The silent rise of Mauritian businesses in the Kenyan market

STRATEGIC INVESTORS: Firms from the tiny island nation have been quietly acquiring shares in various Kenyan companies in a bid to expand into East Africa and grow their market. And they have received a warm welcome


There is always that imminent clash of cultures and egos when South Africans come to invest in Kenyan companies.

And when the Nigerians land, they hog the limelight because of the billions of shillings they are worth and their show of affluence.

The Mauritians, though, are hardly heard when they are around.

Yet firms from the island nation are slowly deepening their presence in sectors such as finance and sugar in which they have built expertise on a regional and global scale for years.

The latest Mauritian firm trying to make an entry into the market is Axys Group. The financial services company is currently in talks to buy a controlling stake in Suntra Investment Bank.

Glory days

Suntra’s glory days are behind it and the investment bank has been losing market share to other players who are more aggressive and innovative.

In the last five years, Suntra has had to shrink its operations from three offices to just one main office.

It has lost key staff and the investment bank has had to cut costs to maintain profitability.

The investment bank has held talks with at least two other parties, but these have fallen through.

Now the entry of Axys Group presents another chance for Suntra to find its footing.

Those familiar with the talks say chances are high that the deal will be concluded by January next year.

Should the deal be concluded by then, it will be perfect timing for Axys Group because it will come at a time when the Nairobi Securities Exchange will be diversifying its product offerings.

The NSE plans to introduce a derivative market by the end of this year. Derivatives are financial instruments whose value is gotten from other securities like shares, bonds and currencies.

Derivatives are types of investments where the investor does not own the underlying asset (share, bond or currency), but he or she makes a bet on the direction of the price movement of the asset via an agreement with another party, according to a definition by Investopedia.

For example, Investor A can enter into a contract with Investor B, and bet the shares of a listed company will rise in the next year to Sh100 per share from its current Sh60. If the contract charges about Sh10 per share, then investor A will make money if the share price rises above Sh110.

Mauritius is one of the countries NSE officials have consulted on how to set up and run a derivatives market.

The island nation has one of the best developed derivative markets in the region called the Global Board of Trade (GBOT).

“Yes, we have spoken to them (GBOT) and we are exploring partnerships with other exchanges. But I cannot comment until everything is finalised,” said Donald Ouma the NSE’s head of market and product development.

But others are of a different opinion, arguing that Kenya might be better off joining hands with Mauritius and having their stocks, futures and other options trade at the GBOT, which attracts investors from across the globe.

“Mauritius has an entire infrastructure for commodity exchange and a derivative market. Why don’t we just link up into it. Our commodity exchange and derivative market is going to be too small,” said Vimal Shah, CEO Bidco Oil.

Shah also serves on the Mauritian International Advisory Board, which was set up last year to assist graduating the country from a middle-income developing country to a high-income developed one by the year 2020.

Mauritius calls this its Vision 2020 — the equivalent to Kenya’s Vision 2030.

However, Ouma says  that although trading in Mauritius might have been an option, there are risks associated with it.

“It does not make sense for us to do derivatives in another currency, yet we cannot do it in our own currency,” he said. “If you do it as a Kenyan investor in another currency, then you bear the foreign exchange risk.”

The Mauritian derivative market is in dollars; its currency is the rupee.

However, Shah gives the example of the limitation of the Kenyan capital markets because companies cannot raise enough capital to expand into new markets in east and central Africa.

Experience and perspective

“The NSE is very limited. When our companies cannot raise enough capital, they cannot scale up and go to the rest of the region,” he said.

Two NSE companies are headed for delisting this year. They have gone private after being bought up by companies with financial muscle.  

Access Kenya, an IT firm, is headed for out of the stock market after Dimension Data, based in South Africa, put up an offer to buy its shares. 

CMC Motors, a motor vehicle dealer, is also headed down the same road after a takeover offer from Dubai’s Al-Futtaim Group.

Shah — who was recommended by an international bank to join the Mauritian International Advisory Board — brings the experience and perspective of East Africa, a market Mauritian firms are looking to expand into.

East Africa is an important market for the Mauritians because they want to attract Kenyan companies to raise money from the island from a pool of global investors. Mauritius enjoys double taxation treaties with many other countries across the globe.

The Mauritian International Advisory Board has also tapped expertise from other parts of the world, including Europe, US, and other Africa countries, showing the extent the country is willing to go to create a global network.

