername>John
Walubengo</B> <<A href="mailto:jwalu@yahoo.com">jwalu@yahoo.com</A>>
wrote:</SPAN>
<BLOCKQUOTE class=gmail_quote
style="PADDING-LEFT: 1ex; MARGIN: 0px 0px 0px 0.8ex; BORDER-LEFT: #ccc 1px solid">Apart
from IPO<BR>recommendation from Kai and Bill, the financing
models<BR>(Equity, Debt, etc) has not quite come through and I hope
<BR>someone could make comment on that within the remaining<BR>three days
</BLOCKQUOTE>
<DIV> </DIV>
<DIV>This might be useful.</DIV>
<DIV> </DIV>
<DIV>[Summary of TEAMS financing discussion on <A
href="http://www.stock-detective.co.ke">www.stock-detective.co.ke</A>]</DIV>
<DIV>
<P>At a recent seminar hosted by the Nairobi Stock Exchange, options
for<BR>infrastructure financing through the capital markets
were<BR>comprehensively discussed by various financial experts.</P>
<P>It is worthwhile to consider various financing options for the
East<BR>African Marine System or Teams project, a fiber optic line
linking<BR>Mombasa to Fujaira, in the context of various options
for<BR>infrastructure financing through the capital markets discussed at the
<BR>seminar.</P>
<P>A strong case was put forward for funding for infrastructure projects<BR>in
Kenya through the NSE. Among the experts who made a pitch for the<BR>idea were
NSE chairman Jimnah Mbaru, NSE CEO Chris Mwebesa, Suntra<BR>Investment Bank
chairman James Murigu, and IFC Operations Officer for <BR>Financial Markets,
Ndiritu Muriithi.</P>
<P>Infrastructure financing through the capital markets is still in
its<BR>infancy stages in Kenya. Yet there is a huge opportunity for
companies<BR>and government agencies to raise money cheaply to build roads
and<BR>power dams through bonds and shares at the Nairobi Stock Exchange
<BR>given that the current government development budget stands at
around<BR>Ksh. 70 billion.</P>
<P>The cost of completing the Machakos-Limuru dual carriage section of<BR>the
Mombasa-Busia highway alone is estimated to cost Ksh. 108 billion.<BR>This
means that the government has to find alternative sources of<BR>funding (other
than donor funding) to meet the massive shortfall in <BR>funding for
infrastructure projects.</P>
<P>The government has indicated that it will consider raising money<BR>through
an IPO to finance the Teams project. It recently signed an MOU<BR>with
Etisalat of Dubai to implement the Ksh. 5.7 billion project.</P>
<P>The government will hold a 40 per cent stake in the project, Etisalat<BR>20
per cent and the remaining 40 per cent will be offered to investors<BR>in the
East African region. The government has set an ambitious date<BR>for the
completion of the project by November next year.</P>
<P>If the government proceeds with the IPO as indicated, the project
is<BR>certain to generate considerable interest among investors given
the<BR>potentially high returns and profits from the link once activated.</P>
<P>But the question still begs an answer: why has infrastructure<BR>financing
through the capital markets been slow to develop in Kenya<BR>even with the
recent expansion of the stock market?</P>
<P>In other words, why haven't institutions like Kenya Airports<BR>Authority,
Kenya Pipeline, National Housing Corporation, to mention<BR>just a few, been
issuing to the public?</P>
<P>Experts cite bureaucracy and lack of concise policy as the
main<BR>bottlenecks to infrastructure financing through the domestic
capital<BR>market.</P>
<P>Mr. Muriithi is of the view that although the demand for<BR>infrastructure
financing is huge, policy questions on issues like the<BR>role of the capital
market in the process are not fully settled.</P>
<P>He added that discussions are still on-going and that technical
issues<BR>such as the financing structure, type of instruments and so on,
were<BR>yet to be refined.</P>
<P>He further noted that state owned enterprise have to obtain
approval<BR>from Treasury to borrow money from the capital. Where such
approval is<BR>not forthcoming especially considering red-tape and other
internal<BR>bottlenecks, the opportunity to source funds cheaply from the
<BR>investing public is squandered.</P>
<P>Mr. Mbaru gave the example of East African Portland Cement which<BR>wanted
to raise Ksh 2 billion through the capital markets to extend<BR>its line to
Western Kenya and Uganda but shelved the plan after it<BR>failed to get
Treasury approval. </P>
<P>Mr. Murigu on his part argued that many SOEs went shopping abroad
for<BR>financing while they could raise funds for infrastructure
projects<BR>locally and at a cheaper cost.</P>
<P>If the government is to successfully push through an IPO by
mid-2007,<BR>Treasury approval will then have to come fast. Otherwise, the
project<BR>could end up in the bog of red-tape as Treasury mandarins
dillydally<BR>over approval.</P>
<P>In seeking to raise financing for the project through the
capital<BR>market, the government has a variety of options to consider.
And<BR>critical here will be the manner in which the government
structures<BR>the deal for investors. </P>
<P>Mr. Mwebesa said of the market's ability to absorb<BR>infrastructure-backed
instruments, that "if properly conceptualized<BR>and structured with detailed
information on the specific<BR>infrastructure project, the capital markets
will absorb the same". </P>
<P>If the government chooses the IPO way, then it will have to create
a<BR>special purpose vehicle whose shares it will then offer to the
public.</P>
<P>According to Mr. Mwebesa once such government-driven SPVs are listed<BR>in
the NSE, bonds for specific infrastructure projects can then be<BR>issued by
the SPV.</P>
<P>Kenyans can then invest in such bonds through various vehicles such as
<BR>pension funds, co-operative societies, insurance companies
and<BR>collective investment schemes (companies or trusts created to
mobilize<BR>investment funds from individuals). </P>
<P>Pension funds are a good way of mobilizing investment in<BR>infrastructure
bonds since the long-term financing needs of<BR>infrastructure projects match
the long-term liability profiles of<BR>pension/retirement benefit schemes.
</P>
<P>Infrastructure or asset-backed bonds can provide income for retirees
a<BR>few years down the line and are thus a viable investment option
for<BR>pension fund managers.</P>
<P>However, the law needs to be changed to facilitate such initiatives.<BR>In
addition certain policy and tax incentives are needed to boost<BR>private
sector participation.</P>
<P>Mr. Mbaru proposes that income derived by investors
from<BR>infrastructure-backed instruments be exempted from withholding tax
to<BR>make them more attractive. He also proposes a 2-3 year grace
period<BR>before interest payments to investors or alternatively the issue of
<BR>zero-coupon bonds (bonds issued at a discount to the price
and<BR>principal and interest paid lump-sum upon maturity) to finance
such<BR>deals.</P>
<P>There is no doubt that the Teams project can be financed through
the<BR>NSE. It is up to the government to speed up the creation of an SPV
as<BR>well as Treasury approval and also give investors an attractive
value<BR>proposition.</P>
<P>This is not to mention that public awareness of the viability of
the<BR>Teams project and its importance to Kenya's ICT sector and the
economy<BR>as a whole is very vital and a condition precedent to the success
of <BR>the project.</P>
<P>The government may also want to consider a cross-listing of the SPV<BR>once
put in motion now that integration of the three stock exchanges<BR>is well
under way.</P>
<P> </P></DIV></DIV>
<P>
<HR>
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