CENTUM INVESTMENT COMPANY LIMITED … Memorandum - Centum...CENTUM INVESTMENT COMPANY LIMITED Incorporated in Kenya ... 20.2 REPORTING ACCOUNTANTS REPORT ... registered or issued under

CENTUM INVESTMENT COMPANY LIMITED

Incorporated in Kenya under the Companies Act (Chapter 486, Laws of Kenya)

Registration Number C.8/67

Information Memorandum in respect of the offer to the public and listing of

Kenya Shillings six billion (Kes.6,000,000,000) senior unsecured fixed rate notes and senior unsecured

equity linked notes

[●] May 2015

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TABLE OF CONTENTS

1. IMPORTANT NOTICES AND STATEMENTS ................................................................................. 1

2. EXECUTIVE SUMMARY .................................................................................................................. 5

3. DEFINITIONS AND ABBREVIATIONS.......................................................................................... 14

3.1 DEFINITIONS ................................................................................................................................... 14 3.2 ABBREVIATIONS .............................................................................................................................. 20

4. SUMMARY OF CORPORATE INFORMATION ............................................................................ 24

5. ADVISERS TO THE ISSUER ON THE NOTE ISSUE ..................................................................... 26

6. TIMETABLE .................................................................................................................................... 27

7. SUMMARY OF THE OFFER ........................................................................................................... 28

7.1 SUMMARY OF THE PROPOSED NOTES ................................................................................................. 28

8. USE OF PROCEEDS ........................................................................................................................ 38

8.1 FINANCIAL SERVICES ....................................................................................................................... 39 8.2 ENERGY .......................................................................................................................................... 41 8.3 REAL ESTATE .................................................................................................................................. 42 8.4 OFFER RELATED EXPENSES .............................................................................................................. 42

9. ABOUT THE ISSUER ...................................................................................................................... 43

9.1 COMPANY OVERVIEW ...................................................................................................................... 43 9.2 VISION, MISSION AND STRATEGY ...................................................................................................... 43 9.3 BUSINESS MODEL ............................................................................................................................ 44 9.4 TRACK RECORD ............................................................................................................................... 45 9.5 OPERATING STRUCTURE ................................................................................................................... 49 9.6 CENTUM’S PORTFOLIO AND SECTOR FOCUS ........................................................................................ 50 9.6.1 Financial Services (FS) Sector ............................................................................................................. 50 9.6.2 FMCG Sector ....................................................................................................................................... 52 9.6.3 Energy Sector ....................................................................................................................................... 53 9.6.4 Real Estate Sector ................................................................................................................................ 56 9.6.5 Education and Healthcare Sector ......................................................................................................... 65 9.6.6 Agriculture Sector ................................................................................................................................ 65 9.6.7 Quoted Private Equity (“QPE”) Portfolio ............................................................................................ 65 9.6.8 Other Portfolio ..................................................................................................................................... 66 9.7 DIVIDEND POLICY ............................................................................................................................ 67 9.8 PRINCIPAL SHAREHOLDERS ............................................................................................................... 67 9.9 SHAREHOLDING BY DIRECTORS ......................................................................................................... 67 9.10 DISTRIBUTION OF SHAREHOLDING ..................................................................................................... 68 9.11 EMPLOYEES .................................................................................................................................... 68

10. TERMS AND CONDITIONS OF THE NOTES ................................................................................ 70

11. KEY INVESTMENT CONSIDERATIONS....................................................................................... 85

11.1 BUSINESS MODEL ............................................................................................................................ 85 11.2 TRACK RECORD OF CONSISTENT PERFORMANCE AND LONG TERM GROWTH ........................................... 86 11.3 UNUTILISED DEBT CARRYING CAPACITY ............................................................................................. 87 11.4 STRONG CASH FLOWS ....................................................................................................................... 88 11.5 A WELL-DIVERSIFIED INVESTMENT PORTFOLIO .................................................................................. 89 11.6 STRONG CORPORATE GOVERNANCE .................................................................................................. 90 11.7 STRONG BRAND NAME ..................................................................................................................... 91

12. ECONOMIC OVERVIEW ............................................................................................................... 92

12.1 KENYA MACRO - ECONOMIC OVERVIEW ............................................................................................ 92 12.2 UGANDA MACRO - ECONOMIC OVERVIEW .......................................................................................... 94

13. INDUSTRY OVERVIEW ................................................................................................................. 98

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13.1 POWER SECTOR ............................................................................................................................... 98 13.1.1 Overview of the East African Power Sector ......................................................................................... 98 13.1.2 Power Sector in Kenya ........................................................................................................................ 98 13.2 FAST MOVING CONSUMER GOODS (FMCG) SECTOR ......................................................................... 103 13.2.1 About FMCG ..................................................................................................................................... 103 13.2.2 Key Drivers of FMCG in Africa......................................................................................................... 105 13.3 FINANCIAL SERVICES SECTOR ......................................................................................................... 109 13.3.1 Kenya Banking Sector Overview ....................................................................................................... 109 13.3.2 Industry Performance ........................................................................................................................ 110 13.3.3 Challenges ......................................................................................................................................... 111 13.3.4 Opportunities ..................................................................................................................................... 111 13.3.5 Overview of Kenya Insurance Industry .............................................................................................. 112 13.3.6 Industry Performance ........................................................................................................................ 112 13.3.7 Kenya Insurance Market Outlook ...................................................................................................... 113 13.3.8 Performance Overview ...................................................................................................................... 113 13.4 RECENT PRIVATE EQUITY TRANSACTIONS IN EAST AFRICA ................................................................ 114 13.5 THE ASSET MANAGEMENT INDUSTRY .............................................................................................. 115 13.5.1 Traditional Asset Managers ............................................................................................................... 116 13.5.2 Pension Industry ................................................................................................................................ 116 13.5.3 Individual Retirement Benefits Schemes and Service Providers ........................................................ 117 13.6 REAL ESTATE INDUSTRY IN AFRICA ................................................................................................. 117 13.7 REAL ESTATE INDUSTRY IN KENYA ................................................................................................. 119 13.7.1 Property Market Segment .................................................................................................................. 119 13.8 REAL ESTATE INDUSTRY IN UGANDA ............................................................................................... 121 13.8.1 Property Market Segment .................................................................................................................. 121 13.8.2 Retail market ...................................................................................................................................... 121 13.8.3 Industrial market ............................................................................................................................... 121 13.8.4 Residential market ............................................................................................................................. 121 13.9 EDUCATION SECTOR ...................................................................................................................... 122 13.9.1 Overview ............................................................................................................................................ 122 13.9.2 Key Drivers for Growth of the Education Sector in Kenya................................................................ 122 13.9.3 Rising disposable income ................................................................................................................... 124 13.10 HEALTHCARE SECTOR .................................................................................................................... 124 13.10.1 Healthcare in Africa .......................................................................................................................... 124 13.10.2 Healthcare in Kenya .......................................................................................................................... 125 13.10.3 Pharmaceutical .................................................................................................................................. 125 13.10.4 Private Healthcare Sector in Kenya .................................................................................................. 125 13.11 INFORMATION AND COMMUNICATIONS TECHNOLOGY(ICT) SECTOR ................................................... 127 13.11.1 Industry Overview .............................................................................................................................. 127 13.11.2 Kenya ICT Sector ............................................................................................................................... 127 13.11.3 Opportunities in ICT .......................................................................................................................... 127 13.12 AGRICULTURAL SECTOR OVERVIEW ................................................................................................ 128 13.12.1 Agriculture in Africa .......................................................................................................................... 128 13.12.2 Agriculture in Kenya .......................................................................................................................... 128 13.12.3 Factors Driving Agriculture Business in Kenya ................................................................................ 129 13.12.4 Opportunities ..................................................................................................................................... 129 13.12.5 Challenges ......................................................................................................................................... 129 13.12.6 Technology ......................................................................................................................................... 129

14. SUMMARY OF FINANCIAL INFORMATION AND OTHER SELECTED DATA ....................... 131

14.1 AUDITORS ..................................................................................................................................... 131 14.2 COMPANY STATEMENT OF COMPREHENSIVE INCOME ........................................................................ 131 14.3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ....................................................................... 132 14.4 COMPANY STATEMENT OF FINANCIAL POSITION ............................................................................... 133 14.5 STATEMENT OF CASH FLOWS (INTERNALLY GENERATED FUNDS) ....................................................... 134 14.6 COMPANY STATEMENT OF TOTAL RETURN ....................................................................................... 135 14.7 PROFORMA FINANCIAL INFORMATION .............................................................................................. 136 14.7.1 Projected consolidated statement of comprehensive income .................................................... 136 14.7.2 Projected company statement of comprehensive income .................................................................. 137 14.7.3 Projected consolidated statement of financial position ..................................................................... 138

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14.7.4 Projected company statement of financial position ........................................................................... 139 14.7.5 Consolidated Statement of cash flows ........................................................................................ 140

15. RISK FACTORS AND MITIGATION MEASURES ...................................................................... 141

15.1 INVESTMENT RISKS ........................................................................................................................ 141 15.1.1 Investment Decisions ......................................................................................................................... 141 15.2 INVESTMENT PERFORMANCE ........................................................................................................... 141 15.3 INVESTMENT CONCENTRATION ....................................................................................................... 141 15.4 INVESTMENT VALUATIONS AND EXIT OPPORTUNITIES ........................................................................ 141 15.5 FINANCIAL RISKS........................................................................................................................... 142 15.5.1 Liquidity risks .................................................................................................................................... 142 15.5.2 Interest rate risk ................................................................................................................................. 142 15.5.3 Inflation risk....................................................................................................................................... 143 15.5.4 Foreign Exchange Risk ...................................................................................................................... 143 15.5.5 Credit Risk ......................................................................................................................................... 143 15.5.6 Commodity Risk ................................................................................................................................. 143 15.6 OPERATIONAL RISKS ...................................................................................................................... 143 15.7 EXTERNAL RISKS ........................................................................................................................... 144 15.8 REPUTATIONAL RISK ...................................................................................................................... 144 15.9 PROJECT RISK ............................................................................................................................... 144 15.10 EXECUTION RISK ........................................................................................................................... 144 15.11 FINANCE RISK ............................................................................................................................... 144 15.12 MARKET RISK ............................................................................................................................... 145

16. CORPORATE GOVERNANCE ..................................................................................................... 146

17. LEGAL AND CORPORATE INFORMATION .............................................................................. 158

17.1 NAME, PLACE AND DATE OF REGISTRATION ..................................................................................... 158 17.2 CAPITAL STRUCTURE ..................................................................................................................... 159 17.3 VOTING RIGHTS AND CONTROL ....................................................................................................... 159 17.4 LISTING ........................................................................................................................................ 159 17.5 ISSUES OF SHARES IN THE THREE YEARS IMMEDIATELY PRECEDING THE DATE OF THIS INFORMATION

MEMORANDUM ............................................................................................................................................ 159 17.6 PRINCIPAL OBJECTS (AS CONTAINED IN THE MEMORANDUM OF ASSOCIATION) ..................................... 159 17.7 PROVISIONS OF THE ARTICLES RELATING TO BORROWING .................................................................. 160 17.8 THE ISSUER’S SUBSIDIARIES AND ASSOCIATED COMPANIES ............................................................... 160 17.8.1 Direct Subsidiaries ............................................................................................................................ 160 17.8.2 Issuer’s indirect subsidiaries ............................................................................................................. 161 17.8.3 Other companies that Issuer has shareholding in: ............................................................................ 162 17.9 MATERIAL AGREEMENTS (OTHER THAN AGREEMENTS MADE IN THE ORDINARY COURSE OF BUSINESS) ... 163 17.10 ONEROUS COVENANTS AND DEFAULT.............................................................................................. 163 17.11 RELATED PARTY AGREEMENTS (LOAN AGREEMENTS WITH SUBSIDIARIES, ETC WITH DETAILS ON AMOUNTS,

PURPOSE, INTEREST RATES, ETC) .................................................................................................................... 163 17.12 LOAN/FINANCE AGREEMENTS ......................................................................................................... 164 17.12.1 Senior Unsecured Fixed Rate Notes and Senior Equity Linked Notes ............................................... 164 17.12.2 Facilities from Co-operative Bank of Kenya Limited ........................................................................ 164 17.12.3 Facility from FirstRand Bank Limited ............................................................................................... 165 17.13 RELEVANT SUBSIDIARY LOAN/FINANCE AGREEMENTS ....................................................................... 166 17.14 LOANS TO DIRECTORS AND SENIOR MANAGEMENT ............................................................................. 166 17.15 LICENSES AND PERMITS .................................................................................................................. 167 17.15.1 The Issuer .......................................................................................................................................... 167 17.15.2 Subsidiaries........................................................................................................................................ 167 17.16 PROPERTY AND INFORMATION ON VENDORS ON MATERIALS ASSETS ACQUIRED IN THE LAST THREE YEARS

167 17.17 PROVISIONS OF THE ARTICLES WITH RESPECT TO DIRECTORS .............................................................. 167 17.18 MATERIAL LITIGATION ................................................................................................................... 169 17.19 OTHER DISCLOSURES ..................................................................................................................... 169

18. GENERAL INFORMATION .......................................................................................................... 170

18.1 EXPENSES OF THE OFFER ................................................................................................................ 170

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18.2 DOCUMENTS AVAILABLE FOR INSPECTION ....................................................................................... 170 18.3 MINIMUM SUBSCRIPTION LEVEL ..................................................................................................... 171 18.4 APPLICATION PROCEDURE .............................................................................................................. 171 18.5 TRADING OF THE NOTES ................................................................................................................. 171 18.6 CHANGES IN SENIOR MANAGEMENT ................................................................................................ 171 18.7 INTERRUPTIONS IN GROUP’S BUSINESS ............................................................................................ 171 18.8 MATERIAL CHANGES ..................................................................................................................... 172 18.9 DIRECTORS STATEMENT AS TO LIQUIDITY REQUIREMENT ................................................................... 172 18.10 DIRECTORS’ DECLARATION ............................................................................................................. 172

19. FREQUENTLY ASKED QUESTIONS ON EQUITY LINKED NOTES ......................................... 173

20. APPENDIX ..................................................................................................................................... 177

20.1 LEGAL OPINION ............................................................................................................................. 177 20.2 REPORTING ACCOUNTANTS REPORT ON THE NINE (9) MONTH MANAGEMENT ACCOUNTS ....................... 178 20.3 REPORTING ACCOUNTANTS REPORT ................................................................................................ 179 20.4 CENTUM’S FIVE (5) YEAR FINANCIAL STATEMENTS ............................................................................ 180 20.5 FORM OF LETTER OF UNDERTAKING FOR REQUESTED ALLOCATION .................................................... 181 20.6 FORM OF THE NOTE APPLICATION FORM .......................................................................................... 183

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Joint Transaction Advisers, Placing Agents and Joint Sponsoring Stock-brokers

Receiving Banks

Reporting Accountants

Legal Advisers

Fiscal Agent and Registrar Note Trustee

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1. IMPORTANT NOTICES AND STATEMENTS

The Note Issue:

This information memorandum is issued by Centum in compliance with the requirements of the Companies Act and

a copy of this Information Memorandum together with the documents required under section 43(1) of the

Companies Act have been delivered to the Registrar of Companies at the State Law Office for registration.

