Monday, 30 June 2008

Intercontinental bank

Intercontinental Bank, one of the fastest growing in Nigeria, has obtained approval from the UK Financial Services Authority to provide trade finance services including letters of credit, collections and guarantees. It follows on the heals of its competitors who are all burning windfall profits from the banking consolidation in the country.

The bank claims London will act as a strategic link in Intercontinental Bank's global expansion. The bank is expected to finnace the move with the creation of 3.5 billion shares increasing the share count from 21 billion to 24.5 billion. Intercontinental was the first bank in Nigeria to reach a trillion naira deposit base.

AIG 27 index changes

The AIG 27 share index has dropped the National Bank of Kenya, CFC Bank, East African Portland and Total Kenya from its index and replaced them with Safaricom, Equity Bank, Kenya Re and Kenol.

Banque du Caire

The Egyption government pulled the plug on its privatisation of Banque du Caire because of lack of interest at the right price. Financial stocks in the Middle East and Africa are being negatively impacted.

Saturday, 28 June 2008

Depressed Karachi stock market volumes

The Karachi stock market has seen a slump in trading volume in the wake of rollover week pressure and the falling rupee value against the US dollar. Extremely low volumes of between 26m and 35 million shares are currently being seen.

The rupee pressure has seen currency balances fall to near to USD 195 million, reflecting foreign outflow. Volume has also been hit by the downside cap on price movements of one percent. Good two way business is still being seen in KESC, MCB Bank and EFU General Insurance.

Ma'aden to IPO on Saudi's Tadawul

Saudi minerals company Ma'aden will IPO on the Tadawul in early July. Half the government's stake is on offer. The 462.5 million shares have an initial price of SR20, valuing the company at $9.25bn.

To date Ma'aden's activities have focused on gold mining, with operations at Mahd Ad Dahab, Al Hajar, Sukhaybarat, Bulghah, and Al Amar. Ma'aden is now expanding its activities beyond gold bwith the development of Phosphate and Aluminium.

Global MENA Financial Assets

Yet more private equity deals in the Gulf. Global MENA Financial Assets, an investment unit of Kuwait's Global Investment House, plans to raise up to $500m in an initial public offering on or around July 18. After the transaction is complete, Global MENA intends to take over eight private equity investments from Global Investment House as the start point for its own portfolio.

The Commercial Bank of Qatar

Liquidity is always improved by arbitrage opportunites. The Commercial Bank of Qatar, one of the leading commercial banks in the country, has just launched its global depositary receipt program, which it has at $7.50 per GDR, with each GDR representing an interest in 0.20 ordinary shares. These will be listed on the London Stock Exchange. CBQ's ordinary shares are listed on the Doha Securities Market.

Morgan Stanley Co. International plc (Morgan Stanley) is acting as the Sole Bookrunner and Global Coordinator while Société Générale is the Lead Manager for the offering.

Friday, 27 June 2008

Zambia’s National Commercial Bank (Zanaco) IPO

The market is still waiting details of the impending sale of the Zambian Governments palns to dispose of the Zambia Privatisation Trust Fund’s 25.8 percent of the ordinary shares ZANACO via an IPO, orgianally slated for next month.

Founded in 1969, ZANACO is Zambia’s largest consumer bank with 50 branches countrywide and net assets of $384 million. Rabobank took a 49% stake in Zanaco earlier this year.

Imara Holdings

Great to know others in the same business are doing exceptionally well. We have learnt that Botswana's top performing equity, Imara group, is due for a great set of results. The performance fee of its successful Imara African Opportunities Fund has substantially exceeded original expectations. This will positively impact
group results for the year, with profit after taxation now anticipated to appreciably exceed the previous year’s result. It has also won the Zanaco IPO deal, which should kick in next year.

Imara Holdings Limited is domicile in Botswana and is a management controlled African financial services group which emerged from the African operations of Robert Fleming Holdings UK in 2002.

Thursday, 26 June 2008

Romania interest rates hit 10%

Romania's central bank raised interest rates by a quarter point to 10 percent, tightening tightening monetary conditions for the sixth time in a row.

Romania has faced exceptionally difficult and contradictory pressures on the functioning of its monetary policy regime owing to peculiar features and objectives of the Romanian economy. The problem stems from the requirements imposed by the convergence process required to join the European Union, and, eventually, the European Monetary Union. This requires sustainable high economic growth and the consolidation of disinflation simultaneously.

We believe the operational requirements of the implementation of a strict inflation targeting regime are unlikely to be met under the current monetary transmission mechanisms.

Libyan Real Estate

Looks like others are starting to notice the potential in Libya. Qatar's Barwa Real Estate and the state-owned Libyan Development and Investment Company have just formed a joint investment fund to focus on real estate opportunities. The JV has an initial capital of $2 billion. The first investment is in a $300 million sport and services project.

