After chairing the shareholders’ Annual General Meeting on Friday in Kigali, which among others, voted to Cross-list the BK Group shares on Nairobi Stock Exchange, Board Chairman Marc Holtzman flew to New York, one of several capital markets that had been eyed as options. Kenneth Agutamba London and Johannesburg were the other options and the decision by Rwanda’s most profitable indigenous brand to opt for Nairobi’s capital market, the region’s oldest and most liquid, is a question CNBC Journalist Maggie Mutesi asked Chairman Holtzman, in a post-AGM interview. Perhaps the first question is, why BK Group is cross-listing at all? The answer lies in a 2016 board decision to appoint economist Dr. Diane Karusisi as Chief Executive Officer. For the last two years, the amiable Chief Executive, who rarely adds her Ph.D. credentials to her name, has been charting a new growth trajectory for the Bank. Dr. Karusisi, who has just been voted among 2018’s ‘Most Influential People of African Descent, is driving the business away from its hitherto traditional branch-centric growth path towards a more technology driven evolution, with focus on digital self-service channels. In previous press interviews, both Chairman Holtzman and Dr. Karusisi have indicated they see technology as the primary factor to sustain the Bank’s current market leadership position and remain relevant to the dynamic needs of customers for the next fifty years. The other growth stratagem is service diversification to non-banking services. In that regard, they ventured into the struggling insurance industry, creating a new subsidiary, BK General Insurance Ltd seeking to capitalize on BK’s brand equity for early success. But diversification means enlargement in size of business, systems and personnel which could happen at the cost of service efficiency. To prevent that, BK Tec House was created to power innovation from within and grow an agile system to drive efficiency. At an extra-ordinary General Meeting two months ago, BK Group PLC was officially created as the holding company for Bank of Kigali, BK General Insurance, BK TecHouse and the soon to be launched BK Capital…this explains why it’s BK Group PLC cross-listing on NSE and not BoK (Bank of Kigali) which was originally listed on the Rwanda Stock Exchange. These high-level developments and a new growth strategy for the business have short and medium-term cost implications which has to be met without risking wiping out the Group’s double-digit net profit for the past many years. In 2017, the Group posted a net profit of Rwf23.3bn, representing a growth of 12.5 percent from the previous year. From the AGM on Friday, we learned that the Group is looking to raise between US$60m and US$70million in new investor equity, to finance its business development agenda of which up to US$20million will be invested in enhancing digital banking channels. Is cross-listing the best way to go? Prior to Friday’s decision by the AGM, the Group had several options to raise the money including reports of negotiations to sell a stake of Rwanda’s pride, to a major Moroccan Bank. The collapse of those negotiations left only two major practical options on the table; arranging a secondary offering on the Rwanda Stock Exchange, and/or going for cross-listing on a bigger capital market; the choice for the latter, was always going to be the better of the two. First, because of the small but growing size of trade volumes on the Rwanda Stock Exchange whose average daily turn-over is barely more than $20,000 from a handful of deals; this couldn’t be relied on to raise that kind of equity. However, we understand investors on RSE will have some rights to participate in the new capital raise exercise, although focus will be on NSE. BK Group’s decision to list its shares on a foreign stock market is a brave ground-breaking development for Rwandan indigenous brands. In swimming terms, BK Group is leaping towards the deeper end of the pool and it will need everything going its way to avoid drowning in a sea of hundreds of profitable businesses seeking the attention of investors with very high return-expectations to their investment. At this point, one can answer Maggie Mutesi’s question of why Nairobi and not Johannesburg, London or even Wall Street. It was prudent of BK Group strategists to go for the smaller market of all options they were eying. The London Stock Exchange has almost 3000 companies listed on its bourse from over 60 countries, worldwide with thousands of deals worth billions of pounds, per day. New York’s Wall Street is a thick jungle with a market capitalization of all listed companies of about US$22trillion with average daily trade volumes of nearly US$ 200 billion and tight entry-rules. Launching shares of a new brand from a small African economy would require major international brand marketing, another cost all together. South Africa’s JSE, is also too big at the moment; so, Nairobi, with a daily trade volume of US$7million is a safe jump for BK Group. But the announcement on Friday is just the beginning of a long complex admission process before the BK Group Shares can finally get listed to compete for investors’ attention in Nairobi. It’s too early to judge how they will perform on a foreign bourse but the Rwanda brand, a history of solid profits, and a smart growth strategy should be factors to sway investor decision. The views expressed in this article are of the author.
