No jewels for investors in Gems market

Former Home Africa chairman Lee Karuri (right) during the bell ringing ceremony which marked the company’s debut on the NSE Growth Enterprise Market Segment GEMS) on July 15, 2013. Home Afrika, Atlas and Kurwitu Ventures are loss-making and have not generated returns to shareholders. PHOTO | FILE

What you need to know:

FIRMS ON GEMS

Home Afrika
Listing date: July 14, 2013
Listing price: Sh12.00
NSE listing fees: Sh145,892
Nominated Advisor: NIC Capital
Reporting Accountants: PKF Kenya
Legal Advisers: Mboya Wangong’u & Waiyaki Advocates

Flame Tree Group Holdings
Listing date: November 6, 2014
Listing price: Sh8.00
NSE listing fees: Sh250,000
Nominated Advisor: Burbidge Capital
Reporting Accountants: PKF Kenya
Legal Advisers: Coulson Harney Advocates

Kurwitu Ventures
Listing date: November 13, 2014
Listing price: Sh1,250
NSE listing fees: Sh32,000
Nominated Advisor: Standard and Mutual Limited
Reporting Accountants: Obwanga and Associates
Legal Advisers: Mahmoud, & Gitau Advocates

Atlas Development & Support Services
Listing date: December 17, 2014
Listing price: Sh11.50
NSE listing fees: Sh250,000
Nominated Advisor: Burbidge Capital
Reporting Accountants: Baker Tilly Merali
Legal Advisors: Anjarwalla & Khanna

Nairobi Business Ventures
Listing date: June 21, 2016
Listing price: Sh12
NSE listing fees: Sh50,000
Nominated Advisor: CBA Capital
Reporting Accountants: Swaly & Company
Legal Advisers: Maina and Maina Company Advocates

Mr Alloys Chami rues the day snapped up Home Afrika shares when the real estate firm listed on the Nairobi
bourse in July 2013.

He says he was seeking to cash in on the firm’s promised real estate boom, backed by a pipeline of projects such as golf resort communities, and mixed-use developments featuring residential, office complexes and malls.

Not wanting to miss a piece of the oil and gas industry, the retail investor also bought into Atlas Development & Support Services upon listing in December 2014, another investment decision he regrets.

Mr Chami’s shareholding at Home Afrika has been decimated and the stock is now trading at Sh1.15 apiece from the listing price of Sh12. Home Afrika hasn’t paid a dividend since it went public.

At Atlas, the worth of his holdings have also tumbled as the shares are now valued at Sh1.05, a massive drop from the listing price of Sh11.50 a share.

“I think what they offered us was not the truth, I feel cheated,” said Mr Chami in an interview with Smart Company.

This has now shifted focus to the Growth and Enterprise Market Segment (GEMS), reserved for small and mid-sized businesses, on whether it has offered value for money.

Three of the five firms on this segment, namely Home Afrika, Atlas and Kurwitu Ventures, are loss-making and have not generated returns to shareholders.

Flame Tree Group Holdings and Nairobi Business Ventures, the two firms which are posting profits.

Mr Ndindi Nyoro, chief executive at stock agent Investax Capital, said most of his clients had burnt their fingers on the SMEs’ trading platform at the Nairobi Securities Exchange.

“Most of my clients have lost money in Gems. There was a mismatch between what we were told and the reality,” Mr Nyoro said.

He singled out Home Afrika and Atlas as the two counters that have seen investors bleed.

The stock analyst said Atlas’ move to divest from its core business of offering logistics to oil and gas sector, to pump money into a Nigeria-based gaming company, sent the wrong message to local investors.

“Just like the share, they seem to be in the business of gambling,” said Mr Nyoro.

Financial consultants who steered the listings, and the NSE, the primary regulator of Gems platform, are now under the spotlight for shepherding deals that have seen investors book millions of shillings in paper losses.

"Investors duped"

Fears that Kenyan investors were duped into these offerings are further compounded by a confession by Jamii Bora Bank chief executive Sam Kimani, who is also the NSE chairman, who said the lender was milsed into buying Uchumi’s 2014 rights issue.