One of the softer reasons the Mauritians might find success in their acquisition of Kenyan firms is because of their gentler ways compared to the South Africans whose dominating ways have often caused a culture clash with Kenyans.

“There is very little culture clash when Mauritian companies engage with their Kenyan firms,” said Shah. “The Mauritians are far more polite and they respect the laws of the land. They are like the Europeans and the English.”

By transferring some of their skills to Kenyans and rolling out new innovations, the Mauritians might also find it easier to gain acceptance in the local market.

“Mauritians are very hands on, and the best part is they are willing to transfer the skills to Kenyans.

“We already had people who were seconded by Omnicane who have transferred skills to Kenyans and returned home, thus they are not denying Kenyans opportunities,” said Harshil Kotecha, director of projects at Kwale International Sugar Company (Kiscol).

Kiscol is owned 75 per cent by the Pabari family, with the remaining 25 per cent held by Omnicane, a Mauritian sugar manufacturer.

The sugar miller will commission its plant in mid 2014, a time when the Kenya sugar industry will be facing stiff competition because the Common Market for Eastern and Southern Africa (Comesa) safeguards will be removed in March 2014. The government, however, is hoping to get an extension.

The end of the safeguards means duty free sugar would enter the Kenyan market.

This means cheaper sugar imports will flood the market, threatening the operations of many Kenyan sugar millers, whose products are more expensive than those from other global producers.

In July, a report was presented before the Parliamentary Committee on Agriculture, Livestock and Fisheries that showed the cost of producing a tonne of sugar was up 24 per cent from Sh55,500 last year to between  Sh60,600 to Sh69,600.

But Kiscol is betting on Omnicane’s experience to see it through. 

“While Kenya already has the skill set to match Mauritius in sugarcane growing, the edge Mauritius has is in experience, its many varieties and overall management of a sugar producing complex such as Kiscol’s where apart from sugar, power and ethanol shall be produced too,” said Kotecha.

Like other African nations seeking to invest in the country, the political uncertainty because of the International Criminal Court cases and threats of terrorism do not seem to deter investors from Mauritius.

“Omnicane is an African company and hence is not easily shaken by events such as Westgate as they have confidence in their Kenyan partners and Kenya as a whole,” Kotecha added.

With a population of about 1.3 million people, Mauritian firms might be looking for markets outside their country. The country is also in Comesa, so it enjoys preferential trade terms.

The entire population of Mauritius is slightly less than half of Nairobi’s population.

Mauritius, because it enjoys the double tax treaties with many countries, is also a good destination to raise capital.

Double tax treaties are signed between two countries who agree that their companies will operate in both countries but only be taxed in one country. This way, companies save millions that they would have otherwise paid in taxes.

Mauritius has moved to sign double tax treaties with at least 38 countries. These include India, Australia, China, Botswana, Uganda, Rwanda and Kenya.

The island nation’s next push is to sign several more treaties with other African countries, which are the next frontier of growth.

Eyeing opportunities

With many private equity firms from the developed world eyeing opportunities in Africa, they find it better to set up operations in Mauritius and then invest throughout the continent. By registering in Mauritius, such firms reduce their tax liability.

In September, Mauritius held one of the largest private equity conferences on the continent, bringing together about 300 investors with interests in investing in Africa to discuss the available opportunities.

Many Mauritius-based firms, although their majority owners are of a different nationalities, are able to compete aggressively because they can invest in capital intensive projects.

Liquid Telecom, a Mauritius-based firm bought an 80 per cent stake in Kenya Data Networks this year. The South African firm Altech sold a 60.8 per cent stake while businessman Naushad Merali sold a 19.2 per cent interest in KDN.

Liquid Telecom will be able to inject more capital in KDN to take on competitors like Wananchi Group and Access Kenya.

The firm, which is pushing to create a pan-African fibre network, has operations in 13 African countries. It will be competing to provide Internet services, video conferencing and virtual private networks (VPN) especially for corporate clients.

Other Kenya firms have also turned to Mauritius to raise money.

Centum, the NSE-listed investment firm, registered its property development subsidiary Two Rivers in Mauritius because it wanted to attract global investors.

“Two Rivers has attracted capital from investors across the globe and investors are comfortable with Mauritius as a jurisdiction for many reasons, including the investment protection treaties that Mauritius has signed with many African countries,” said James Mworia, Centum CEO.

NSE-listed infrastructure firm TransCentury issued the first ever listed convertible Eurobond ($75 million) on the Stock Exchange of Mauritius in 2011.

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