The real estate deal involves building hotels, offices, housing units and other leisure facilities in Libya.

Barwa is an affiliate of the Qatar Investment Authority's $40 billion property wing.

Wednesday, 25 June 2008

Bolsa de Valores de Maputo set to expand listings

Two new state-owned companies are joining Maputo's stock exchange, Bolsa de Valores de Maputo (BVM). The first is Companhia Moçambicana de Hidrocarbonetos, a company that develops natural gas reserves at Temane in Inhambane province. The government also plans to list 20% of mobile-phone company M-Cel, although no date for the initial public offering has been announced. M-Cel is the largest mobile operators in Mozambique, with an estimated 2.6m clients. It is currently wholly owned by Telecomunicações de Moçambique.

Only seventeen companies are currently listed on the excahnage, including the local brewery, Cervejas de Moçambique, Banco Internacional de Moçambique, and Cimentos de Moçambique.

Volatility in Nigerian stock market

The Nigerian stock market is certainly enjoying a wild time. It has corrected 9.6%, reversing the previous weeks 7.6% gain. Officials in the country are talking about trying to stop sellers. Clearly, they still have something to learn about markets. Volatility is just something they should get used to. The chart on Japaul oil says it all. This oil services company has dropped 23% in a week.

Tuesday, 24 June 2008


Senegal only has ten million people but it is one of the most attractive telecoms markets in Africa. Dakar is already a communications hub for West Africa and it has the potential to build itself into a regional gateway. The best way to get exposure is through Sonatel, listed in Cote d'Ivoire.

The main investor in Sonatel is France Telecom (42.333%). The Government retains 27.67% of the shares. The regulator, Agence de Regulation de Telecom (ART) is apparently talking about licensing a third operator. These two factors have conspired to keep the company's valuation in check.

In operational terms, the company has adopted a progressive attitude to international pricing and wholesaling. It was amongst the first pioneers of VOIP and the first to reach agreements with the numerous grey market operators. Its EBITDA margin is an imoressive 60%

Sonatel has created de facto monopolies in every major market. In the mobile market, it currently has 77% of total subscribers. It fought a long battle to avoid interconnection with its sole competitor Sentel. In the internet market, its subsidiary Sentoo has around 80% market share. Sonatel has captured half a million mobile subscribers and Sentel 150,000 subscribers. 80% or more of the market is pre-paid. Local estimates are that the total market is a million potential subscribers.

Botswana aims to kickstart securitisation

Last week saw the listing of the P2billion Stanbic Bank Botswana bond programme. This prompted the Botswana Stock Exchange and the National Development Bank to restart initiatives to develop a securitisation market in Botswana.

To develop a securitised market in the country it is neccessary to have a credit rating agency on board. That way it possible for local companies to be rated at a reasonable cost. Apparently, the BSE is in negotiations with one such agency and we can expect developments sometime soon.

Monday, 23 June 2008

ZAT Telesistemy Ukrayiny

The Ukrainian telecom company, ZAT Telesistemy Ukrayiny, has announced it will raise
1.31 billion hryvnias (USD280 million) by issuing additional shares. We undertsand that Telesistemy will use the proceeds to 'speed up development'.

The Ukrainian telecom revenue is forecasted to have grown to US$7.7 billion by the end of 2011. Mobile comprises the largest part, with 52.0%, of the total communications services revenue.

The upside is clear. Penetration is only around 27%.

Saturday, 21 June 2008

Lonzim Plc takes Fly 540 low cost airline to Zimbabwe

Lonzim Plc has just shown its savvy side. Doing business in Zimbabwe has its risks but at least it will be able to fly its assets out if anything goes wrong!

LonZim Plc has announced plans to duplicate the Lonrho pan-African airline, Fly540, in Zimbabwe. Lonrho Plc, which is a 20% shareholder in LonZim, has been developing across Africa using the low-cost model. Lonhro Plc launched the airline in Nov 2006 in Kenya. LonZim has the exclusive rights to Lonrho's brands in Zimbabwe, and intends to have Fly540-branded freight and passenger services operating out of Harare. The airline will operate a mixed fleet of turbo prop and jet aircraft.

Mongolia Investment Forum - Ulaanbaatar

The Mongolia Investment Forum 2008
17-18 September 2008

Euromoney has provisionally set the dates for the 3rd Annual Mongolia Investment Forum in Ulaanbaatar. Obviously, if the event is confirmed (we are talking about frontier markets here), we will be happy to participate, even if it does run into our fund raising window. The search for alpha takes precident over the search for assets under management.

With a growth rate of 8.7% GDP in 2007, Mongolia is clearly on our radar screen. In the past, the forum has attracted 500 participants and is regarded as the most prestigious forum in the country.