This Information Memorandum has been prepared in compliance with the Capital Markets Act and the Public Offer

Regulations in connection with the offer to the public and listing on the fixed income market segment (“FISMS”) of

the Nairobi Securities Exchange Limited (“NSE”) of Kenya Shillings six billion (Kes.6,000,000,000) senior

unsecured fixed rate notes and senior unsecured equity linked (the “Notes”).

Approvals

The CMA has approved the public offering and listing of the Notes on the FISMS of the NSE.

As a matter of policy, the CMA assumes no responsibility for the correctness of any statements or opinions made or

reports contained in this Information Memorandum. Approval of the Note Issue and/or listing is not to be taken as

an indication of the merits of Notes or the Issuer.

The NSE has authorised the Issuer to list the Notes on the FISMS. The Notes have not been and will not be

registered or issued under any jurisdiction outside Kenya. The NSE assumes no responsibility for the correctness of

any of the statements made or opinions or reports expressed or referred to in this Information Memorandum.

Admission to the FISMS of the NSE is not to be taken as an indication of the merits of the Notes or the Issuer.

The Notes will be issued in book entry form as a dematerialized security under section 24 of the Central

Depositories Act. The sale or transfer of Notes by Noteholders will be subject to the rules of the NSE, and where

applicable, the CDSC Rules, the Terms and Conditions of the Notes and the provisions of the Agency Agreement.

The register for the Notes will be the record of depositors maintained by the Central Depository and Settlement

Corporation (“CDSC”) in accordance with the Central Depositories Act.

There are currently no restrictions on the sale or transfer of Notes under Kenyan law. In particular, there are no

restrictions on the sale or transfer of Notes by or to non-residents of Kenya.

Responsibility

The Directors whose names appear on page 24 of this Information Memorandum accept responsibility for the

information contained in this Information Memorandum. To the best of their knowledge and belief (having taken all

reasonable care to ensure that such is the case) the information contained in this Information Memorandum is in

accordance with the facts and does not omit anything likely to affect the import of such information. The Directors,

having made all reasonable enquiries, confirm that this Information Memorandum contains or incorporates all

information which is material in the context of the Note Issue, that the information contained or incorporated in this

Information Memorandum is true and accurate in all material respects and is not misleading in any material respect,

that the opinions and the intentions expressed in this document are honestly held and that there are no other factual

omissions which would make this document, or any such information or expression of any such opinions or

intentions, misleading in any material respect and that all proper enquiries have been made to verify the foregoing.

Important Notices

The Joint Lead Transaction Advisers and the other advisers to the Issue have relied on the information provided by

the Issuer and the Issuer’s professional advisers and have not verified the information contained in this Information

Memorandum. Accordingly, the Joint Lead Transaction Advisers and the other Advisers to the Issue make no

representations as to the accuracy or completeness of the information contained in this Information Memorandum.

Page 2 of 194

The Joint Lead Transaction Advisers and the other agents and advisers to the Issue do not accept any liability or

responsibility in relation to information contained in this Information Memorandum.

Neither this Information Memorandum nor any other information supplied in connection with the Notes is intended

to provide the complete basis of any credit or other evaluation, nor should it be considered as a recommendation by

the Joint Lead Transaction Advisers or the other agents or advisers to the Issue that any recipient of this Information

Memorandum or any other information supplied in connection with this Note Issue should subscribe for or purchase

the Notes. Each investor contemplating subscribing for or purchasing the Notes should make their own independent

investigation of the financial condition and affairs, and its own appraisal of the creditworthiness of the Issuer.

Investors are advised to consult their professional advisers before making an investment decision. The attention of

prospective investors is drawn to the Risk Factors set out in Section 15 of this Information Memorandum.

The delivery of this Information Memorandum does not at any time imply that the information contained herein

concerning the Issuer is correct at any time subsequent to the date hereof or that any other information supplied in

connection with the Notes is correct as of any time subsequent to the date indicated in the document containing the

same.

No person has been authorized to give any information or make any representation other than those contained in this

Information Memorandum and if given or made, such information or representation should not be relied upon as

having been authorized by or on behalf of the Issuer, the Joint Lead Transaction Advisers or the other advisers and

Agents to the Note Issue.

Selling Restrictions

The Notes may not be offered or sold, directly or indirectly, and neither this document nor any other supplemental

Information Memorandum or any prospectus, form of application, advertisement, other offering material or other

information relating to the Issuer or the Notes may be issued, distributed or published in any jurisdiction, other than

Kenya.

The distribution of this Information Memorandum and the offer for subscription or sale of the Notes may be

restricted by law in certain jurisdictions. Persons into whose possession this Information Memorandum or any Notes

may come must first inform him or herself about and observe any such restrictions.

Supplemental Information Memorandum

The Issuer will, for so long as any Note remains outstanding and listed on any exchange, publish a supplement to the

Information Memorandum where there has been:

(a) a material adverse change in the condition (financial or otherwise) of the Issuer; or

(b) any modification of the terms of the Note Issue which would then make the Information Memorandum

inaccurate or misleading.

The Issuer shall seek the prior approval of the CMA in connection with any amendment or supplement to this

Information Memorandum and the Issuer shall, in addition, supply to the Joint Lead Transaction Advisers and other

Agents and the CMA such number of copies of such supplement to this Information Memorandum as the Joint Lead

Transaction Advisers and other advisers and agents and the CMA may reasonably require or as may be required to

be provided by law. If the terms of the Issue are modified or amended in a manner which would make this

Information Memorandum, as supplemented, inaccurate or misleading, a new Information Memorandum will be

prepared by the Issuer after seeking the approval of the CMA and the NSE.

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Forward Looking Statements

Some statements in this Information Memorandum may be deemed to be "forward-looking statements". Forward-

looking statements include statements concerning the Issuer's plans, objectives, goals, strategies and future

operations and performance and the assumptions underlying these forward-looking statements.

When used in this Information Memorandum, the words "anticipates", "estimates", "believes", "intends" "plans",

"may", "will", "should" and any similar expressions are used to identify forward-looking statements. The Issuer has

based these forward-looking statements on the current view of its Board of Directors with respect to future events

and financial performance. These views reflect the best judgement of the Issuer's Board of Directors but involve

uncertainties and are subject to certain risks the occurrence of which could cause actual results to differ materially

from those predicted in the Issuer's forward-looking statements and from past results, performance or achievements.

Although the Issuer believes that the estimates and the projections reflected in its forward-looking statements are

reasonable, if one or more of the risks or uncertainties materialise or occur, including those which the Issuer has

identified in this Information Memorandum, or if any of the Issuer's underlying assumptions prove to be incomplete

or incorrect, the Issuer's actual results of operations may vary from those expected, estimated or projected.

These forward-looking statements apply only as at the date of this Information Memorandum. Without prejudice to

any requirements under Applicable Laws and regulations, the Issuer expressly disclaims any obligations or

undertaking to disseminate after the date of this Information Memorandum any updates or revisions to any forward-

looking statements contained herein to reflect any change in its expectations with regard thereto or any change in

events, conditions or circumstances on which any forward-looking statement is based. A prospective purchaser of

the Notes should not place undue reliance on these forward-looking statements.

Rounding

Some numerical figures included in this Information Memorandum have been subject to rounding adjustments.

Accordingly, numerical figures shown as totals in certain figures may not be an arithmetic aggregation of the figures

that preceded them.

The Issuer will provide, free of charge, to each person to whom a copy of the Information Memorandum has been

delivered, upon request of such person, a copy of any of the documents deemed to be incorporated herein by

reference, unless such documents have been modified or superseded.

Requests for such documents should be directed to:

Centum Investment Company Limited

5th Floor

International House

Mama Ngina Street

P.O. Box 10518-00100 Nairobi GPO

For the kind attention of the Company Secretary.

The information may also be obtained from the Issuer’s website: www.centum.co.ke.

Legal Adviser’s Opinion

In compliance with disclosure requirement under disclosure F.08 of the Public Offer Regulations, Coulson Harney,

the Legal Advisers, have given and not withdrawn their written consent to the inclusion in this Information

Memorandum of their Legal Opinion (attached as Appendix 20.1), in the form and context in which the Legal

Opinion appears and the references to their names, and have authorised the contents of the said Legal Opinion.

http://www.centum.co.ke/

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Reporting Accountants’ Opinion

In compliance with disclosure requirement under disclosure F.08 of the Public Offer Regulations,

PricewaterhouseCoopers, the Reporting Accountants, have given and not withdrawn their written consent to the

inclusion in this Information Memorandum of their statements (attached as Appendix 20.2), in the form and context

in which their statements appear and the references to their names, and have authorised the contents of the said

statements.

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2. EXECUTIVE SUMMARY

Centum is one of East Africa’s largest1 quoted investment companies with total assets of Kes.36.8 billion as at 31

December 2014 and managing an additional Kes.140 billion of third party funds, through its fund management

subsidiaries, Genesis Kenya Investment Management Limited and Nabo Capital Limited.

Centum’s vision is “To be Africa’s foremost investment channel”

Centum works towards this vision by playing the role of a creator of investment grade opportunities. Within the

strategy period 2014/19, Centum will focus its development activities in eight key sectors: (i) financial services, (ii)

fast moving consumer goods (“FMCG”), (iii) real estate (iv) power (v) agriculture, (vi) education, (vii) healthcare

and (viii) information communication technology (“ICT”). The decision to focus on these sectors was informed by

the size of the market, growth potential and our ability to develop and build Centum’s capabilities in the

development of investment grade assets.

Within the sectors, we look to develop opportunities of scale and attract third party investors to participate in high

quality investment grade opportunities. By way of illustration, Centum has successfully executed this strategy in the

development of its Two Rivers real estate project, which has attracted Kes.6.75 billion of equity capital and an

additional Kes.7.2 billion of debt capital.

Focus on the eight sectors as highlighted below is a key theme of our 2014/19 strategy. Other themes for the strategy

period are highlighted below.

Delivery of market beating returns. In this regard we have set an annualized return target of 35% over the

strategy period

Scale up of the Group by growing Centum’s total asset value to Kes 120 Billion by 2019 and total Assets

under management(AUMs) to Kes 720 Billion

Building the Centum brand by delivering to promise through people hence developing teams with sector

expertise

Management of operating costs at below 2% of total assets

In the following sections of the executive summary, we highlight four (4) key points:

(1) Our track record of delivery.

(2) The current Kes.6 billion issue of debt will be a component of the funding to be applied to the development

of proprietary opportunities that are in the deal pipeline that we have created;

(3) Centum has an unutilized debt carrying capacity: and

(4) Centum has strong cash flows to service the current and new debt.

2.1. Track record of delivery

2.1.1. A review of performance against our 2009/14 strategic targets.

During the strategy period 2009/14, we defined our business as an investment channel that sought to provide

investors access to an otherwise inaccessible, quality and diversified portfolio of investments. To this end we

focused on five strategic objectives.

i. To deliver a return on shareholder funds consistently above market returns. Prior to this time Centum’s returns

were strongly correlated to the NSE;

ii. To scale up assets under management with a target of Kes 30 Billion by 2014 from Kes 6 Billion in 2009.

iii. To increase our geographical footprint to the rest of Africa with a target of at least 50% of the portfolio outside

Kenya;

1 Nairobi Securities Exchange Limited Market Capitalisation stock data

Page 6 of 194

iv. To enhance Centum’s brand by developing processes, systems, controls and human capital to ensure the

company would consistently deliver to its promises;

v. To maintain portfolio costs at below 2.5% of assets under management.

Our performance against the above objectives is highlighted below.

i. Delivery of market beating returns

We have over the last 5 years (the 2009-2014 strategy period) delivered an average return of 30% per annum.

This performance represented a 19% outperformance to the NSE 20 Share Index and a 19% outperformance

against to the MCSI Frontier Market index.

The tables below highlight the performance of Centum against the MCSI Frontier Market index in United

States Dollars (USD):

The table below highlights the performance of Centum against the NSE 20 share index in Kenya Shillings

(KES):

The book value of Centum’s net asset value grew by 362% (3.62 times) from Kes.5.9 billion in 2009 to Kes.26

billion as at 31 December 2014. The Centum share price performed remarkably well over the same period.

Every Shilling invested in Centum shares in April 2009 was worth Kes 7.25 as at 31 December 2014.

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The table below highlights Centum’s book value against the Market Capitalisation.

ii. Growth in assets under management

Centum’s portfolio grew by Kes. 27.8 Billion from Kes. 9 Billion in March 2010 to Kes. 36.8 Billion in

December 2014. Total assets under management stood at Kes 176 Billion in December 2014 representing a

19.5 times growth since March 2010.

iii. Geographical and asset class diversification

During the strategy period 2009/14, the diversification target was to have 50% of the portfolio outside of

Kenya. We progressively increased our exposure outside of Kenya from less than 1% as at March 2010 to

19% as at March 2014. In line with our mission of providing access to inaccessible portfolio, our exposure to

private equity and real estate increased from 59% to 83% at the close of that period.

iv. Brand at Centum is defined as consistent delivery to promise. Throughout the 2009/14 strategy period we

built capacity in the organization through the recruitment of competent and experienced team members as

well as through leadership development. As a result of the strong team, we were able to deliver over and

above our ambitious strategy targets.

v. The cost to asset ratio (excluding third party funds) was maintained below 2.3% within the 2009/14 strategy

period.

5.9 9.2 12.6 13.7 16.122.9 26.05.6

8.613.0

9.8

13.2

24.3

40.6

2009 2010 2011 2012 2013 2014 Dec-14

Book Value

Mkt Cap

Page 8 of 194

2.1.2. Our track record in developing investment grade assets and realizing value at significantly higher multiples

Over the last six years, Centum has had a lot of success in developing investment-grade opportunities and realizing

significant return at expanded multiples on its initial investment. Some examples are highlighted below:

Investment

Stages

Description

Deal

Sourcing

Centum has developed an extensive network of relationships within the region. This has enabled

identification of high-value early stage opportunities and high-potential acquisitions which have

delivered significant growth in Centum’s NAV. Examples of such investments are:

a) Amu Power – A Gulf Energy/Centum Consortium that won the award of tender to construct a

1,000MW coal-fired power plant in Lamu, Kenya

b) Akiira One Geothermal – Centum is part of the consortium developing Sub-Saharan Africa’s

first independent geothermal development, which when complete is expected to generate

140MW.

c) Two Rivers – A 100 acres development in Nairobi, acquired in 2010. KRep Bank – Acquisition

of 65.7% shareholding in the Bank in 2014

d) PlatCorp – Acquisition of 35% shareholding in PlatCorp Holdings in 2012. PlatCorp Holdings is

the holding company of Platinum Credit Kenya, Platinum Credit Uganda and Platinum Credit

Tanzania.

e) Genesis Kenya – Acquisition of 73.35% shareholding in Kenya’s second largest 2fund manager

in 2013.

