This week started and closed with two important stories; BK Group’s ‘Rights Offering’to current shareholders, Monday morning, and Thursday’s unveiling, in Kigali, of Africa’s first Electronic World Trade Platform (eWTP) by President Paul Kagame and Chinese billionaire, Jack Ma.
What eWTP means is that, a business can be based in Kigali and transact with a client in Botswana, all thanks to e-commerce technology. Nonetheless, it will also challenge the continent to invest in reliable delivery infrastructure to deliver goods to their destinations, flawlessly.
Meanwhile, BK Group’s Rights Offering and subsequent cross-listing approval on the Nairobi Stock Exchange (NSE) was another proud moment for the country’s private sector.
For Rwandan {and African} small, medium and large-scale enterprises facing general capital constraints and nearly suffocating on expensive debt, BK Group’s exploits on the bourse should be a model on alternative ways of raising new capital apart from the traditional ‘borrowing’.
BK Group’s story on the bourse started in August 2011 when, Rwanda’s most profitable business debuted on the budding Rwanda Stock Exchange and raised over US$60million in an Initial Public Offer (IPO);seven years later, shareholders haven’t been disappointed. Why?
The over US$60million raised seven years ago in the IPO, is currently equivalent to over US$100million; this means, the business, thanks to prudent management, has grown shareholders’ value by more than US$40million.
As a business, BK Group, whose current market valuation is shy of a billion dollars, has been declaring back to back profits since the IPO, despite pursuing an expansionist growth strategy which has seen the birth of three subsidiaries in BK Insurance, BK TecHouse and BK Capital.
The need to consolidate this growth accrued in yesteryears, and to modernize the Bank to fit into the current digital trend, explains why Dr. Diane Karusisi’s team is returning to the market, to, this time, raise over US$70million; to do so, several options were on table.
One of them was the botched deal to admit a Moroccan Bank as a new institutional shareholder, which dominated financial press for the concluding part of last year; with the Moroccan deal off the table, the lender announced it had decided to cross-list its stock. But where?
Johannesburg, New York, London and Nairobi were all options,butthe dice fell on the latter, a development that was confirmed on Tuesday this week, when Kenya’s Capital Markets Authority said in a press release it had granted its approval,opening the way for BK-Group’s entry on NSE.
The lender then tableda Rights Offer of 222.2million new sharesto existing shareholders, giving them an opportunity to increase their stake in the company by acquiring some of the new stock; (that is basically what the Rights Issue means, in the most untechnical form).
On Monday, BK Group’s current shareholders were asked; increase your current stake in the company by acquiring some of the new 222million shares;it is estimated that 60 percent of the Issued Rights were taken leaving 40 percent of them, unclaimed.
The 40 percent untaken rights (also known as ‘Rump Shares’) will now be placed with qualified institutional investors on the NSE, through a private placement, meaning that the opportunity to invest in BK Group businesses will not be available to the general public in Kenya.
Proceedings from the Rights Issue and Rump Shares are expected to collectively generate someKshs7billion (US$70 million) which will be available for BK Group management to spend on priority projects such as digitizing the bank, lend to more private borrowers and train staff.
It is a first for a Rwandan business to cross-list. This is not only ground breaking, it should also be inspirational to many local businesses that are currently struggling with liquidity problems; especially in the country’s hotel sector where many are on the brink of closing shop.
Rather than borrow money, BK has decided to place its business on the market, to attract investors that believe in its short, medium and long-term plans and profitability projections.
But for more local companies to emulate BK’s bourse exploits, they must invest in developing a robust corporate governance culture. It is the biggest elephant in the room for many local businesses with the potential to partake in the benefits capital markets.
From the country’s manufacturing, agro-processing, technology and hospitality industries, many businesses in our private sector have the potential to emulate BK Group’s example on the stock market; but the Rwanda Capital Market Authority has a major role to play in addressing the Achilles heel of weak corporate governance structures.
As a corporate leader, it is encouraging to note that Bank of Kigali is already inculcating this corporate governance culture in its corporate clients, by making it a demand in its credit score-card where businesses with solid corporate governance can borrow at friendlier terms.
Email: kenagutamba@gmail.com.
The views expressed in this article are of the author.