Friday, 20 June 2008

Capgemini signs Letter Of Engagement with Danfonds

In an unusual move for a hedge fund, Danfonds Aps has signed a Letter of Engagement (dated June 19th 2008) to enter into an outsourcing agreement for analytical work on frontier market equities. The engagement, negotiated with Capgemini Consulting India Pvt. Ltd. includes the supply of services, investment analytics and project work to Danfonds Aps and its subsidiary Danfonds Investment Management (Cayman) Limited in respect of the Danfonds Frontier Funds SPC.
The outsourcing arrangement shall commence from the date that Danfonds Frontier Funds SPC, Frontier Markets Liquid Class B shares, are listed on the Irish stock exchange in accordance with the Offering Memorandum provisionally dated September 2008. The contract shall, in the first instance, be valid till August 2010.

The arrangement allows us to make investment decisions faster and more accurately. The alpha in frontier markets comes from selecting the right countries to invest in as well as by an informational advantage and bottom up investment decisions. This is not a case of outsourcing alpha but of improving our ability to make those decisions.

Nigeria acts to lower cement price

The Nigerian Federal Government gave approval to six additional firms to participate in the cement industry. It wants to see the price of the product fall to N1, 000 when the first leg of cement gets into the country. The current price is in excess of N2, 000 per bag,

The government has also promised to protect the downside by saying the landing cost of a bag of cement ought not to be above N700. The Minister gave licences to seven companies to import bagged cement into the country and they are Wapco/Lafarge {Ewekoro/Shagamu}, Ashaka Cement; Benue Cement Co. {Dangote}; Obajana Cement {Dangote}; Unicem, Calabar; Cement Company of Northern Nigeria {Sokoto} and Purechem, Ogun State. According to the Minister, the new plan will see the first leg of cement coming in within the next 40-days

Cement requires an investment in excess of $400 million to set up a plant. It may be a while before domestic supply equals demand.

Wednesday, 18 June 2008

Our competitors

It is difficult to find reliable data on the African and Middle Eastern Hedge fund universe. According to Hedge Fund News (HFN), however, 90% of the such funds in their database have less than USD 250m AUM.

Interestingl, HFN report that funds with less than USD 50m AUM outperformed their larger counterparts across the top 10th and top 25th percentile rankings, at around +50% and +44%, respectively.

List of the key players

Africa Growth Fund
Bankinvest New Emerging Markets Fund
Calvert New Africa Fund
Danfonds Frontier Fund
Foreign and Colonial Emerging Middle East Fund
Framlington Maghreb Fund (North Africa)
Framlington West Africa Growth Fund
Genbel Investments
GT All-Africa Fund
Mango Capital
Morgan Stanley African Investment Fund
New South Africa Fund
Regent Undervalued Assets Africa Fund
Renaissance Africa Fund
Save & Prosper Southern Africa Fund
Simba Fund
The African Emerging Markets Fund
The Near East Opportunities Fund

Tuesday, 17 June 2008

Iraqi stock exchange addresses late filling companies.

The Iraqi stock exchange is getting tougth on its listed companies. The exchange, shown above with traders writing prices on white boards using marker pens, still trades. That said, hours are limited to two-and-a-half hours, three days a week. In the last few years liquidity has increased by more than 250%. Unfortunately, fewer than a third of the 100 companies quoted are actively traded. The Board of Governors of the exchange have just decided to give the many companies that have failed to file accounts an extension. What it calls 'uncommitted contributing companies' are going to get two additional months to submit their final accounts. Thereafter, a fine of one million dinars for each month of delay will apply.

KDD Group - Ukrainian property

KDD carries USD 700mn of property on its balance sheet so is one way to get Ukrainian real estate exposure, albeit with development risk. Real estate consultants in the country estimate that supply will not equal demand until 2010-2011. This explains why the market is 'hot'. Office rent rates grew 40 per cent in 2006 and 35 per cent in 2007.

Results just out include a USD 145mn property revaluation gain. Unfortunately, some of this is accounting manipulation including a reclassification of the PecherSKY project into inventory from investment property.

KDD holds a diversified portfolio of real estate projects comprising offices, residential complexes, retail centres and mixed-use projects. KDD currently has eight projects, of which three are in the groundwork construction phase and five are at various stages of design and development. The company is listed on AIM having having been bought too the market by ING and Renaissance Capital .

Nigerian market powers ahead

Great to be able to write that when most developed markets are still in turbulence. Ashaka Cement has risen 23% in a week and Dunlop Nigeria 22%, taking the NGSE Index up 7%. The rise in Ashaka cement puts it on a rich PE of 22.5 with the stock just 8% from its years high. Dunlop Nigeria's net income is negative. Before Interest, Tax and Depreciation its P/EBITDA multiple is 116.7. Best to just focus on cash flow! P/CF is 4.38.