Value

Addition

Through active execution of value creation strategies, Centum has been improved the underlying

performance of its portfolio companies, which has resulted in an increase in profit attributable to

Centum.

Value

Realization

Centum has been able to secure critical and well timed value realizations from its portfolio that have

enhanced return.

a) Carbacid Investments - Acquired 23% of the company in 2009 for USD 5M at a time when the

company’s shares had been suspended indefinitely from trading on the NSE. Centum exited in

2010 a year later at more than 2x money back.

b) UAP - Invested in the year 2001, drove the expansion of the business in to South Sudan,

Rwanda, DRC and Tanzania. In 2012 drove the USD 50M capital raise from 3 PE funds at 10x

Centum’s entry valuation. Divested from the business in 2015 at 32x entry valuation.

c) Two Rivers – Centum invested US$20M in acquiring 100 acres of land in Nairobi in 2010.

Master planned secured approvals and attracted $75m in equity capital at significant value uplift

to Centum’s capital.

d) RVR - Exited the underperforming asset in a secondary buyout to two PE funds in 2009, thereby

recording a gain of 4.4 times the carrying value of the investment.

2 Retirement Benefits Authority Industry Performance Report, December 2013 to June 2015, published on 31 March 2015

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2.2. The Kes. 6,000,000,000 issue of debt will be a component of the funding applied to develop proprietary

opportunities

Centum has developed a pipeline of attractive investment opportunities in the energy, financial services, real estate

and agriculture sectors. The table below highlights the deal pipeline.

Table 1: Deal Pipeline

Sector Target Companies Nature of

Investment

Description Deal value

(Kes. M)

Financial

Services

K-Rep Bank

Limited

Equity

investment*

Acquisition of majority shareholding of

K-Rep Bank and additional investment

in the Bank to increase its core capital so

as to enable the Bank to increase its

ability to attract deposits as well as

increase its loans and advances.

3,600

Energy (i) Akiira One

Geothermal

Limited

(ii) Amu Power

Limited

Equity

Investment

Finance Centum’s equity investment in

Centum’s current opportunities in the

energy sector.

2,100

Real Estate Pearl Marina

Estates Limited

Equity

investment

The construction of Phase 1 of the Pearl

Marina Development commenced in

March 2015. Phase 1 is estimated to cost

Kes 2.75Bn. Centum intends on funding

this with 60% debt and 40% equity.

Therefore, the equity investment at

phase 1 is Kes 1.1Bn.

1,100

Agriculture Vipingo

Development

Limited

Equity

Investment

Centum is in the process of acquiring

9,646 acres of land in Vipingo at a price

of Kes. 180,000 per acre and Vipingo

Estates Limited, a subsidiary of Rea

Vipingo Plantations Limited, which

owns approximately 900 acres of land at

approximately Kes. 340 Mn.

2,100

Asset

Management

Centum Exotics Equity

Investment

Increase the proportion of listed

investments held by Centum.

2,000

Total 10,900

In line with Centum’s capital structure, these opportunities will be financed through a mix of internally generated

funds (dividend and interest income, as well as realizations of existing investments) and debt. This is highlighted in

the table below.

Page 10 of 194

Sources of funding Amount (KShs. M)

Internally generated funds (dividends, interest and investment realisations ) 4,978

Debt 5,922

Total 10,900

The debt component of funding will be through the issuance of Kenya Shillings six billion (Kes.6, 000,000,000)

senior unsecured fixed rate notes and senior unsecured equity linked notes.

The investment opportunities to be funded by the bond issue are highlighted below:


Investment %

Bond proceeds

(Kes. M)

Financial Services K-Rep Bank Limited Equity investment* 60.0 3,600

Energy Akiira One Geothermal Limited

Amu Power Limited Equity investment 35.0 2,100

Real Estate Pearl Marina Estates Limited Equity investment 3.7 222

Offer Expenses 1.3 78

Total 100 6,000

*Centum has already made a KShs. 2,400,000,000 investment in K-rep funded by a short-term facility. The proceeds

from this Note issue will be applied in refinancing the short-term facility.

A. Financial services

Centum completed the acquisition of 65.6% shareholding in K-Rep Bank in November 2014. The acquisition was

funded through a bridging facility. Centum intends to utilize part of the proceeds of the bond towards refinancing

this short-term facility. Kes 2.4 Billion of the proceeds from the borrowing was utilized in the acquisition of the

bank. Centum further intends on increasing the capitalization of the bank and has committed to invest an additional

Kes 1.2 Billion towards this capitalization. This will allow the bank to attract higher deposits as well as enable the

bank to over more loans and advances.

B. Energy

Centum has identified two opportunities in the energy sector.

i. Akiira One Geothermal

Akiira One Geothermal, founded in 2012, is the first private sector Greenfield geothermal private development in

SSA. Centum owns 37.5% of the equity in the project company that is prospecting for geothermal and when

complete, it will generate 70MW of geothermal electricity with this being the first phase of the planned total

140MW.

ii. Amu Power

Amu Power is Special Purpose Vehicle (SPV) set up by the consortium that was awarded the tender to construct

a 1050 MW coal-fired power plant in Lamu County, Kenya. Centum is the lead project equity sponsor in the

consortium.

C. Real Estate

Pearl Marina Estates Limited (Uganda) owns 385 acres of prime land situated between Entebbe International Airport

and Kampala with 4km of lake frontage. The vision of Pearl Marina is to develop a premium world-class water front

destination recognized in East Africa and beyond.

Page 11 of 194

Centum has commenced on Phase 1 construction of 102 villas, a gatehouse and supporting infrastructure for the

Pearl Marina project. Phase 1 is estimated to cost Kes. 2.75Bn, which will be funded 40% by equity and 60% by

debt.

Outcome of development of the proprietary opportunities in the pipeline

With these opportunities to be funded by the issue of additional debt, which are in addition to existing opportunities

and current investments that are funded from internally generated funds, Centum’s NAV is set to grow at between

30% to 35% p.a. in the current strategy period (2014-2019) and see Centum’s NAV grow to Kes.120 billion by the

close of the period.

2.3. Unutilized debt carrying capacity

Centum has a relatively low level of gearing, with debt to shareholder funds ratio at 15% as at 31 March 2015 as

shown below:

Kes. M 2010 2011 2012 2013 2014 2015

Net Debt (Total debt less cash) - 1,988 678 2,647 4,649 3,763

Gearing

16% 5% 20% 23% 15%

With the current debt issue of Kes.6 billion being fully subscribed, the level of gearing will increase to 38%, which

is still relatively low and within Centum’s existing debt covenants of a ceiling gearing ratio of 50%.

The level of gearing at Centum excludes debt at subsidiary levels as the subsidiary company level. At subsidiary

level, project specific funding at no recourse to Centum is procured. Therefore, the value at risk for Centum in

relation to the debt at subsidiary levels in limited to the extent of Centum’s equity investment in the respective

subsidiary.

2.4. Strong cash flows to service the current and new debt

Centum has strong cash flows from dividend, interest and exits from its portfolio of assets. The table below

highlights the cash generated from operations over the last six years. With our dual focus on cash return and

investment value appreciation, Centum is set to maintain healthy cash flows into the future.

Kes. M 2010 2011 2012 2013 2014 Dec 2014

Operating inflows 1,722 2,349 6,619 2,547 4,146 4,112

Operating outflows (199) (305) (309) (380) (463) (565)

Cash from Operations 1,523 2,044 6,310 2,167 3,683 3,547

Interest paid 44 148 230 344 660 (391)

Debt service coverage 34.61 13.81 27.43 6.30 5.58 9.07

A minimal average of 14% of our cash inflows goes towards servicing of operating expenses at Centum Investment

Company Limited.

Page 12 of 194

To better manage our cost structure, we have created operational subsidiaries in the following lines of business:

Business line Operational Subsidiary

Real estate - development management and project management Athena Properties Limited

Fund management of quoted securities Nabo Capital Limited

Shared Services (Finance, HR, ICT, Legal, Company Secretarial, Tax,

Risk, Marketing & Communications)

Centum Business Solutions Limited

Each of the operating subsidiaries provides services to Centum, its subsidiaries and associates companies at a fee. In

addition, they have third party clients from whom additional fees are generated. Each of the subsidiaries have

revenues that exceed their cost structure, which means that they do not add to the cost structure of Centum but rather

each make a contribution to the bottom line of Centum as they are run as separate businesses.

This therefore means that the bulk of cashflows generated from operations by Centum are available to service

additional debt as well as repay our current Kes 4.2Bn bond in 2017.

Over the period, Centum has maintained debt service coverage way above the bond covenant of 1.5 times.

Centum is rated for credit quality by the Global Credit Rating Company (GCR). Centum received an initial rating of

A- in 2012. Its current rating is A for both short term and long term credit quality, well above the minimum

investment grade rating.

Forecast debt service capacity

Given current cash flows from operations and an assumption of no growth, Centum will still be in a position to

adequately service the additional Kes.6 billion debt. This is illustrated below.

Assuming that cash from operations remains at the average of the past five years at Kes 4Bn and an additional

annual debt service of approximately Kes 800 million from the bond raise, the debt service coverage will be 2.5

times which is within the bond covenant target.

Page 13 of 194

Kes. M 2015E 2016

Cash from Operations 8,352 3,846

Interest paid 730 1,325

Debt service coverage 11.44 2.54

Minimum debt service coverage ratio 1.5 1.5

CONCLUSION

We invite you to partner with Centum in this exciting journey of developing local institutions of scale that will

attract foreign and local investors searching for investment-grade assets in this region and will further serve to

deepen our capital markets.

Page 14 of 194

3. DEFINITIONS AND ABBREVIATIONS

3.1 Definitions

Subject Definition

Agency Agreement the agreement dated 14 May 2015 between the Issuer and the Fiscal Agent in

relation to the Notes

Agents the Note Trustee, Registrar and Fiscal Agent or any one of the them and includes

any successor agents appointed by the Issuer from time to time in accordance with

the Agency Agreement

Applicable Laws any laws or regulations (including any foreign exchange rules or regulations) of

any governmental or other regulatory authority which may govern the Issue, the

Conditions of the Notes and the Notes issued there under in accordance with which

the same are to be construed

Basis Point or BPS unit that is equal to one hundredth of one per cent (1% of 1/ 100)

Business Day a day (other than a Saturday or Sunday or public holiday) when banks in Nairobi

are open for ordinary business

Capital Markets Act Capital Markets Act (Chapter 485A of the Laws of Kenya)

Capital Markets

Authority or CMA

the Capital Markets Authority set up pursuant to the provisions of Capital Markets

Act

Centum Centum Investment Company Limited

Company Centum Investment Company Limited

CD Act Central Depositories Act (Act 4 of 2000)

CDS means the central depository system maintained by the CDSC

CDSC means the Central Depository and Settlement Corporation Limited established

under the CD Act

CDSC Account means an account opened and maintained with a Central Depository in accordance

with the CD Act and the rules and regulations issued thereunder;

CDSC Rules means the operational and procedural rules issued or to be issued by the CDSC

with respect to operation of CDS Accounts and trading in immobilised securities;

Companies Act the Companies Act (Chapter 486 of the Laws of Kenya)

Commencement Date the date upon which the Notes are issued

Page 15 of 194

Subject Definition

Conditions the terms and conditions in relation to the Note as set out Trust Deed and Section

7.1 of this Information Memorandum

Cross-Default any one of the circumstances described in Condition iii(d).

Directors the Directors of the Issuer, whose names appear in Section 4 of this Information

Memorandum.

Due Date in relation to any Unpaid Amount, the date on which that Unpaid Amount fell due

for payment (if a scheduled or accelerated payment of interest) or repayment (if a

scheduled or accelerated repayment of principal) by Centum in accordance with the

terms of the Conditions or the Agency Agreement.

Enforcement Notice a notice issued by the Note Trustee to the Issuer pursuant to Section 10 (Terms and

Conditions) Condition 13.2 (Acceleration) declaring all amounts payable under the

Notes to be immediately due and repayable; and demanding that the Issuer

immediately repay the outstanding principal amount of the Notes (together with all

accrued interest thereon)

Event of Default any one of the circumstances described in Section (Terms and Conditions)

Condition 13.1 (Events of Default).

Extraordinary

Resolution

has the meaning set out in Section 10 (Terms and Conditions) Condition 16

(Meeting of Noteholders)

Fair Value It is the amount at which the asset could be bought or sold in a current transaction

between willing parties, or transferred to an equivalent party, other than in a

liquidation sale

Final Due Amount the amount due and owing from Centum under each of the Notes as determined by

the Agent on or after the Maturity Date

Final Net Asset Value the Net Asset Value, in Kenya Shillings, of Centum as reported in Centum’s

Company Statement of Financial Position as at 31st March 2020, subject to

adjustments for secondary issue of shares during the tenor of the Notes

Fiscal Agent the institution initially appointed by the Issuer pursuant to the conditions of the

Agency Agreement

Holders the Noteholders and/or the Variable Return Holders (as the case may be)

Independent Director a director who:

i. has not been employed by Centum in an executive capacity within the last

five years;

Page 16 of 194

Subject Definition

ii. is not associated to an adviser or consultant to the Company or a member of

Centum’s senior management or a significant customer or supplier of

Centum or with a not-for-profit entity that receives significant contributions

from Centum; or within the last five years, has not had any business

relationship with Centum (other than service as a director) for which

Centum has been required to make disclosure;

iii. has no personal service contract(s) with Centum, or a member of Centum’s

senior management;

iv. is not employed by a public listed company at which an executive officer of

Centum serves as a director;

v. is not a member of the immediate family of any person described above; or

vi. has not had any of the relationships described above with any affiliate of

Centum.