“The information memorandum was a work of fiction, it did not reflect what we found there,” Mr Kimani told the lender’s shareholders in March.

NSE chief executive Geoffrey Odundo said the bourse should not be held responsible for the poor performance of Gems platform as companies are approved to list if they meet the set eligibility criteria.

“The criterion for approving a listing is different from that of making recommendations for investment decisions as this is a decision that is made by investors in consideration of research information that may be provided by the relevant market intermediary,” said Mr Odundo in response to our questions.

He added that the NSE, which earned Sh727,892 in listing fees from this segment “does not harbour any reservations” for listing the mid-sized firms.

Home Afrika said it remained bullish about Kenya’s housing market but called on investors to take a long-term view of the firm as the cycle of property development.

For example, the flagship Migaa project will take between seven and 10 years to be fully implemented, said managing director Dan Awendo.

“All of these investments and the projects there-on are long-term and, therefore, could not be expected to generate quarter on quarter or any form of short-term profitability until they are fully developed and sold,” said Mr Awendo in an interview.

Home Afrika made a net loss of Sh390.1 million in 2015 from a net profit of Sh8.96 million in the previous year, and has slipped into negative net asset position.

Sharia-compliant investment firm Kurwitu halved its net loss in the half-year ended June to Sh7.1 million, from Sh15.2 million a year earlier.

The company, whose primary asset is a land in Lamu valued at Sh102 million, is yet to announce any investment deal.

“It is entirely possible that Kurwitu may fail. It is not all ventures that succeed. The important thing is to valiantly put one’s best effort and have courage,” said Mr Abdirahman Abdillahi, the executive director at Kurwitu.

In its listing statement, Kurwitu projected it would have closed six deals, each valued at Sh444 million by June 2016 and a further nine deals of a similar value each in the current fiscal year ending June 2017.

“Our listing memorandum was brutally honest about our expectations of success,” said Mr Abdillahi.

“I reiterate that we are not in the business of fooling the unwary and taking advantage of the uninformed.”

Standard and Mutual Ltd, which earned Sh1.5 million in fees as the nominated adviser, said the listing document clearly outlined the hazards associated with Kurwitu such as “origination risks and funding risks.”

“Please take particular note of the forecasts section as well as the highly emphasised section on risks,” said Mr Chris Maranga, director in charge of corporate finance at Standard and Mutual.

Oil and gas-focused Atlas blamed the tumbling of crude prices, termination of contracts with Tullow Oil for its poor performance.

“Atlas set out to capitalise on the burgeoning oil industry in East Africa, however with the backdrop of an unprecedented drop in the oil price, which significantly impacted the operations,” said Mr Carl Esprey, the firm’s chief executive.

A move to venture into Ethiopia to set up a bottle manufacturing plant was frustrated by a Sh240 million ($2.4 million) tax dispute with Addis Ababa.

In August, the loss-making firm made a Sh30 million bet on a Nigeria-based gaming firm, BonanzaWin. The London-based Atlas declined to confirm to Smart Company if it had disclosed to Kenya’s Capital Markets Authority that Mr Esprey had once faced allegations related to insider trading while at investment manager GLG.

“To be clear, no formal charges were ever made against him (Carl Esprey) and following a full investigation he was fully exonerated from any wrongdoing,” Atlas said in response to our queries.

Burbidge Capital, the transaction adviser for Atlas’ cross-listing at the Nairobi bourse, said the listing prospectus had warned investors of the firm’s risks, some of which came to pass.

“It is extremely unfortunate that a number of these risks materialised and, as a result, the share price has performed very poorly,” said Mr Edward Burbidge, chief executive at the consultancy now renamed I&M Burbidge Capital.

Investors are now keenly watching Nairobi Business Ventures, the operator of K-Shoe chain of footwear stores, to see if they deliver on their promises such as adding eight to 12 extra retail outlets, establish a leather accessories product line, and set up a leather products manufacturing plant.

The firm projected to double net profit to Sh9.8 million for fiscal year to March 2017, it said in its listing statement.

Meanwhile, Flame Tree has consistently been profitable and has been on an acquisition spree to grow earnings.

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