The Nigerian exchange has introduced a rule that only allows trades to be determined by trades greater than 100,000 shares

Monday, 16 June 2008

Khan resources

Mongolias natural resources are largely untapped. Khan Resources, whose stock has been in the dolldrums, see that as an opportunity and is currently bidding for a local company. Khan is a Canadian exploration and Uranium development company who's current activities are focused on the Dornod area in north eastern Mongolia, the site of a former Russian open-pit uranium mine.

Uranium is gaining increased investor attention. The Global demand for electricity is growing faster than GDP. Nuclear Energy fueled by Uranium currently provides 17% of it. Existing demand for Uranium outstrips the current supply.

UAE currency speculation (dirham)

Currency speculation is back - even though the UAE is doing its best to appease US policymakers. UAE inflation is, however, running higher than the last published figure of 9.3%. Speculators have been buying UAE Dirhams like crazy. Deposits are still being converted from other Gulf curencies and dollars into dirhams. These inequalities just can't last.

The UAE's central bank Governor went gone on the record saying that they would consider a revaluation of their currency, preferably in a joint move with the other GCC states, but that they would act on their own if the other states don't come into an agreement with them.
Local dirham bonds are the favoured way to play the possibility of a revaluation. These inlude: Dubai Government AED 6.5 bil, Ras Al Khaima Government AED 1 bil, Jebel Ali Free Zone (JAFZA) AED 7.5 bil, Dubai Water and Electricity Authority (DEWA) AED 3.2 bil, Emirates NBD Bank AED 2.1 bil, HSBC AED 2.25 bil, Emirates Airlines AED 1.8 bil (traded on DFM as EK-2013), Nakheel AED 3.6 bil, and Aldar Properties AED 3.75 bil.

National Bank of Abu Dhabi

The lack of information in frontier markets can and oten does lead to some pretty wild speculation. For example, National Bank of Abu Dhabi has just denied reports that it was considering merger with Bahrain's Ahli United Bank.

In a statement, the bank said it "currently is not a part in any negotiations or talks with any bank or financial institution in the region for merger or acquisition." The false rumours pushed up the price of Ahli United Bank last week. We see the denial as a responsible and transparent move to protect its stakeholders' interests. It also means we know a little bit more about its consolidation plans (ie none).

Sunday, 15 June 2008

Standard and Poors downgrades Ukraine

With inflation racing ahead at 31.1%, it is not surprising tt its credit rating has been downgraded. It now rests four notches below investment grade at B+.

Yields jumped to 7.85% on the back of the move.

Ghana - New Patriotic Party

The world's second largest cocoa exporter and Africa's second biggest gold producer goes to the polls. It looks like President John Kufuor (the gentle giant) successor will be chosen by Tte centre-right New Patriotic Party (NPP).

The economic boom during the party's eight years in power has made the country enjoy its strongest growth in four decades. Indeed, Ghana's prospects are amongst one of the brightest in our Frontier market universe.

Nigeria - Niger Delta

Nigeria’s President Umaru Yar’Adua has promised to address the conflict that has shut in a fifth of Nigeria’s oil production. Yar’Adua has said he will convene the summit, originally due to take place late last year

Tensions have increased in the Niger Delta following a series of attacks on pipelines belonging largely to Royal Dutch Shell. The Movement for the Emancipation of the Niger Delta raids have renewed fears about oil supplies from Nigeria, one of the world’s top 10 crude exporters.

New Danfonds website!

Danfonds website has now been updated according to the protocols of the third generation of the World Wide Web. Http://

Thursday, 12 June 2008

Uganda forecasts 8.9% growth

Finance minister Ezra Suruma has forecast an economic growth of 8.9% for the 2008/2009 fiscal year, up from 7.4%. The budget, due to be reduced latter today, is expected to allocate more funds to infrastructure whcih we see as a positive.

Bata Shoe Company (Bangladesh) Limited

Some companies are really illiquid in Frontier martkets! That does not mean they do not deliver. Last year, for example, sales of Bata Shoe Company (Bangladesh) Limited posted an impressive 118 per cent growth. Indeed the company is one of the largest tax-paying corporate bodies in the country contributing Taka 979 million to the taxman.

The company has a production capacity of 110,000 pairs of shoes daily, it also has a modem tannery facility with an output of 5.00 million square feet of leather annually. The annual shoe sales currently stands at slightly more than 30 million pairs with a turnover of Taka 4.69 billion.

For the environmentally conscious, we have found that Bata has a firm commitment to eco-friendly business and has invested in its own effluent treatment plant.

On the retail side, outlets are focused on segments such as Bata City Stores, Bata Bazar, Bata Super Stores and Bata Family Stores. The company has a network of 238 retail outlets located strategically in different parts of the Bangladesh.

Ajman Bank PJSC - IPO 77 times oversubscribed

Who said there is no loose capital around at the moment?

Ajman Bank PJSC, an Islamic bank in the United Arab Emirates, will see its IPO begin trading in Dubai on June 22. The bank, based in Ajman, will list on the Dubai Financial Market. The offer received bids of 42 billion dirhams, more than 77 times the value of shares on offer.