Information

Memorandum

this Information Memorandum dated 14 May 2015

Initial Net Asset Value the Net Asset Value, in Kenya Shillings, of Centum as reported in Centum’s

Statement of Financial Position as at 31 December 2014

Insolvency Event (a) The completion of the winding-up or liquidation of Centum with it ceasing

to exist; or

(b) Any of the following which has the effect of permanently preventing the

payment or repayment by Centum of all of its liabilities under the Notes

and the Agency Agreement:

i. a war, revolution, riot or other similar event in Kenya;

ii. an earthquake, volcanic eruption, tidal wave or other act of God; or,

iii. action taken by the GoK to intervene in the business of Centum

Interest the amount of interest payable in respect of each Principal Amount of the Notes as

determined in accordance with Condition 6 (Interest) of Section 10(Terms and

Conditions)

Interest Payment Date the dates which interest is payable as Condition 6 (Interest) of 10 (Terms and

Conditions)

Interest Rate means 13% for the Senior Unsecured Fixed Rate Note and 12.5% for the Senior

Unsecured Equity Linked Note

Issue the total sums raised from the Notes

Page 17 of 194

Subject Definition

Issue and Paying Agent the Fiscal Agent

Issue Price the price at which the Notes are issued by the Issuer (being, at the election of the

Issuer, at par or at a discount to, or premium over their nominal amount as

specified)

Issuer Centum Investment Company Limited

Joint Lead Arrangers

or Joint Lead

Transaction Advisers

Equity Investment Bank Limited, Dyer & Blair Investment Bank Limited

Kenya The Republic of Kenya and “Kenyan” shall be construed accordingly

Kes or Shilling Kenya Shillings being the lawful currency of the Republic of Kenya

Late Payment Rate Interest Rate plus a margin of 2.0% per annum

Liabilities or Liability any loss, damage, cost, charge, claim, demand, expense, judgment, action,

proceeding or other liability whatsoever (including, without limitation, in respect of

taxes, duties, levies, imposts and other charges) and including any value added tax

or similar tax charged or chargeable in respect thereof and legal fees and expenses

on a full indemnity basis

Maturity Date 8 June 2020

Month a period from and including a particular day in a calendar month to and excluding

the numerically corresponding day in the next calendar month, except that:

(a) (subject to paragraph (c) below) if the numerically corresponding day is

not a Business Day, that period shall end on the next Business Day in that

calendar month in which that period is to end if there is one, or if there is

not, on the immediately preceding Business Day;

(b) if there is no numerically corresponding day in the calendar month in

which that period is to end, that period shall end on the last Business Day

in that calendar month; and

(c) if an Interest Period begins on the last Business Day of a calendar month,

that Interest Period shall end on the last Business Day in the calendar

month in which that Interest Period is to end

NAV Net Asset Value calculated as total assets of a company less all its liabilities

including loan capital and preference shares, divided by the number of outstanding

shares.

NAV Upside difference between the Initial Net Asset Value and the Final Net Asset Value

Page 18 of 194

Subject Definition

Note Documents the Trust Deed and the Agency Agreement

Note Issue means the issue by the Company of medium term notes denominated in Kenya

Shillings in an aggregate amount of up to Kenya Shillings six billion

(Kes.6,000,000,000).

Note Trustee the person appointed to act as such in relation to the Note in pursuant to the Agency

Agreement

Noteholder a person in whose name a Note is registered in the relevant Register as at the

relevant date or, in the case of joint holders, the first-named thereof

Notes Kenya Shillings six billion (Kes. 6,000,000,000) 13% Senior Unsecured Fixed Rate

Notes and 12.5% Senior Unsecured Equity Linked Notes issued pursuant to this

Information Memorandum and the Agency Agreement.

Principal Amount the nominal amount of each Note credited in the CDSC Account in respect of that

Note

Public Offer

Regulations

Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations,

2002

Record Date in the case of payments of Interest or Principal, 1700 hrs Nairobi time 15 calendar

days before the relevant date for payment or such other date as may be agreed

between the Trustee (on behalf of the Noteholders), Centum and the relevant

Agents

Redemption Price Payment at the Maturity Date for the ELN

Register means the respective official records of Noteholders and the Variable Return

Holders in the CDS as maintained by the CDSC pursuant to section 25 of the CD

Act;

Registrar the person appointed by the Issuer or acting as registrar pursuant to the Conditions

and the Agency Agreement

Repay, Redeem and Pay shall each include both the others and cognate expressions shall be construed

accordingly

Security a mortgage, charge, pledge, lien or other security interest securing any obligation of

any person or any other agreement or arrangement having a similar effect

Senior Unsecured

Equity Linked Note

a Note which is issued pursuant to the Agency Agreement and this Information

Memorandum whose return comprises Interest and a variable return based on the

NAV Upside as provided in Condition 7(Computation of Variable Return) of

Page 19 of 194

Subject Definition

Section 10 (Terms and Conditions)

Senior Unsecured Fixed

Rate Note

a Note which is issued pursuant to the Agency Agreement and this Information

Memorandum whose return comprises of Interest to be calculated and paid on a

fixed rate basis

Shareholder Funds a firm's total assets minus its total liabilities

Specified Office in relation to any Note Agent, either the office identified with its name in the

Conditions or any other office notified to any relevant parties pursuant to the

Agents agreement with the Issuer

Strategy Period Either of Centum’s strategy periods between years 2009-2014 and 2014-2019

Subsidiary in respect of any person, company or corporation, any other person, company or

corporation who is controlled, directly or indirectly, by the first-mentioned person,

company or corporation or more than half the issued share capital of which is

beneficially owned, directly or indirectly, by the first-mentioned person, company

or corporation. or which is a subsidiary of another subsidiary of the first-mentioned

person, company or corporation and, for these purposes, a company or corporation

shall be treated as being controlled by another person, company or corporation if

that other company or corporation is able to direct its affairs and/or to control the

composition of its board of directors or equivalent body

Successor in relation to the Agents, such other or further person, as may from time to time be

appointed as an Agent

Tax any tax, levy, impost, duty or other charge or withholding of a similar nature

(including any penalty or interest payable in connection with any failure to pay or

any delay in paying any of the same)

Total Assets Centum’s portfolio of investments

Trust Deed the trust deed dated 14 May 2015 between Issuer and Ropat Trust Company

Limited in relation to the Notes

Unpaid Amount that part of:

(a) a scheduled payment of Interest under the Notes; or

(b) a scheduled repayment of Principal under the Notes; or

(c) a scheduled repayment of the Variable Return; or

(d) any repayment of Principal by way of early redemption; or

(e) the outstanding Principal Amount of the Notes (together with all interest

thereon) or outstanding Variable Return following delivery of an

Page 20 of 194

Subject Definition

Enforcement Notice in accordance with the Agency Agreement,

which, in each case, is not paid by Centum to the Fiscal Agent in accordance with

the Agency Agreement by the applicable Due Date

US$ or US$ or Dollars

or $

United States of America dollars being the lawful currency of the United States of

America

Variable Return the variable return in relation to the equity linked component of the ELN as

provided in Condition 7(Computation of Variable Return) of Section 10 (Terms

and Conditions)

Variable Return Holder a person in whose name a Variable Return is registered in the relevant Register as

at the relevant date or, in the case of joint holders, the first-named thereof

Written Resolution a resolution in writing signed by or on behalf of holders of Notes who for the time

being are entitled to receive notice of a meeting in accordance with the provisions

of the Trust Deed and who together hold not less than three-quarters in value of the

principal amount of the Notes then outstanding whether contained in one document

or several documents in like form, each signed by or on behalf of one

3.2 Abbreviations

Subject Definition

AUM Assets Under Management which include total assets and third party funds

BA Bachelors of Arts

Bcom Bachelors of Commerce

BSc Bachelors of Science

Bn or bn Billion

CAIA Chartered Alternative Investment Analyst

CAGR Compounded Annual Growth Rate

CBK Central Bank of Kenya

CFA Chartered financial Analyst

CIMA Chartered Institute of Public Finance and Accountancy

Page 21 of 194

Subject Definition

CMA Capital Markets Authority

CDS Central Depository System

CFA Chartered Financial Analyst

COD Commercial Operating Date

CPA (K) Certified Public Accountant of Kenya

CPS (K) Certified Public Secretary of Kenya

CIMA Chartered Institute of Management Accountants

EFT Electronic Funds Transfer

ELN Senior Unsecured Equity Linked Note

FCCA Fellow of the Association of Chartered Certified Accountants

FMCG Fast moving consumer goods

FISM Fixed Income Securities Market Segment

FRN Senior Unsecured Fixed Rate Note

FTE Full time employee

GDP Gross Domestic Product

GoK Government of Kenya

ICDC Industrial Commercial Development Corporation

ICT Information and communications technology

IFRS international accounting standards within the meaning of the IAS Regulations

1606/2002

ICPAK Institute of Certified Public Accountants of Kenya

IMF International Monetary Fund

IRR Internal Rate of Return

JSD Doctor of Juridical Science

Page 22 of 194

Subject Definition

KenGen Kenya Electric Generating Company Limited

Km Kilometre

KPLC Kenya Power and Lighting Company Limited

LLB Bachelor of Laws

LLM Master of Laws

MA Master of Arts

MBA Master Business Administration

Mn Million

MW Megawatts

NAV Net Asset Value calculated as total assets of a company less all its liabilities

including loan capital and preference shares, divided by the number of outstanding

shares.

NAV Upside difference between the Initial Net Asset Value and the Final Net Asset Value

NSE Nairobi Securities Exchange Limited

PE Private Equity

Ppp Public Private Partnership

PS Permanent Secretary

PhD Doctor of Philosophy

QPE Quoted Private Equity

RE&I Real Estate and Infrastructure

REIT Real Estate Investment Trust

RTGS Real Time Gross Settlement

sq ft Square feet

SQM or sq m Square metres

Page 23 of 194

Subject Definition

SSA Sub Sahara Africa

USE Ugandan Securities Exchange Limited

USA United States of America

Page 24 of 194

4. SUMMARY OF CORPORATE INFORMATION

Name of Issuer: Centum Investment Company Limited

Registration Number C8/67

Registered Office and

Head Office

International House

Mama Ngina Street

P. O. Box 10518 – 00100

Nairobi

Kenya

Tel: +254 (20) 2286000

Fax: +254 (20) 2223223

Mobile: +254 722 205339

Contact Persons James Mworia

Group Chief Executive Officer

Email: [email protected]

Risper Mukoto

Managing Director; Centum Business Solutions Limited


Fred Murimi

Corporate Affairs Director & Company Secretary


Board of Directors* Name Position Address

James Muguiyi Chairman

Non Executive Director

P.O. Box 10518 – 00100

Nairobi

Kenya

Dr. James McFie Deputy Chairman

Independent Director

P.O. Box 10518 – 00100

Nairobi

Kenya

James Mworia Chief Executive Officer

Executive Director

P.O. Box 10518 – 00100

Nairobi

Kenya

Christopher Kirubi Non Executive Director

P.O. Box 10518 – 00100

Nairobi

Kenya

Peter Kimurwa Non Executive Director

(Alternate Director

representing ICDC)

P.O. Box 10518 – 00100

Nairobi

Kenya

Laila Macharia Independent Director P.O. Box 10518 – 00100

Nairobi

Kenya

Margaret Byama Non Executive Director

(Alternate Director

representing the PS

Ministry of EA Affairs,

Commerce & Tourism)

P.O. Box 10518 – 00100

Nairobi

Kenya

Imtiaz Khan Independent Director P.O. Box 10518 – 00100

Nairobi

Kenya

Henry Njoroge Independent Director P.O. Box 10518 – 00100

Tel:+254

mailto:[email protected]



Page 25 of 194

Nairobi

Kenya

Company Secretary Fred Murimi

Company Secretary/ Corporate Affairs Director

International House

Mama Ngina Street

P.O. Box 10518-00100

Nairobi, Kenya

Legal Advisers Coulson Harney

5th Floor, ICEA Lion Centre

West Wing

Riverside Park

Chiromo Road

P.O. Box 10643-00100

Nairobi, Kenya

Auditors

PricewaterhouseCoopers

PwC Tower

Waiyaki Way/Chiromo Road

Westlands

P. O. Box 43963-00100

Nairobi, Kenya

Registrars

Custody and Registrars Services Limited

6th Floor, Bruce House

Standard Street

P.O. Box 8484-00100

Nairobi, Kenya

Bankers Co-operative Bank of Kenya Limited

Co-operative Bank House

Haile Selassie Avenue

P.O. Box 48231–00100

Nairobi, Kenya

Commercial Bank of Africa Limited

International House

Mama Ngina Street

P.O. Box 30437–00100

Nairobi, Kenya

*The Issuer’s directors are all Kenyan citizens.

Page 26 of 194

5. ADVISERS TO THE ISSUER ON THE NOTE ISSUE

Joint Lead Transaction Advisers, Placing Agents and Joint Sponsoring Stock-brokers

Equity Investment Bank Limited

6th Floor, Equity Centre

Hospital Road

Upperhill.

P.O. Box 75104-00200

Nairobi, Kenya

Tel:+254 719 056 501

Fax: 020-2737276

Contact Person: Irungu Nyakera

Email:

[email protected]

Dyer & Blair Investment Bank Limited

10th Floor, Pension Towers

Loita Street

P.O. Box 45396-00100

Nairobi, Kenya

Tel:+254 20 3240104

Fax: 020 3240 114

Contact Person: Paul M. Nyaga


Receiving Banks

K-Rep Bank Limited

K-Rep Center

Wood Avenue,

Kilimani

P.O. Box 25363-00603 Nairobi, Nairobi

Tel: : +254 20 3906000/1-7

Contact Person: Judy Githae


Co-operative Bank of Kenya Limited

Co-operative House

Haile Selassie

P.O. Box 48231 - 00100

Nairobi, Kenya

Tel: +254 20 3276000

Fax : +254 20 219831

Contact Person: Jacqualine Waithaka


Reporting Accountant Legal Adviser

PricewaterhouseCoopers Limited

PwC Tower

Waiyaki Way/Chiromo Road

Westlands

P. O. Box 43963-00100

Nairobi, Kenya

Tel: +254 20 2855525

Fax: +254 20 2855001

Contact: Richard Njoroge


Coulson Harney

5th Floor, ICEA Lion Centre, West Wing

Riverside Park

Chiromo Road

P.O. Box 10643-00100

Nairobi, Kenya

Tel: +254 20 289 9000

Fax: +254 20 2899100

Contact: Kamami Christine Mweti


Fiscal Agent and Registrar Note Trustee


6th Floor, Bruce House

Standard Street

P.O. Box 8484-00100

Nairobi, Kenya

Tel : +254 20 2230518

Fax: +254 20 2211773

Contact Person: Kerry-Anne Makatiani


Ropat Trust Company Limited

Kenya Re Towers, off Ragati Road

P.O. Box 1243, 00100

Nairobi, Kenya

Tel: +254 20 2723322

Fax: +254 20 2723474

Contact Person: Patrick Gacheru










Page 27 of 194

6. TIMETABLE

The timetable for the Note Issue is as provided below:

Table 1: Timetable

Event Date

1. Application Lists Open [Friday, 15, May]

2. Application Lists Close [Friday, 5 June]

3. Date of Allocation [Thursday, 11 June ]

4. Announcement Date to Investors [[Thursday, 11 June ]

5. Settlement Date [Monday, 15 June]

6. Announcement of results to CMA [Wednesday, 17 June]

7. Public Announcement [Friday, 19 June]

8. Crediting of notes to CDS accounts [Monday, 22 June]

9. Listing on NSE and Commencement of Trading [Tuesday, 30 June]

These dates are subject to change and are indicative only. Centum reserves the right to amend this indicative

timetable, a supplementary timetable will be issued. In particular, Centum reserves the right, to close the Offer

early, to extend the Closing Date or to withdraw the Offer. Any extension of the Closing Date will have a

consequential effect on the issue date. Any early or late closure decision will require the approval from CMA.