Wednesday, 11 June 2008

Kingdom Meikles Limited

The final step in the merger of Zimbabwe's great 'survivors' has now been completed. Kingdom Meikles Africa Limited has just changed its name to Kingdom Meikles Limited. Now, Kingdom Financial Holdings Limited,, Tanganda Tea Company Limited, and Cotton Printers Limited all come under the same name.

The company says its is working on a USD 50m placement which would be launched after the final outcome of the Presidential election, either through the London or Johannesburg stock exchanges or through a private placement. These funds would be used to refurbish and create an additional 160 rooms for the 120-room Victoria Falls Hotel and to refurbish the Meikles Hotel. They would also be used to mechanise the tea harvest at its Tanganda Tea Company estates and to restock the company's retail operations. Apparently the company is in discussions with the Reserve Bank of Zimbabwe for a full dual listing on the London Stock Exchange. A Johannesburg Stock Exchange listing was also under consideration

Ecobank to raise more capital

The African financial services revolution continues as one of Africa’s largest players prepares to raise more capital. The bank, which has its headquarters in Lome, Togo, has annouced that it intends to acquire a 75 per cent majority stake in Kenyan mortgage lender East African Building Society.

Ecobank is one of the successful African banking franchises. We believe this is because it is considered an independent regional institution that is not associated with any one country or interest group. In effect, each of its subsidiaries is viewed as a local bank. . Ecobank has a network of over 450 branches with offices in 22 countries including Benin, Burkina Faso, Cameroon, Cape Verde, Central Africa, Côte d’Ivoire, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Sao Tome, Senegal, Sierra Leone, Tchad, Togo, Gambia, Rwanda, Congo Brazzaville and Malawi, with plans to establish more presence in East and Southern Africa.

Ecobanks current asset base is $6.5 billion. It has a footprint in a number of African countries, and listings on the Nigerian, Ghanian and the Bourse Régionale des Valeurs Mobilieres, a regional stock exchange serving eight West African countries. The acquisition and further expansion in East Africa will be financed through a share sale on each of these exchanges targeting to raise $2.5 billion.


Tanzanian corruption case appear to be holding up a decision on its annual aid contribution. Bjarne Sorensen, The Danish Ambassador, says this is due to work by 14 nationl and multinational donors obtaining further information 'to tackle corruption allegations and improve governance'.

A recent audit found that $116 million from the Bank of Tanzania's external payment 'arrears account' was paid to companies using forged or improper documents.

Tanzania is one of the Least Developed countries. The country has a published per capita GDP of $ 210. The Tanzania economy depends on agriculture, which accounts for over 50% of its GDP. The sector provides 75% of exports and employs about 85% of the total work force. Gold mining is healthy and bouyed by the strong gold price.

Tanzania's GDP growth rate currently at 4.9%, has averaged 3.5% for the past four decades.

Peruvian election results

The Lima General Index rose strongly on the back of early returns that have come in from the election. Nationalist Party candidate, Ollanta Humala, won 29 percent. Looks like he beat the former President Garcia, who achieved 25 percent, and Flores with 24 percent.

Ollanta Humala wants to make the state a partner in all natural resource companies. Despite winnning, he gained fewer votes than expected. Earlier polls had suggested Humala would take at least 35 percent of the vote in the first round.

There will now be a second round. Southern Copper Corp., Peru's biggest copper producer, a unit of Grupo Mexico SA, rose on the hope that Garcia will do better in the second round.

Camec Plc

Its just not true that the only way to gain exposure to central African mining is through the majors. One interesing success story is CAMEC Plc, an AIM-listed company with a primary focus on the mining and production of copper and cobalt in the DRC.

The Company also has exploration, investment, agricultural, trading and development activities which have solidified its reputation of achieving in Central and Southern Africa. Its flagship operation is the Luita metallurgical facility which is supplied by a concession in the DRC, estimated to contain circa 1.5 million tonnes copper and 500,000 tonnes cobalt.

Tullow Oil - Another success in Ghana

Tullow Oil has a fantastic track record of finding oil in Africa, including respectable finds in Ghana, Uganda, Angola and Ivory Coast.

The company has just Announced details of the Mahogany-2 well, drilled to appraise the Jubilee field in offshore Ghana. Tullow said the results confirm that the reservoirs of the Jubilee Field are highly productive and support Tullow's view that the completed Jubilee production wells should be capable of flowing at rates in excess of 20,000 barrels a day.

Tuesday, 10 June 2008

Kazakhstan introduces new securities framework

We undertand Article 6.5 of the Law of the Republic of Kazakhstan is now going to be introduced detailing the requirements for listing securities on the RFCA. This encompases trading in a variety of instruments, including foreign and domestic equities, investment funds, corporate debt, complex securitized and derivatives will hopefully take a step forward.

The RFCA is rapidly becoming the leading financial center in the Caspian region. Its objective is to achieve the successful integration of the Kazakhstani financial sector into global capital markets, the attraction of foreign investment capital into the region, further development of the country's equity market, the creation of opportunities for individual investors, and the export of Kazakhstani capital. All good stuff for the development of this frontier market.

Gulf Cooperation Coucil and Monetary Union

Gulf Arab central bankers in Qatar approved a draft agreement for monetary union which they hope will set the nucleus of a regional central bank and ultimately currency. The agreement will be reviewed by finance ministers will look at it on Septempet 17th in Jeddah. The Gulf Cooperation Coucil includes Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Bahrain and Oman. Oman has opted not to join monetary union. The plan may see a single currency a early as 2010.

The link with Gulf currencies and the dollar is tied to the question on monetary union. Oman, for example, has said it would not join the single currency and Kuwait has dropped its peg to the dollar.

A few words on corruption

Corruption is a common factor in Frontier markets. We are totally against such practices. Corruption increases the cost of doing business and addressing it is certainly a priority.

The question of what we, as an investor, are going to do about corruption is often raised. The answer is not simple. In the private sector, direct questions on corruption are often difficult to raise. This is especially the case when they come from a hedge fund whose prospectus permits it to short a company's stock! Such issues, therefore, are best raised in an indirect fashion. This avoid implicating the respondent of wrongdoing and facilitates dialogue and a constructive debate. In addition, reliable quantitative data on the determinants and consequences of corruption at firm level are not always easy to obtain.

Clearly, if we think and have reliable reason to conclude that a company is regularly and systematically engaged in corrupt practices we will not invest in it - Full Stop.

Mauritius - The top five companies

sometime numbers speak for themselves. Herewith the top five market cap companies in Mauritius with annualised and total return since listing on SEM(%)

Naiade Resorts Ltd
39,68% pa
119,57 % since listing

The Mauritius Commercial Bank Ltd
29,72% pa
13.050,02 % since listing

Mon Désert Alma Ltd
27,51 %pa
8.264,73 % since listing

Rogers & Co. Ltd
26,81% pa
6.711,95 % since listing

State Bank of Mauritius Ltd
26,72 % pa
1.953,20 % since listing

Monday, 9 June 2008

Celtel Zambia - Next in line

All the talk about Safaricom has totally taken the attention away from Celtel Zambia that comes to the market on the 11th June. The IPO closed on May 20. The K665, 600 mln offer generated demandof K2,040 bln, with K1,700 bln of this demand arising from international investors. Oversubscribed only 3 times. Could represent a liquidity opportunity to get some stock, although the free float is increadibly small.

Safaricom - First day trading with buyers outnumbering sellers 4:1

The long wait is over. Safaricom had a first day debut in excess of 50% on its first day of trading. Kenya's biggest stock market flotation is clearly a success. Foreign investors were required to pay 10% more than the price offered to Kenyans but we don't think that is unfair. What is moe important is that the sale was oversubscribed by more than 500%. Clearly, investors have appetite for Kenya again.

Kenya's mobile phone market is not saturated, indeed only a third of Kenya's 36 million people own a mobile phone. That said, on every street you can buy a credit for a phone. We believe
Safaricom's strategy of targeting low-income clients like this will boost its customer base.

Safaricom is East Africa's most profitable company, it made profits of $370m last year, and despite the price rise remains attractive and a core holding, entering our model portfolio.

Saturday, 7 June 2008

Brice Beumo joins from Renaissance Capital

Brice Beumo has agreed to become an independent director of Danfonds Frontier Funds SPC. Brice worked as a Senior Associate at Renaissance Capital and focused on developing Specialty Finance business initiatives to ensure continued sustainability and growth for the Bank in Francophone Africa. He built on networks to ensure that the firm was well placed to contemplate and manage shifts in the market place. His experience in Africa Debt Capital Market Origination and Francophone Africa will provide a strong boost to the advice and oversight that the Fund recieves from its board.
Brice holds a MA in International Business and Management from the University of Westminster and a BA (Hons) in Business Administration (Finance) from the South Bank University in London. Prior joining Renaissance Capital he worked as Credit Analyst Analyst for Iroko Securities.

Sub Prime in Jordan

I know that we have been saying that Frontier markets are largely unaffected by sub-prime issues. Well, we have just recieved a research report on United Arab Investors, a Jordanian Investment conglomerate. Apparently, its 51% owned 'Jordan Mortgage Insurance' subsidiary offers credit facilities jointly with the Canada Mortgage and Housing Corporation. In effect they are offering housing credit facilities to low income citizens, especially the young, to facilitate home ownership in new residential developments.

Stock price looks resilient, so perhaps Jordanian sub-prime borrows are better at paying their obligations.