Page 28 of 194

7. SUMMARY OF THE OFFER

7.1 Summary of the Proposed Notes

The following summary does not purport to be complete and is taken from, and is qualified in its entirety by, the

remainder of this Information Memorandum. Words and expressions defined in “Description of the Notes” below

shall have the same meanings in this summary of the offering.

Table 2: Summary of the Note

1. Issuer Centum Investment Company Limited.

2. Joint Lead Transaction Advisers Dyer & Blair Investment Bank Limited


3. Registrar/Fiscal Agent Custody and Registrars Services Limited

4. Note Trustee Ropat Trust Company Limited

5. Legal Adviser Coulson Harney

6. Reporting Accountant PricewaterhouseCoopers

7. Receiving Banks Co-operative Bank of Kenya Limited

K-Rep Bank Limited

8. Sponsoring Stockbrokers & Placing

Agent

Dyer & Blair Investment Bank

Equity Investment Bank limited

9. Issue Description Up to Kenya Shillings six billion (Kes.6,000,000,000)

comprising Senior Unsecured Fixed Rate Notes and

Senior Unsecured Equity Linked Notes both due [•]

June 2020 and the subsequent listing of the Notes on the

FISM of the NSE.

The Senior Unsecured Fixed Rate Notes are issued with

a fixed interest rate of 13%.

The Senior Unsecured Equity Linked Notes are made

up of two components:

a) a fixed rate bond of 12.5% (the “12.5%

Coupon”); and

b) an equity linked component (the “Variable

Return”), the value of which will be

determined by the growth of the Issuer’s NAV

upto a maximum of twenty five per cent (25%)

appreciation of the Initial NAV and which will

earn the coupon holders up to ten (10%) of the

Page 29 of 194

Principal Amount if the maximum twenty five

per cent (25%) NAV appreciation is achieved.

The Variable Return will be issued and traded as units.

It will be issued in the ratio of 1:1 with respect to the

Equity Linked Notes.

The Variable Return will be detachable and transferable

at the option of the Noteholder in accordance with the

Conditions.

The Variable Return does not constitute a Note and its

holder shall therefore not be deemed to be a Noteholder

by mere holding of the Variable Return.

10. Issuance in Series The Issuer will issue Senior Unsecured Fixed Rate

Notes in one series and Senior Unsecured Equity Linked

Notes in another series. Within each series, the Issuer

may issue Notes subject to terms identical to those

series Notes.

11. Status of Senior Unsecured Fixed Rate

Notes

The Senior Unsecured Fixed Rate Notes constitute

Senior, unsubordinated, unsecured and unconditional

obligations of the Issuer ranking paripassu among

themselves and with all its other present and future

unsecured obligations (other than any secured debt

obligations and those preferred by mandatory provisions

of law).

12. Status of Senior Unsecured Equity

Linked Notes

The Senior Unsecured Equity Linked Notes constitute

Senior unsubordinated, unsecured, direct, and

unconditional obligations of the Issuer ranking

paripassu among themselves and with all its other

present and future unsecured obligations (other than any

secured debt obligations and those preferred by

mandatory provisions of law).

13. Allotment of Notes A maximum of Kes 6,000,000,000 (six billion, Kenya

Shillings) in Notes will be made available for

subscription.

The Issuer and the Joint Lead Arrangers will determine

the allotment of Notes at their sole discretion. Of

particular note however is that FRN applications will be

given preference over ELN applications.

Centum reserves the right, whether the Issue is over-

subscribed or not, to reject any application in whole or

in part and may therefore allot less than the amount

Page 30 of 194

applied for.

In the event that the total number of Notes subscribed

for by applicants is equal to or less than the Issue

Amount, all subscriptions will be allocated in full as per

the number of Notes applied for by applicants.

Successful applicants will be notified by the Placing

Agent of the amount allotted to them no later than the

date and time specified in Section 6 (Timetable).

14. Currency The Notes will be denominated in Kenya Shillings

(“Kes”).

15. Issue Price The Notes will be issued on a fully paid basis at par.

16. Tenor Five years.

17. Purpose The proceeds of the Notes will be used for investments

in the following sectors:

Financial services;

Energy;

Real Estate.

18. Senior Unsecured Notes Fixed Interest

Rate

13.0% per annum payable semi-annually in arrears on

100% of each specified denomination of the principal

amount.

19. Senior Unsecured Equity Linked Notes

Fixed Interest Rate

12.5% per annum payable semi-annually in arrears on

100% of each specified denomination of principal

amount.

20. Late Payment Interest Rate The interest rate plus 2% per annum.

21. Cross Default Cross-default: any present or future indebtedness of

Centum in connection with moneys borrowed or raised

exceeding in aggregate Kenya Shillings five hundred

million (Kes.500,000,000/=) (or its equivalent):

i) Is not satisfied when due, or at the end of any

originally applicable grace period; or

ii) Becomes prematurely payable following

delivery of an Enforcement Notice by the

Note Trustee to Centum, as the case may

be, as a result of a default by Centum except

to the extent in any instance that the

existence or enforceability of the relevant

Page 31 of 194

obligation is being disputed in good faith by

it by appropriate proceedings; or

iii) Any encumbrance over any assets of Centum

or any Subsidiary of Centum becomes

enforceable.

22. Interest Payment Frequency Semi-annually in arrears.

23. Day Count Fraction Actual/364

24. Interest Commencement Date The Interest payment commencement date shall be six

(6) months after the Settlement Date

25. Interest Periods Each period commencing on (and including) an interest

payment date (or the interest commencement date) and

ending on (but excluding) the next, or first, interest

payment date (as the case may be).

26. Minimum success level 50% of the aggregate issue amount for the Issue

27. Final Maturity The final maturity of the Senior Unsecured

Fixed Rate Notes will be five (5) years after

the Settlement Date

The final maturity of the Equity Linked Notes

will be five (5) years after the Settlement Date

28. Redemption and Purchase Condition 9 (Redemption and purchase).

Redemption at Maturity

Unless previously redeemed or purchased and

cancelled as specified below, each Note will be

redeemed by the Issuer at its Final Due Amount on the

Maturity Date.

Redemption at the option of the Issuer

The Issuer may upon giving not less than thirty (30)

and not more than sixty (60) days’ prior notice in

writing to the Noteholders and the Trustee in

accordance with condition 15 (Notices) to redeem all or

some of the Senior Unsecured Fixed Rate Notes

outstanding;

The Early Redemption Notice shall specify the date on

which the redemptions is to be effected which date

shall be an Interest Repayment or Principal Repayment

Day; then and upon expiration of such notice, the

Issuer shall redeem such Notes.

Page 32 of 194

If the Issuer redeems only some of the Senior

Unsecured Fixed Rate Notes, the partial redemption

shall be of an aggregate principal amount of not less

than Kenya Shillings one billion (Kes 1,000,000,000)

and integral multiple of Kenya Shillings one hundred

million (Kes 100,000,000).

Senior Unsecured Fixed Rate Notes may only be

redeemed after the third anniversary of their issuance

and at a premium of 1% (one per cent).

Senior Unsecured Equity Linked Notes will be eligible

for early redemption, in which case the Final NAV will

be calculated based on the Issuer’s latest publicly

issued financial statements, being either half year

accounts or full year accounts as the case may be.

Purchases

The Issuer may at any time purchase Notes at any price

in the open market or otherwise, subject to any

approvals required from the CMA or the NSE or to any

other restrictions under applicable law. In the event of

the Issuer purchasing Notes, such Notes may be held or

resold, or at the discretion of the Issuer, cancelled. All

Notes which are redeemed or purchased by or on behalf

of the Issuer may be cancelled by giving notice to that

effect to the Registrar, the Fiscal Agent and the CDSC.

29. Form of the Notes The Notes will be registered in the CDS Account of

each Noteholder held with the CDSC in accordance

with the CD Act.

30. Denomination of the Notes The Notes will be issued in denominations of Kes

100,000 and integral multiples of Kes 100,000 in excess

thereof, subject to a minimum subscription amount of

Kes 1,000,000.

31. Security The Notes shall be unsecured.

32. Payment All amounts payable by the Issuer in respect of each

Note or Variable Return (as the case may be) shall be

paid by EFT or RTGS transferred to the account of the

Holder as set forth in the relevant Register maintained

by the Registrar, made available to the Holders or a

person nominated by the Holder and sent to the

registered address of the Holder or such person.

Page 33 of 194

33. Compliance The placement and transfer of the Notes shall comply

with the following:

the requirements of the Companies Act with respect

to issuance and subscription;

the requirements of the CMA with respect to

issuance and subscription;

the requirements of the CMA and NSE with respect

to the listing of the Notes on the NSE;

the CMA and NSE reporting requirements from

time to time; and

any other applicable provisions of the law in Kenya

relating to companies and debt capital markets that

is in existence or that may be passed before the

issue of the Notes or during the pendency of the

issue of the Notes.

34. Events of default Condition 13 (Events of Default)

Other than as a result of a Force Majeure Event, each of

the events set out below is an Event of Default:

(a) Non-payment: Centum fails to pay any

amount due in respect of all the Notes or some

of the Notes or the Variable Return on the Due

Date for payment and such default continues

for a period of seven (7) Business Days unless;

(i) the failure to pay is caused by

administrative or technical error;

(ii) payment is made within three (3)

Business Days thereafter; or

(iii) the failure to pay is in order to comply

with any Applicable Laws or order of

any court of competent jurisdiction or

in case of doubt as to the validity or

applicability of any such law,

regulation or order, in accordance

with advice as to such validity or

acceptability given at any time during

such period by independent advisers

acceptable to the Fiscal Agent; or

(b) Breach of other obligations: Centum defaults

in the performance or observance of any of its

other covenants and obligations under the Note

Documents and (except where such default is

Page 34 of 194

incapable of remedy) such default continues

for a period of thirty (30) Business Days

following service of a notice by the Note

Trustee requiring the same to be remedied; or

(c) Misrepresentation: any representation,

warranty or statement made or repeated in, or

in connection with the Agency Agreement or

in any accounts, certificate, statement, opinion

or the Information Memorandum delivered by

or on behalf of Centum or in connection with

the Notes or the Note Documents is incorrect

to a material extent when made or deemed to

be repeated; or

(d) Cross-default: any present or future

indebtedness of Centum in connection with

moneys borrowed or raised exceeding in

aggregate Kenya Shillings five hundred

million (Kes.500,000,000/=) (or its

equivalent):

(i) is not satisfied when due, or at the end

of any originally applicable grace

period; or

(ii) becomes prematurely payable

following delivery of an Enforcement

Notice by the Note Trustee to

Centum, as the case may be, as a result

of a default by Centum except to the

extent in any instance that the existence

or enforceability of the relevant

obligation is being disputed in good

faith by it by appropriate proceedings;

or

(iii) any encumbrance over any assets of

Centum or any Subsidiary of Centum

becomes enforceable; or

(e) Insolvency: an Insolvency Event occurs in

respect of Centum; or

(f) Winding up: a petition is presented or an

application is made (which is not challenged

by Centum within thirty (30) days of such

petition or application) in respect of or any

order is made or a resolution is passed for or

any notice is issued to convene a meeting for

the purpose of passing such resolution for the

Page 35 of 194

winding up or dissolution of Centum; or

(g) Compositions: Centum stops payment or

becomes unable to pay its debts within the

meaning of Section 220 of the Companies Act

or any steps are taken with a view to

proposing, under any enactment or otherwise,

any kind of composition, scheme of

arrangement, compromise or arrangement

involving Centum and its creditors generally,

or any class of them; or

(h) Appointment of receivers and managers: an

encumbrancer takes possession or exercises or

purports to exercise any power of sale or if a

receiver or liquidator is appointed by any court

or by any other person over the property and

assets of Centum; or

(i) Legal process: a lawful distress,

sequestration, execution or attachment either

by virtue of any court order, decree or process

or otherwise howsoever for a sum that equal to

or exceeding the 20% (twenty per cent) of the

total assets of Centum is levied or enforced

upon or issued against any part of the property

and assets of Centum and which shall not be

removed or discharged within sixty (60) days

of it being so levied; or

(j) Cessation of business: Centum ceases, or

threatens to cease, to carry on all or a

substantial part of its business or sells or

threatens to sell or otherwise disposes of or

shall threaten to sell or dispose of all or a

material part of its assets (other than in the

normal course of trading it being

acknowledged and agreed that Centum’s

business entails the acquisition and disposal,

inter alia, shares, equity, undertakings and

businesses and such activities will not

therefore constitute an Event of Default)

whether by one or a series of transactions

related or not or changes the mode of conduct

of its trading in any respect so that its ability to

meet its obligations under and in respect of the

Notes is materially affected; or

(k) Authorisation: any authorisation, approval,

consent, license, exemption, filing, registration

Page 36 of 194

or notarization or other requirement necessary

to enable Centum to comply with any of its

obligations under the Note Documents or to

carry on business as presently carried on is

modified (to the extent that its ability to meet

its obligations under and in respect of the

Notes is materially affected), revoked or

withheld or does not remain in full force and

effect and Centum is unable to obtain the same

within fourteen (14) days of such

modification; revocation or extinction; or

(l) Unlawfulness: at any time it is unlawful for

Centum to perform any of their respective

obligations under the Agency Agreement; or

(m) Material adverse change: any other event or

series of events whether related or not,

including, without limitation, any material

adverse change in the business, assets or

financial condition of Centum in an amount

equal to or exceeding 20% (twenty per cent) of

the total assets of Centum, occurs that, in the

opinion of the Fiscal Agent (such Fiscal Agent

being so instructed pursuant to an

Extraordinary Resolution), may affect the

ability or willingness of Centum to comply

with all or any of its obligations under the

Note Documents; or

(n) Documents Void: any of the Notes is or

becomes wholly or partly void, voidable or

unenforceable or is claimed to be so by

Centum or the Fiscal Agent.

Acceleration

In the case of any such event as is mentioned in

Condition 13.1 (Events of Default), and at any time

thereafter if any such event shall then be

continuing, the Note Trustee shall if so directed by

an Extraordinary Resolution, issue an Enforcement

Notice to Centum declaring that any outstanding

Notes are immediately due and payable, whereupon

the same shall become immediately due and

payable together with all interest accrued thereon

and all other amounts payable under the Note

Documents.

Rectification

Page 37 of 194

The right to declare Notes due terminates if the

situation giving cause to it has been cured or is

otherwise no longer continuing before such right is

exercised and any notice or demand issued by the

Fiscal Agent in accordance with this Condition 13

(Default) shall be of no effect.

35. Taxation:

All payments in respect of the Notes will be made

subject to withholding or deduction for or on account of

any taxes imposed within the Republic of Kenya by the

Issuer where such taxes are applicable.

36. Listing: Approval has been given to list the Notes on the FISM

of the NSE.

The Senior Unsecured Equity Linked Notes will be

listed on the Restricted Board of the FISM and trading

will be limited to qualified institutional investors.

Separate Registers will be maintained for the 12.5%

Coupon and the Variable Return.