Why run a hedge fund from Copenhagen?

A question we get asked all the time. If you had been in Copenhagen this Saturday, you would not have to ask it.
The point is, these days, a hedge fund can operate from anywhere in the world, especially one incorporated in the Cayman Islands. With mobile wireless, Bloomberg anywhere, Skype and remote access to our server, we can cover all the Frontier Markets from Copenhagen or even Uganda for that matter. We like to think working in Scandinavia gives us a more balanced picture and allows us to remain detatched from the politics and corruption that is prevelant in our markets.

Zambeef Products

We visited Zambeef Products PLC last month (the photo shows one of its retail outlets). The company is one of the largest agri-businesses in Zambia and indeed the region. If you have heard our pitch, you will know Zambia has abundant land, sunshine, water and labour. That's the sort of thing we are happy to invest in. As one of the largest cropping operations in Africa, with 2,700 hectares under irrigation and a further 1,500 hectares of dry land crops, the company is clearly one that has competitive advantage on its side.

Since the visit, we have had update on the company - from the Zambia Competition Commission of all places! Acting executive director, Thula Kaira, said the commission is still reviewing the application for the acquisition of Nanga Farms by Zambeef. Kaira said Zambeef has indicated that in the near future they intend to set up a sugar production company.

Friday, 6 June 2008

Middle East sees resurgent inflation and associated growth risks

The Middle East region has started to see inflation due to its largely fixed or heavily managed exchange rates, an oil-fuelled liquidity expansion, widespread infrastructure bottlenecks and a reliance in most countries on food imports. In 2007, the avergage rate of inflation was 10.4%. Looks like it is going to even higher this year.

Moody's Investors Service, interestingly, has just brought out a report that says "even the ratings of affluent, oil-exporting sovereigns could be affected over the longer term if high price growth persists.”

Zimbabwe - The wait continues

The Zimbabwe dollar has collapsed further - to an average 1 billion to the U.S. dollar. So much for the new interbank market. Talk about difficult to price instruments - inteerday quotes between 995 million and 1.45 billion against the dollar. Just to put that into perspective, it was at 700 million at the beginning of the week.

The Zimbabwe Stock Exchange (ZSE) industrial index neadless to say, with these levels of inflation, is at a new high above 900 billion points, from just over 1.2 billion points at the start of the year. We still maintain that in ten years, this economy, subject to certain leadership changes, will be one of the bright spots in Africa. One thing we can say with greater certainty is: it can't really get much worse!

Nigerian Breweries Plc

Interesting dividend policy! The management of Nigerian Breweries Plc has just declared a dividend equal to the total earnings for 2007. 100 per cent of net profit. Clearly this is a signal that it has worked trough the credit issues related to its new breweries in Ama, Enugu State. At first sight it looks like management is confident. That said, their were also a number of announcements - a new malting plant in Aba, a new bottling line for Fayrouz in Ibadan, a new brew houses in Lagos a new brew house in Kaduna, and also a new bottling line in Aba. That is quite a capital intensive program. Perhaps they are getting over-ambitious. Bare in mind this company has lost market share.

Wednesday, 4 June 2008

Valuations and best practice (our position)

The Presidents Working Group on Financial Markets came up with a number of recommendations for Hedge Funds to ensure best practice in valuations. You will be pleased to know we have both read these and agree with them. The first of these was to have a governance mechanism that should have ultimate responsibility for (i) establishing and reviewing compliance with the Manager’s valuation policies and (ii) providing consistent and objective oversight and implementation of the Manager’s valuation policies and procedures. This we have in the form of our independent directors on the board of Danfonds Frontier Funds SPC. The working group also recommended the development of well-documented valuation policies, as well as guidelines to evaluate exceptions and to test and review compliance with policies and procedures. Again, we have this and have instructed Custom House, our administrator, to always apply best practice.

In addition, we have gone further than these recommendations. We have a Chief Risk Officer who is in charge of overseeing the pricing policy. We will also give specific detailed disclosures on the implementation of pricing and valuation policies to our investors on NAVs, the funds balance sheets and annual reports.

Equity Bank - Results show Kenya is still interesting

Kenya's regional banking champion, Equity Bank, once again announced an impressive set of first quarter results. An 80.5% increase in pre tax profits and a 9.2% increase on last quarter (the period covering the riots!). This improvement was driven by growing interest and non funded income as well as cost efficiencies (operating expenses increased by only 5.9%). The bank, like others in Kenya, has increased loan loss provisions arising from the post elections violence. As a results, pre-tax profits 'only' grew to 9.2%. One downside is than government securities accounted for a significant portion of the total operating income and this trade is over going forward. That said, in the short term this will be more than compensated by lending due on the back of the Safaricom IPO.