37. Negative Pledge: The Issuer agrees that, so long as any Notes remain

outstanding, it shall not create or permit to subsist any

mortgage, charge, lien, pledge or other security interest

upon or with respect to any of its undertakings, assets or

revenues to secure any future indebtedness evidenced

by notes, bonds or other securities which are or which

are capable of being, at the request of the Issuer quoted,

listed or dealt in for the time being on any stock

exchange or any other similar generally recognized

market for securities unless (a) the Notes are secured

equally and rateably therewith; or (b) by providing such

other security or arrangement as may be approved by

Extraordinary Resolution of the Noteholders; unless the

provision of any such security is waived by an

Extraordinary Resolution of the Noteholders.

38. Governing Law: The Notes will be governed by, and construed in

accordance with, Kenyan Law.

Page 38 of 194

8. USE OF PROCEEDS

Centum has developed a pipeline of attractive investment opportunities in the energy, financial services, real estate

and agriculture sectors. The table below highlights the deal pipeline.

Table 1: Deal Pipeline


Investment

Description Deal value

(Kes. M)

Financial

Services

K-Rep Bank

Limited

Equity

investment*

Acquisition of majority shareholding of

K-Rep Bank and additional investment

in the Bank to increase its core capital so

as to enable the Bank to increase its

ability to attract deposits as well as

increase its loans and advances.

3,600

Energy (iii) Akiira One

Geothermal

Limited

(iv) Amu Power

Limited

Equity

investment

Finance Centum’s equity investment in

Centum’s current opportunities in the

energy sector.

2,100

Real Estate Pearl Marina

Estates Limited

Equity

investment

The construction of Phase 1 of the Pearl

Marina Development commenced in

March 2015. Phase 1 is estimated to cost

Kes 2.75Bn. Centum intends on funding

this with 60% debt and 40% equity.

Therefore, the equity investment at

phase 1 is Kes 1.1Bn.

1,100

Agriculture Vipingo

Development

Limited

Equity

Investment

Centum is in the process of acquiring

9,646 acres of land in Vipingo at a price

of Kes. 180,000 per acre and Vipingo

Estates Limited, a subsidiary of Rea

Vipingo Plantations Limited, which

owns approximately 900 acres of land at

approximately Kes. 340 Mn.

2,100

Asset

Management

Centum Exotics Equity

Investment

Increase the proportion of listed

investments held by Centum.

2,000

Total 10,900

In line with Centum’s capital structure, these opportunities will be financed through a mix of internally generated

funds (dividend and interest income, as well as realizations of existing investments) and debt. This is highlighted in

the table below.

Sources of funding Amount (KShs. M)

Internally generated funds (dividends, interest and investment

realisations ) 4,978

Debt 5,922

Page 39 of 194

Total 10,900

The debt component of funding will be through the issuance of Kenya Shillings six billion (Kes.6, 000,000,000)

senior unsecured fixed rate notes and senior unsecured equity linked notes.

The investment opportunities to be funded by the bond issue are highlighted below:


Investment %

Bond proceeds

(Kes. M)

Financial Services K-Rep Bank Limited Equity investment* 60.0 3,600

Energy Akiira One Geothermal Limited

Amu Power Limited Equity investment 35.0 2,100

Real Estate Pearl Marina Estates Limited Equity investment 3.7 222

Offer Expenses 1.3 78

Total 100 6,000

*Centum has already made a KShs. 2.4 Billion investment in K-rep funded by a short-term facility. The proceeds

from this Note issue will be applied in refinancing the short-term facility.

8.1 Financial Services

In November 2014, Centum completed the acquisition of 65.6% shareholding in K-Rep Bank. The acquisition of the

bank was funded through Centum-company level bridging facility of USD 35 Million from South African–based

Rand Merchant Bank (RMB). Centum intends to utilize part of the proceeds of the bond towards refinancing this

short-term facility. Kes 2.4 Billion of the proceeds from the borrowing was utilized in the acquisition of the bank.

Centum further intends on increasing the capitalization of the bank and has committed to invest an additional Kes

1.2 Billion towards this capitalization. This will allow the bank to attract higher deposits as well as enable the bank

to over more loans and advances. Centum intends to allocate 60.0% of the bond proceeds towards refinancing the

short-term facility as well as in capitalizing the bank.

# Project Name K-Rep Bank

1 Size Kes 3,600,000,000

2 Shareholding-target 67%

3 Geography Kenya

4 Sector Financial Services

5 Value Creation IPO Listing on NSE or Sale to Strategic Investor

6 Deal type Buyout

7 Instrument Equity

8 Return on capital 31% assuming a 5-year holding period

Centum’s decision to invest in K-Rep Bank was informed by the following factors:

a) Growth potential: The average banking sector growth has historically been strong and is expected to continue.

In particular, K-rep is a Tier IV bank playing in the microfinance and in the SME space and therefore presents a

huge opportunity to grow the bank to a full-service Tier II Bank

Page 40 of 194

b) Infrastructure: K-Rep, with 36 branches, has an expansive branch network. Shareholding: K-Rep acquisition

offered the opportunity to acquire a controlling stake in a bank.

c) Pricing: The acquisition pricing for the bank offered was ideal as it was at a discount relative to market

valuation of banks

d) Timing: The acquisition saved time when compared to the time it would have taken to obtain a banking license,

establish a new bank and build out a branch network.

The Centum Value-Add

With growing regional activities across the Centum’s subsidiaries, Centum is in a strong position to drive an

aggressive value creation strategy to help position K-Rep Bank as a top performing bank. Further, the association

with Centum has changed market perception and brand positioning allowing for strong market traction from the

onset.

Regional activities across the Group will allow for an accelerated growth and allow for the development and a

phased expansion in to a full service specialist bank.

Centum – K-Rep Bank Synergies

22%

20%

25%

15%

14%

11%

10%

10%

7%2%

66%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Pre Transaction Post Transaction

Pre and Post Transaction Shareholding

Centum

FMO

Others

ShoreCap

Triodos

IFC

KREP Group

AfDB

Brand Enhancement

New products: Investment & Insurance

New clients: Investee Companies

New Markets: Sectors & Countries

New partnerships: International & Local

Raising additional financing

Page 41 of 194

8.2 Energy

i. Akiira Geothermal

Akiira One Geothermal Limited, founded in 2012, is the first private sector Greenfield geothermal private

development in SSA. Centum is part of the consortium prospecting for geothermal energy and build the power plant,

which when complete will generate 70MW of geothermal electricity in the first phase of the planned total 140MW.

In Akiira Geothermal, Centum has committed to invest at least USD 37 Million in this project. Centum plans to use

20% of the bond proceeds to finance part its equity stake in the Akiira Geothermal project. Further investments into

the project will be funded from internally generated funds.

Table 4: Akiira Geothermal Development Investment Thesis

# Project Name Amu Power

1 Size At least US$ 37Mn

2 Shareholding At least 25%

3 Geography Kenya

4 Sector Energy

5 Value Creation Value uplift upon financial close after de-risking project

6 Deal type Geothermal plant

7 Instrument Equity & Debt

8 Target IRR Attractive US$ Returns

Base case IRR targeted at 18% dollar return

ii. Amu Power

Centum currently has a ready investment opportunity in Amu Power Limited, a Special Purpose Vehicle (SPV) set

up by the consortium that was awarded the tender to construct a 1050 MW coal-fired power plant in Lamu County,

Kenya. Centum is the lead project equity sponsor in the consortium.

In Amu Power, Centum has committed to invest at least USD 100 Million in this project, or 25% of the total equity

requirement by the project. Centum plans to use 15% of the bond proceeds to finance part its equity stake in the

Amu Power project. Further investments into the project will be funded from internally generated funds.

Table 5: Amu Power Development Investment Thesis

# Project Name Amu Power

1 Size At least US$ 100Mn

2 Shareholding At least 25%

3 Geography Kenya

4 Sector Energy

5 Value Creation Value uplift upon financial close after de-risking project

6 Deal type Coal Fired Plant Construction

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7 Instrument Equity & Debt

8 Target IRR Attractive US$ Returns

Base case IRR targeted at 20% dollar return

8.3 Real Estate

In the real estate sector, Centum’s strategy is to create new urban nodes for cities across Africa, Currently, Centum

has two main real estate projects:

1. Two Rivers (Kenya) - Two Rivers is a new urban node set on 100 acres of prime land 20 minutes from the

current Central Business District and in Nairobi’s diplomatic blue zone. Two Rivers is a master planned

municipality with urban management, top notch infrastructure and landscaping. It seeks to fill the need for

an urban node which provide residents with the opportunity to live, work and play within the city. Creating

a better quality of life for the residents. The anchor development, the Two Rivers Retail, Entertainment &

Lifestyle Centre, set to open in October 2015 will offer a unique blend of retail, entertainment and lifestyle

facilities with 220 shops on 62,000 square metres of lettable area. This project is fully funded by both debt

and equity and requires no additional funding from Centum.

2. Pearl Marina (Uganda) - a satellite city in Uganda on 385 acres of prime land situated between Entebbe

International Airport and Kampala with 4km of Lake Frontage. The vision of Pearl Marina is to develop a

premium world-class water front destination recognized in East Africa and beyond.

Centum has commenced Phase 1 construction of 102 residential villas, a gatehouse and supporting

infrastructure for the Pearl Marina project. Phase 1 is estimated to cost Kes. 2.75 billion, which will be

funded 40% by equity and 60% by debt.

Centum plans to use 3.7% of the bond proceeds to finance its equity stake in Phase 1 development of the

Pearl Marina project. A further Kes 0.7 billion will be injected from internally generated funds.

8.4 Offer Related Expenses

In addition, proceeds of the Issue will be utilized to meet third party costs and expenses of the Issue which are

calculated at approximately Kes. 78,000,000 set out in the expenses of the Issue in section 18.1 (Expenses of the

offer).

Page 43 of 194

9. ABOUT THE ISSUER

9.1 Company Overview

Centum was established in 1967 as an affiliate of the Kenyan government-owned ICDC as Limited Liability

Company. Centum is listed on the NSE and cross-listed on the USE and is now one of the largest listed investment

companies in Kenya with a market capitalisation of Kes. 41 Bn As at 31st December 2014, Centum’s assets under

management were worth over Kes. 176.8 Bn which includes its own assets worth Kes. 36.8 Bn and third party funds

worth over Kes. 140 Bn

Centum has interests in four key sectors: financial services, fast moving consumer goods, real estate and energy. In

its 2014-2019 strategy period dubbed Centum 3.0, Centum intends to invest in the following sectors as part of its

strategic plan: agriculture, healthcare, education and ICT. The sector interests are driven by Africa’s growing middle

class and each sector is set to benefit from this segment.

The company’s current investment portfolio consists of over 20 investee companies which include wholly and partly

owned subsidiaries, associate companies and investments in listed securities. Through these investments, the Issuer

is able to offer its shareholders access to quality and diversified investments and generate market beating returns to

its investors.

9.2 Vision, Mission and Strategy

Centum’s vision and mission are premised on Africa’s economic renaissance and its key objective is to consistently

generate market beating returns by building extraordinary enterprises throughout Africa.

Vision

“To be Africa’s foremost investment channel”.

Mission

“To create real tangible wealth by providing the channel through which investors access and build extraordinary

enterprises in Africa”.

Strategic Themes

Five key strategic themes were identified for Centum 3.0 are highlighted below:

i. Return

Generate in excess of thirty five per cent (35%+) annualized return over the strategic period: In the 2009/14

strategy period, Centum’s average annualized return on opening NAV was 31%. Over the next five years

(2014/19 strategy period), we intend to enhance the average return on our portfolio to at least 35% on opening

NAV.

ii. Focus

Focus by developing, scale and growing investment capabilities in the eight new sectors: Based on the success

brought about by Centum’s increased focus in the past strategy period, even greater focus is to be achieved by

developing sector approaches to investment in 8 sectors: (i) Real estate, (ii) Financial Services, (iii) Fast Moving

Consumer Goods (FMCG), (iv) education, (v) healthcare, (vi) power, (vii) agriculture, and (viii) ICT. Within the

sectors, we look to develop opportunities of scale and attract third party investors to participate in high quality

investment grade opportunities.

Page 44 of 194

Scale up the Group by growing Centum’s own asset total value to Kes 120 Billion by 2019 and total Asset

under management (AUMs) to Kes 720 Bn: Centum intends to increase its own total asset value from Kes 29

Bn to Kes 120 Bn by the end of 2019. This significant increase will enable Centum to build opportunities of

scale that can attract significant amounts of capital into future projects. Centum further intends on scaling its total

Assets under Management (AUM) from Kes 147Bn to Kes 720Bn. These third party funds of Kes. will be

managed by its asset management subsidiaries.

iii. Brand

To Build the Centum brand by delivering through people and hence develop teams with sector expertise:

Centum intends to continue to build its brand through continuous alignment of internal processes, leadership

development and through the delivery of the various projects it will undertake in the various sectors. Centum also

maintains effective oversight through its board of directors.

iv. Costs

To maintain total operating costs at below 2.0% of assets under management: Centum intends to maintain

operating costs below the ceiling of 2.0% of total assets.

9.3 Business Model

Centum’s business is to create investment grade opportunities of scale that will attract investment at significant

return to initial capital. Centum is currently focusing its development activities in several key sectors: (i) financial

services, (ii) fast moving consumer goods (FMCG), (iii) real estate and (iv) power (v) agriculture, (vi) education,

(vii) healthcare and (viii) ICT. The table below highlights the route to entry into the various sectors.

Focus Sectors

Sector Route to Entry Existing Deal

Pipeline

Value Realization Timing

ofInvestment Financial

Services

Brownfield Turnaround Present Future growth fundraising 0-1 year

FMCG Franchises and Joint

Ventures with

Multinational

Corporations

Present Growth Capital & Direct Exit 1-3 years

Real Estate Greenfield & Joint

Ventures

Present Financial close & REITs 1-3 years

Energy Greenfield Present Financial Close and

securitisation

0-1 year

Agriculture Greenfield & Joint

Ventures

Work in Progress Project Expansion 1-3 years

Education Real Estate Play & Joint

Ventures

Work in Progress REITs 2-3 years

Healthcare Real Estate Play & Joint

Ventures

Work in Progress REITs 2-3 years

ICT Greenfield & Joint

Ventures

Work in Progress Project Expansion & Exits 2-3 years

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As a developer and promoter, Centum realizes early-stage value by creating investment-grade opportunities for

down-stream investors as illustrated in the chart below:

Centum funds these opportunities during development phase with the aim to invite financial investors after de-

risking projects. The projects funding cycle is illustrated in the chart below:

9.4 Track Record

9.4.1. A review of performance against our 2009/14 strategic targets

During the strategy period 2009/14, we defined our business as an investment channel that sought to provide

investors access to an otherwise inaccessible, quality and diversified portfolio of investments. To this end we

focused on five strategic objectives.

i. To deliver a return on shareholder funds consistently above market returns. Prior to this time Centum’s

returns were strongly correlated to the NSE;

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ii. To scale up assets under management with a target of Kes 30 Billion by 2014 from Kes 6 Billion in 2009.

iii. To increase our geographical footprint to the rest of Africa with a target of at least 50% of the portfolio

outside Kenya;

iv. To enhance Centum’s brand by developing processes, systems, controls and human capital to ensure the

company would consistently deliver to its promises;

v. To maintain portfolio costs at below 2.5% of assets under management.

Our performance against the above objectives is highlighted below.

i. Delivery of market beating returns

We have over the last 5 years (the 2009-2014 strategy period) delivered an average return of 30% per annum.

This performance represented a 19% outperformance to the NSE 20 Share Index and a 19% outperformance

against to the MCSI Frontier Market index.

The tables below highlight the performance of Centum against the MCSI Frontier Market index in Unites

States Dollars (USD):

The table below highlights the performance of Centum against the NSE 20 share index in Kenya Shillings

(KES):

Centum’s Net Asset Value grew by 357% from Kes. 5.9 Billion in April 2009 to Kes. 26 Billion in December 2014.

This represents growth or at a rate of 30% compounded annually. Market value of shareholder funds grew from Kes.

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5.6 Bn in April 2009 to Kes. 40.6 Bn in December 2014 representing 625% growth in value generated to

shareholders.

The table below highlights Centum’s book value against the Market Capitalisation.

ii. Growth in assets under management

Centum’s portfolio grew by Kes. 27.8 Bn from Kes. 9 Bn in March 2010 to Kes. 36.8 Bn in December 2014.

Total assets under management stood at Kes 176 Bn in December 2014 representing a 19.5 times growth

since March 2010.

Assets Under Management Portfolio Value

iii. Geographical and asset class diversification

During the strategy period 2009/14, the diversification target was to have 50% of the portfolio outside of

Kenya. We progressively increased our exposure outside of Kenya from less than 1% as at March 2010 to

19% as at March 2014. In line with our mission of providing access to inaccessible portfolio, our exposure to

private equity and real estate increased from 59% to 83% at the close of that period.

vi. Brand at Centum is defined as consistent delivery to promise. Throughout the 2009/14 strategy period we

built capacity in the organization through the recruitment of competent and experienced team members as

well as through leadership development. As a result of the strong team, we were able to deliver over and

above our ambitious strategy targets.

vii. The cost to asset ratio (excluding third party funds) was maintained below 2.3% within the 2009/14 strategy

period.

5.9 9.2 12.6 13.7 16.122.9

27.05.6

8.613.0

9.8

13.2

24.3

40.6

2009 2010 2011 2012 2013 2014 Dec-14

Book Value

Mkt Cap

9.0

14.5 14.7

19.3

28.8

37.6

0

10

20

30

2010 2011 2012 2013 2014 Dec-14

9

14 16

22

147

176

0

10

20

30

40

2010 2011 2012 2013 2014 Dec-14

Page 48 of 194

9.4.2. Our track record in developing investment grade assets and realizing value at significantly higher multiples

Over the last six years, Centum has had a lot of success in developing investment-grade opportunities and realizing

significant return at expanded multiples on its initial investment. Some examples at various stages of the investment

process are highlighted below.

9.4.2.1. Deal Sourcing

Centum has developed an extensive network of relationships within the region. This has enabled identification of

early stage opportunities. Examples of such investments include:

a) Amu Power – consortium led by Centum and Gulf Energy Limited won the award of tender to construct a

1,050MW coal-fired power plant in Lamu, Kenya

b) Akiira One Geothermal – Centum is part of the consortium developing Sub-Saharan Africa’s first independent

geothermal development, which when complete is expected to generate 140MW.

c) Two Rivers – A 100 acres development in Nairobi, acquired in 2010.

d) KRep Bank – Acquisition of 65.7% shareholding in the Bank in 2014

e) PlatCorp – Acquisition of 35% shareholding in PlatCorp Holdings in 2012. PlatCorp Holdings is the holding

company of Platinum Credit Kenya, Platinum Credit Uganda and Platinum Credit Tanzania.

f) Genesis Kenya – Acquisition of 73.35% shareholding in Kenya’s second largest3 fund manager in 2013.

9.4.2.2. Value Addition

Through active execution of value creation strategies, Centum has been improved the underlying performance of its

portfolio companies. This is highlighted in the graph below.

Examples of investments where Centum has led value addition strategies are highlighted below.

a) Almasi Bottlers Limited - In 2012/13, Centum led and completed a complex merger of the 3 bottlers which

saw Centum increase its effective shareholding from 32% to 43%. Centum is actively participating in driving


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post-merger integration as well as driving distribution and scale efficiencies and has subsequently increased its

shareholding to 51%.

b) Nairobi Bottlers Limited (“NBL”) - In 2010, renegotiated NBL's shared services agreement with South African

Bottling Company (“SABCO”) significantly reducing management fees and enhancing profitability

c) Kenya Wine Agencies Limited (“KWAL”) - Active participation in the privatization process that resulted in

the sale of 26% shareholding to Distell South Africa.

d) General Motors E.A. Limited – Through board participation, Centum has been instrumental in treasury

oversight and in the development of the current 5-year strategy which has resulted in an improvement in

earnings and return on assets.

9.4.2.3. Value Realization

Centum has been able to secure critical and well timed value realizations from its portfolio that have enhanced

return. Examples include:

a) Carbacid Investments - Acquired 23% of the company in 2009 for USD 5M at a time when the company’s

shares had been suspended indefinitely from trading on the NSE. Centum exited in 2010 a year later at more

than 2x money back.

b) UAP - Invested in the year 2001, drove the expansion of the business in to South Sudan, Rwanda, DRC and

Tanzania. In 2012 drove the USD 50M capital raise from 3 PE funds at 10x Centum’s entry valuation.

Divested from the business in 2015 at 32x entry valuation.

c) Two Rivers – Centum invested US$20M in acquiring 100 acres of land in Nairobi in 2010. Master planned

secured approvals and attracted $75m in equity capital at significant value uplift to Centum’s capital.

d) RVR - Exited the underperforming asset in a secondary buyout to two PE funds in 2009, thereby recording a

gain of 4.4 times the carrying value of the investment.

9.5 Operating Structure

Centum has adopted an operating structure that allows the company to effectively execute strategy. Led by the

Group Chief Executive Officer and supported by the Centum Capital division, Centum develops and investment

management oversight for the sector specific assets and operating subsidiaries in the group.

Centum’s operating 100% owned subsidiaries are highlighted below.

Each of the subsidiaries provide services to Centum, its subsidiaries and associate companies at a fee. In addition

they have third party clients from whom additional fees are generated. The subsidiaries have revenues that exceed

their cost structure, which means that they are self funding and do not rely on Centum Investment Company Limited

to fund their operations.

Nabo Capital Limited

Nabo Capital is a fund and REIT manager is licensed and regulated by the Capital Markets Authority. Nabo

manages Centum’s Quoted Private Equity (“QPE”) portfolio as well as the portfolios of third parties.

Athena Properties Limited

To effectively manage its Real Estate business, Centum established Athena Properties Limited, a wholly

owned subsidiary in 2013. Athena’s mandate is to develop in-house capability to execute real estate

developments on behalf of the Group as well as offer project management and development management

services to third parties.

Centum Business Solutions Limited

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Centum Business Solutions is a wholly owned subsidiary of Centum that supports growth of the entire Group

through provision of shared services. The services CBS offers include; financial, legal & tax, risk, marketing &

communications, human resources and ICT.

Figure 1: Centum’s Operating Structure

9.6 Centum’s Portfolio and Sector Focus

As at December 2014, Centum’s Portfolio Value was valued at Kes. 36.8 billion. The sector allocation of the

portfolio is highlighted below:

9.6.1 Financial Services (FS) Sector

Sector Strategy:

Centum will look for brownfield opportunities to access opportunities in the banking, insurance and asset

management sectors.

Centum’s current investments in this sector are listed below in detail:

Company Description

Sector: FS

Stake: 67.54%

K-Rep was established in 1984 to support NGOs with grants and technical assistance.

In 1987, it started advancing loans to the NGOs by establishing a micro- credit lending

program and established this as the core business and growth area.

K-rep has 36 Branches located all over the country and offers Micro-finance,

business and personal banking.

Centum Investment Company Ltd

Portfolio Value - KES 36.8Bn

Financial Services

Kes 9.1Bn

FMCG

Kes 6.0Bn

Energy

Kes 0.7Bn

Others

Kes 3.4Bn

Real Estate

Kes 12.9Bn

Asset Mgt

Kes 4.7Bn

Centum

Centum Capital

Nabo Capital Ltd.

Athena Properties

Ltd Centum Business

Solutions Ltd.

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Company Description

Platcorp

Sector : FS

Stake: 35.6%

Platinum Credit Limited is a Micro Finance Company licensed in Kenya under the

Companies Act in 2002.

Platinum Credit is one of the non deposit taking Micro Finance Companies with

operations in Kenya, Uganda and Tanzania.

Platinum Credit has more than 50 branches in the region.

Platinum prides itself on a swift disbursement of loans, all within 24 hours.

AON

Sector: FS

Stake: 21.5%

AON Kenya Insurance Brokers Ltd (AON) is a market leader offering insurance

broking, risk management, actuarial consulting, medical scheme administration and

medical fund management, life and pension’s administration, and employee benefits

consulting services to medium and large organizations in Kenya.

AON has a large portfolio of corporate clients to whom it provides brokerage services

for coverage of some of the most complex risks. Aon is a service driven organization

which aspires to meet the highest standards of its clients.

Genesis

Sector: FS

Stake: 73%

Genesis Kenya was established in 1996, with the aim of providing high quality

investment management services to Kenyan institutional investors.

Genesis Kenya is a registered fund and asset manager with over 18 years’ experience

in the Kenyan market and is the second largest4 Asset Manager in the country.

It specializes in investment management and pension scheme advisory services and has

a track record of delivering superior returns to our clients.

Services include, Pension Fund Management: Flexible, market-linked investment

offering a segregated portfolio ideally suited to pension fund schemes.

Nabo Capital

Sector: FS

Stake: 100%

Established in 2013, Nabo Capital, (formerly Centum Asset Managers Limited) is a

wholly owned subsidiary of Centum.

Its core business revolves around the management of traditional asset classes such as

equities, money markets and fixed-income portfolios while traversing alternative asset

classes such as real estate, securitizations and private instruments.

The operations of Nabo Capital as a fund and REIT manager is licensed and regulated

by the Capital Markets Authority. In addition, it is registered under the Retirement

Benefits Authority to manage pension funds, providing ample security for our clients.

Nabo Capital manages well over USD 100 million (as at September 2014) worth of

assets in both internal and third party funds. For all clients, our aim is to ensure

investors understand the risks they face and tailor investment solutions to mitigate such

risks.


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9.6.2 FMCG Sector

Sector Strategy:

Africa has a fast growing middle class, with disposable income to spend on consumer goods and services.

Urbanization and increased use of technology is the biggest revolution in Africa making the consumers easier to

reach and encouraging spending.

The main challenge for investors seeking entry to SSA is to obtain a better understanding of the market and its

consumers, which Centum can be well placed to add value to investors as a local partner.

Centum’s current investments in this sector are listed below:

Company Description

Almasi Beverages

Sector: FMCG

Stake: 50.95%

Centum has invested in Almasi, the holding company of three bottlers in Kenya:

Rift Valley Bottlers, Mount Kenya Bottlers and Kisii Bottlers.

Rift Valley Bottlers Limited is a Coca Cola bottling company whose franchise

territory spans across the Rift Valley and Western provinces in Kenya.Mount Kenya

Bottlers Limited is a Coca Cola bottling company whose franchise territory

spans across the Central and north eastern provinces in Kenya.

Kisii Bottlers Limited is a Coca Cola bottling company whose franchise territory

spans across Western province.

It has a 29% market share in the carbonated drinks market segment.

Centum recently acquired a controlling stake in the company in 2015.

Nairobi Bottlers Limited

Sector: FMCG

Stake: 27.6%

Nairobi Bottlers Limited is one of the Coca Cola franchises in Kenya.

Its territory spans across the whole of Nairobi and parts of the Central, Eastern and

Rift Valley provinces in Kenya.

It has a 48% market share in the carbonated drinks market segment.

KWAL

Sector: FMCG

Stake: 26.4%

KWAL was incorporated in May 1969 with the objective of consolidating

importation and distribution of Wines and Spirits from foreign owned companies and

enable indigenous Kenyans take control the importation and distribution of Wines

and Spirits in the country from hitherto foreign owned companies.

Kenya Wine Agencies Limited is a manufacturer, distributor and importer of wines

and spirits in east Africa with operations in Kenya, Uganda and Rwanda.

The Company was privatized by the Government of Kenya in 2014 when ICDC sold

26% out of its 72% shareholding in the Company to Distell Group.

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Company Description

King Beverage Limited

Sector: FMCG

Stake: 100%

King Beverage Limited is a wholly owned subsidiary of Centum with mandate to

distribute premium beer, specifically, Carlsberg, in Kenya and Uganda.

There is intention to extend the distribution of Carlsberg to the greater East Africa

region. King Beverage is desirous of setting up a brewery in the short to medium term.

Liaising to get you a corporate write up shortly.

9.6.3 Energy Sector

Sector Strategy:

The Power sectors across the regions have been characterized by chronic under investment over the past two to

three decades. Kenya presents an equity investment opportunity worth USD 4.5Bn derived from the Government’s

policy to increase generation capacity by 5,000MW by 2018. Opportunities exist primarily in geothermal and coal

generation.

Centum’s strategy will be to acquire independent power producer development expertise to enter the sector and

deploy early capital as a project sponsor.

Centum’s current investments in this sector are listed below in detail:

Company Description

Akiira One

Sector: Energy

Akiira One Geothermal, founded in 2012, is the first private sector Greenfield

geothermal private development in SSA.

When complete, it will generate 70MW of geothermal electricity with this being the

first phase of the planned total 140MW.

Amu Power

Sector: Energy

Amu Power, a consortium bringing together Gulf Energy Limited and Centum is set to

construct a coal power plant

When complete, it will generate 1050 MW of coal fired electricity, this being part of

the Government of Kenya (“GoK”) Least Cost Development Plan for power generation

to bring down the cost of power via a more stable, reliable platform.

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Company Description

Amu Power

Introduction

In 2013, the Government of Kenya (“GOK”) through the Ministry of Energy & Petroleum (“MEP”) held an

international competitive bidding process for the construction of a 1,050 MW coal-fired thermal power plant under

the Public Private Partnership (“PPP”) framework. The tender attracted significant international interest from over

26 reputable bidders from 7 countries. After a rigorous evaluation process, a consortium led by Centum and Gulf

Energy Limited (“GEL”) was awarded the tender to construct a 1,050 MW plant at the Kenyan coast in Lamu

County, on a 25 year Build-Own-Operate (“BOO”) concession (“the Project”).