OECD report

According to the latest report from the OECD, for four consecutive years, Africa has experienced record economic growth. Overall in 2007 the continent registered 5.7 per cent GDP growth and a per capita increase of 3.7 per cent. Indications are that growth will continue to accelerate in 2008 and 'remain buoyant' in 2009.

Spreading the word

Just finished lunch at the Four Seasons Hotel, Mayfair. An investment seminar for 'exclusive' Family Offices. By 'exclusive', these guys represent billionaires. Definitely a different world! There was even wine for lunch (now unheard of in the parched and crisis ridden City of London)!

Saw a fascinating presentation by a 'very' famous family office from the US. Chatam House rules apply so we can't mention names. These people are very secretive!
Turns out attention over in the US is turning our way, that is on the asset allocation front. Some interesting statistics where thrown around to justify this.. 20 years ago, 70% of the global market was in the US. Today, that number is 40%. For example, 30 years ago half of the worldwide market capitalisation of the auto industry was outside the US. Today, its 90%. Anyway, the good news is that its not just Emerging Markets - Everyone wants to talk about Frontier markets.
Another interesting take. Average cash positions of these family offices currently ranges from between 20% and 50%. The mood is very negative.

African Corporate Credits

Opportunity keeps coming at us. Momentum is clearly on our side. Great thing about the structure we have set up for the fund, a Cayman Segregated Portfolio Company, is that we can have as many Classes as we like going forward. Last night, we met with a regional African credit originator. Great chap. Very competent. Clearly fed up with the sell side and the credit crisis (who isn't). Not concerned about the 25bps rate hike in Nigeria. He thinks he can return some 20% as a portfolio investor. We discussed the possibility of our having a new Class of share focused on the Sub Saharan African Corporate Credits. Obviously, early stages yet but that sort of return would obviously make considering such a thing worthwhile. Shows the word on our activities is also attracting like minded people.

Tuesday, 3 June 2008

Lowered opinion on Gulf Finance House BSC

A major Wall Street broker, no names but their logo is bull, has just downgraded Gulf Finance House in Bahrain. EPS growth for this year will be 33%. Bahrain is a oil economy. Gulf Finance House has an ROE of 47.9. It also has a a good free float (54%) and a decent market capitalization despite its single digit P/E. Sorry, but we just don' buy this one ;)

Danish Embassy in Pakistan

Our condolences go out to all those killed by the car bomb that exploded outside the Danish Embassy. We have reviewed our model portfolio and decided not to change any positions in Pakistan despite the deteriorating security conditions.

Monday, 2 June 2008

Where to next?

As you can imagine, running a Frontier Markets' fund involves extensive travel. The last trip was to Zambia, Tanzania. Uganda and Kenya. Fortunately, our counter parties do a lot of the organisation which makes such trips more enjoyable. Last night we were offered a trip to Nigeria but unfortunately it is far too short notice to accept. Yes, I know, hedge funds should be nimble and all that. Were it not for an upcoming trip to the Ivory Coast, things might have been different.

Locations of visitors to this page

Sunday, 1 June 2008

The Frontier markets are the ones in grey....

The search for hidden value

Let's start by destroying a few myths and establishing a few facts. First, and most importantly, frontier markets are not going to remain failed-states. They are just countries that are yet to enjoy the benefits of globalisation.

Right now, despite the paperwork involved in setting up the fund, we are currently analysing a company in Malawi. Apart from the adoption of Madonna's baby, the country is not exactly on most peoples radar screen. Why not? - Because most people don't even know where it is. Well they should. Since 2005, inflation has fallen from around 30% to 7%. GDP is growing at around 6%. Sure, they have a poor telephone infrastructure but for us that spells opportunity. That is why we are looking at Press Corporation, a conglomerate on a P/E of 9.3 with a 51% stake in Malawi Telecom. In addition to a 52% stake in the National Bank of Malawi and supermarket and some other interesting assets. Anyway, please don't go and rush out and but it as we have yet to finish our work on it and in any event these sort of markets are Best left to the specialists.

The adventure begins

Well, the legal part has now begun. Our Frontier Markets Hedge Fund has begun the process of incorporation in the Cayman Islands as an exempt limited liability fund, registered as a Segregated Portfolio Company. Many months of preparatory work mean that we are all geared up for this defining moment (the point of no return).

The team, hand picked or their unique financial skills, are already looking forward to moving into the new offices, with all the new technology kit including Blooomberg and our new found love of Skype (a great communication tool).

This blog will hopefully prove an interesting expose on the birth and growth of a Hedge Fund. Not just any Hedge Fund, mind you. Danfonds Frontier funds SPC is focused on the cutting edge of the beneficiaries of globalisation, searching for value off benchmark and definitely off the beaten track.

Now, I am obliged to tell you by the regulators that anything you read in this website does not constitute an offer to invest in or even consider any of the regions or companies that may be mentioned as a potential investment. This sort of fund is strictly for professionals and by professionals I mean financial insitutions or seriously rich people.