Business Model Overview:

The project’s fundamental business model is anchored in three critical project documents:

a) Revenues - PPA: This agreement will allow the PC to sell power to the off-taker, in this case KPLC, at a

pre-agreed tariff in USD over the 25 year PPA term. The tariff is also indexed to the US CPI index to

protect against inflation. It is estimated that over the project life, the plant will on average generate

revenues of USD 575.5Mn/ year. The pre-agreed tariff has 3 main components (more particularized below)

which cater for the following:

i. The recovery of the fixed capital investment in the plant made by debt and equity investors.

ii. The cost of fuel of generating power plant on the basis of a pre-specified fuel consumption rate –

this is treated as a direct pass-through in the PC’s financial statements.

iii. The cost of maintaining and operating the plant.

b) Operating Costs – FSA, O&MC: These long term agreements anchor the project costs related to fuel and

the operating and maintenance of plant equipment. It is estimated that over the project life, and assuming a

cost of coal USD 50 / tonne, these costs will average USD 212.6 / year.

c) Financing Costs & Debt Repayment – Financing Documents: These agreements provide for the cost of

financing with regards to interest and other associated hedging costs and also the terms of repayment of

debt. It is estimated that over the project life, on average USD 33.28 / year will be paid to the project

lenders in both interest and principal until the debt is fully extinguished 12 years after COD.

Once the project meets its core funding obligations as described in b and c above, and as long as the project is in

good financial health as prescribed by the lenders debt covenants and distribution lock-up ratios, the remainder

of the project cash flows / profits are available for distribution to shareholders. Prior to the repayment of debt, it

is estimated that on average USD 101 million/ year will be paid to equity shareholders as dividends, rising to on

average USD 267 million / year after the repayment of the debt.

Overview of Investment Returns

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Figure 5.below provides for an overview of an investors potential return profile assuming a USD 1M investment

held for the entire project life of 29 years. What can be seen is that:

An investor is not due to earn any returns over the first 4 years of investment during the plant construction

period up until COD.

Thereafter, the investors will earn average annual dividends estimated at USD 149,000 providing for an

investment Pay Back Period (“PBP”) of 6.7 years after COD.

Annual dividends are expected to increase by approximately 163% to an average of USD 380,000 after

year 15 once the project debt has been fully paid-off all project finance related debt.

Over the 29 year project life, and after COD and investor is expected to earn 6.9 Times Money Back

(TMB), with their investment value on the original principal investment on average doubling every 4.2

years.

It is important to note that the investment will amortize over the Project life as the Project approaches end

of the PPA term, and hence the residual value of investment will be zero at the end of the PPA term.

Figure 2: Investor return profile for a USD 1M investment over the project life

The investment in this project will yield significantly better returns as compared to other available market

opportunities while providing stable returns that are not exposed to market volatility. The Issuer’s investment in

Amu Power shall offer excellent diversification in its current portfolio especially from a currency and return stability

point of view. As an investor, Centum shall also enjoy an investment instrument with a very long tenor and therefore

minimize re-investment risks.

(1,000,000)

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

Divs Cum Divs NAV

DevelopmentComplete

Break even Point

Debt Fully

Repaid

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Figure 3: Illustration of return comparison against various benchmarks

Funding Structure

The project is to be financed on a debt to equity ratio of 75:25. The debt will be issued on a non-recourse basis. The

debt funding is coming in as a package along with the EPC Contractor. The equity will be provided primarily by the

Sponsors, GEL and Centum. Long term debt is being sought from a consortium of banks.

9.6.4 Real Estate Sector

Sector Strategy:

Centum will focus in the development of large mixed use developments. There is demand for this type of

developments and we are among the best placed in the market to deliver. Smaller mixed use developments in very

prime locations will also be considered. These projects are less capital intensive, easier to execute and require the

same skills as the large mixed use developments. Centum will be primarily focused on the development phase but

open to follow attractive opportunities along the property value chain to yield exceptional returns.

Centum’s current investments in this sector are listed below:

Company Description

Two Rivers

Sector: Real Estate

Stake:58%

Mixed use development where people live, work, play set on a 100 acre parcel of land

neighbouring the diplomatic area of Runda, Gigiri and Limuru Road in Kenya.

Two Rivers Development will provide a premium large-scale mixed-use development

that will offer premium retail, commercial, residential and hospitality facilities set out

in a modern urban environment.

Anchor development is Two Rivers Mall which at 62,000 SQM of retail space and

22,000 SQM of office space.

It will be constructed in phases fully capitalize on the value created by each phase and

will have a total build up area of about 851,000 SQM when completed

In 2014, Centum secured the equity investment from two institutional investors, who

invested Kes 6.5 Billion (US$ 75 Million) for a 42% equity stake in Two Rivers

Development. Consequently Centum’s shareholding in the company is now 58%.

Pearl Marina Pearl Marina is a mixed use development set on 385 acres of pristine and untouched

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Company Description

Sector: Real Estate

Stake: 100%

land with 3km lake frontage on the Garuga Peninsular in Uganda.

Pearl Marina will provide premium tourism and residential facilities including hotels,

conference facilities, luxury apartments, villas, marinas, hospital, international school,

modern office park, retail center, a wide range of sports and recreational activities.

The development will be constructed in phases and when complete will have a built up

area of 1,400,000 SQM.

Athena Properties

Sector: Real Estate

Stake: 100%

Athena Properties offers clients a comprehensive solution for mixed use property

developments, from local urban nodes to large scale new city development throughout

SSA.

It manages Centum’s two flagship real estate projects (Two Rivers and Pearl Marina)

along with 3rd party developments.

Broll

Sector: Real Estate

Stake: 30%

Broll Kenya was established in 2013 and is a joint venture between Broll Property

Group (Mauritius) and Centum.

It represents clients in the rapidly growing economic block of Kenya, Uganda,

Tanzania and South Sudan.

Its services include: Property Management; Asset Management; Facilities and Project

Management; Retail Property Management; Corporate Real Estate Services;

Commercial, Industrial And Investment Broking; Research; Valuation And Advisory

Services.

The Real Estate & Infrastructure business line was established in line with Centum’s central mission to offer

investors access to inaccessible, quality, and diversified investments. This business line has grown from Kes 36

Million in 2010 to Kes 12.9 billion at the end of 31 December 2014.

To effectively manage its Real Estate business, Centum established Athena Properties Limited, a wholly owned

subsidiary in 2013. Athena’s mandate was to develop in-house capability to execute real estate developments on

behalf of the Group as well as offer project management and development management services to third parties.

Athena has been able to recruit an experienced management team with international experience and prides itself on

having a team with over 100 years cumulative work experience in the Real Estate sector. This remarkable team is

currently managing Centum’s Two Rivers and Pearl Marina projects as well as other third party projects.

Opportunities for Centum in Real Estate

In Real Estate, Centum seeks opportunities that leverage our ability to quickly mobilise funds for investment as well

as our sector experience, thereby unlocking attractive development opportunities that will lead to the creation of new

communities and address shortages in the commercial and residential real estate markets.

Centum’s Real Estate investments are guided by the following major regional trends:

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Demographics – It is estimated that 40% or 300 million of Africa’s population live in cities. This number

will rise to 800 million by 2030. Africa’s population is also young and 60% are under the age of 25 and it is

expected that the majority will live in cities yet to be conceived.

Improving Living Standards - Africa’s economies have been growing consistently and have seen a

population of 85 million households earn over $ 5000 per annum. This is expected to rise to 130 million

households by year 2020. Locally, Kenyans are increasingly purchasing items from formal retailers. This

has seen informal shopping outlets sink by 29% while modern distribution outlets have grown by more than

34%.

Growing Economies – Africa’s GDP is expected to almost double from USD 1.6 trillion in 2008 to USD

2.6 trillion in 2020. Consumer spending power will increase from USD 860 billion in 2008 to USD 1.4

trillion by 2020.

Centum’s successful execution of its real estate strategy in Two Rivers Development and Two Rivers Lifestyle

Centre has seen Centum’s stake increase from an initial investment of Kes 2.3 billion to Kes 9.0 billion, a 390%

increase in value. In Pearl Marina, the value of Centum’s investment has increased through acquisition of additional

land parcels in addition to obtaining various planning and physical interventions relating to the land since

acquisition.

Two Rivers

The Two Rivers property measures 100 acres and is located in the Blue Diplomatic Zone in the Gigiri/Limuru Road

area of Nairobi which provides a key target market close to the subject property. The site is only about 10 minutes

drive from United Nations Complex; about 20 minutes drive from Nairobi Central Business District and 30 minutes

to the Jomo Kenyatta International Airport. It is bordered by key access roads (Northern By pass, Limuru road and

the proposed North-South link road). These provide easy access to existing urban nodes (Westlands, Lavington and

Loresho) and key points like the Airport and the growing residential areas Limuru, Kiambu, Ruiru and Thika. These

factors render the site a very ideal location for the development of a mixed used commercial development. The

property has two rivers traversing through it and that is the inspiration for naming this development “Two Rivers”.

It is bordered by, and has access from, the Northern By-Pass and Limuru road, and is located within the most

affluent suburbs in Kenya with an annual spend of USD 500 million within a 50 kilometre radius. The development

is set to become East Africa’s premier destination and address.

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Two Rivers Master Plan

Vision

The vision of Two Rivers Development is to develop a premium world class master planned urban address set that

will be premier regional destination and address in East Africa and beyond for a long time to come.

The development is set to be one of the most attractive and prestigious destinations in Eastern Africa that will

compete economically and culturally with other premier developments in SSA and the Middle East.

The development will create value by optimizing on the uniqueness of the site that has undulating terrain covered by

a blend of indigenous trees and is traversed by two rivers. This landscape will not only provide key attraction for

visitors and residents, but also offer exceptional recreational space, entertainment, leisure and lifestyle facilities. The

site will be developed in an environmentally sustainable manner that will seek to protect and preserve the unique

physical features including the water resources and the riparian reserve.

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Facilities Provided at Two Rivers

The facilities provided at Two Rivers will include:

Retail, Entertainment and Lifestyle: A diverse and unique retail, entertainment and lifestyle mix covering a

broad variety of premium local and international brands, indoor/ outdoor activities and offering a wide selection

of entertainment venues and activities. This will be the anchor development for Two Rivers.

Residential: Residential units will comprise of a prestigious mix of medium and high density apartments which

will offer maximum convenience, luxury and a high quality of life.

Office Parks: Modern office parks will place Two Rivers as the number one destination for corporate and

create a sought after address for those working in the development.

Hotels: Hotels will have high end rooms with modern conference facilities with a mix of short and long stay

serviced apartments to supplement the hotels.

School: A recognized international school which will offer a recognized curriculum and a day care center.

Medical and Emergency Services: Health security will be provided by developing an executive medical

facility affiliated to a major recognized hospital.

First World Infrastructure: The development will have first world infrastructure that will be managed

centrally.

Two Rivers Mall

The construction of the Mall is on schedule and is set to open in October 2015.

The Centre has a retail gross leasable area (GLA) of 62,000 square metres, In addition, the Centre will have 20,000

square metres of office GLA. Two Rivers Lifestyle Centre has the following competitive advantage over other malls

in the region:

a) The mall will have over 220 shops and thus will over the public unparalleled access to a wide variety of

retail outlets

b) The mall has over 40% international outlets thus offering bringing premium international outlets to Kenya

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c) Significant entertainment offering has been planned in the development which will offer interactive

fountains, climbing walls, outdoor theatres, exhibition areas, play pool, picnic sites and a jogging track.

d) The mall also offers adequate parking facilities comprising a total of 1,600 parking bays and an additional

2,000 parking bays in the adjacent parking silo.

The strength of the above offering has been validated by the fact that the Mall is already more than half let with the

anchor tenant, Carrefour, a retail giant, opening its first and flagship store in SSA at Two Rivers Mall. Other tenants

include: Chandarana Food plus, Zucchini, Mr Price, Woolworths, Essentials, Bosini, Sandstorm, Samsonite, Adidas,

Bose, Funscapes as well as variety of Local banks including Commercial Bank of Africa.

On the Two Rivers Mall construction, the key milestones as per the project plan are:

Milestone Planned Status

Earliest tenant beneficial occupation March 2015 Done

Completion of Retail Mall October 2015 On track

Completion of construction including office

towers

January 2016 On track

Financing

Centum secured the equity investment from two institutional investors, AVIC and ICDC, who have invested a total

Kes 6.75 Billion (US$ 75 Million) for a 42% equity stake in Two Rivers Development. Further, we have secured

debt funding of Kes 5.4 billion (USD 60 Million) in 10-year long term debt from Cooperative Bank of Kenya. As a

result of this investment and debt funding, the Two Rivers project now fully funded.

Pearl Marina

Pearl Marina, is set on 385 acres on the Garuga Peninsula on the shores of Lake Victoria in Entebbe, Uganda. The

site is situated between Entebbe international airport and Kampala, about 22 km from the airport and about 32 KM

from Kampala. The property will be developed as a premium integrated water front destination, resort town, and a

premier Uganda tourist destination. The development provides premium tourism and residential facilities including

hotels, conference facilities, luxury apartments, villas, marinas, hospitals, international schools, modern office park

and a retail center.

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The site enjoys beautiful views of the lake with over 3.5 kilometers of Lake Frontage. This has been the inspiration

behind the Pearl Marina concept and vision. It is an ideal location for a water front resort town attracting local

Ugandans, visiting Diaspora and tourists from all over the world.

Vision

The vision of the Pearl Marina Development is to develop a premium world class waterfront destination recognized

in East Africa and beyond. The development will to provide first world experience to locals and foreigners alike,

with the advantage that there is no other development of its kind planned in Uganda.

Facilities Provided at Pearl Marina

The Pearl Marina Development will incorporate:

Hotels and Market Resorts: Hotels with high end rooms and a market resort.

Retail, Entertainment and Lifestyle: The development will comprise a vibrant commercial square with

restaurants, entertainment arena, a retail centre covering a broad variety of premium local and international

brands and a public marina with ferries, jetty for fishing and water related leisure and lifestyle activities.

Office Parks: Modern office parks that will place Pearl Marina as the number one destination for those

wishing to work in the development.

Residential: High End residential apartments and villas which will offer maximum convenience and a high

quality of life.

Medical and Emergency Services: Health security will be provided by developing an executive medical

facility affiliated with a major recognized hospital.

School: A recognized International School offering internationally recognized curriculum.

First world infrastructure: The development will have first world infrastructure that will be managed

centrally.

To achieve the vision stated the following master plan has been created for Pearl Marina.

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Phasing Plan

Due to the size of the property the development will be done in phases. This allows for smoother financing

processes as well as easier introduction to the market.

a) Phase I:

Phase I will consist of residential houses, an international school, a hospital and a hotel.

b) Residential Component

A total of 128 residential houses will be developed in the first phase. Consisting of a mix of 72 two bedroom

duplexes, 40 three bedroom villas and 16 five bedroom villas. The 128 units will be built in clusters, each cluster

containing approximately 10 houses. The clusters are designed to provide both exclusivity and an element of

community at the same time. As each cluster looks away from the other while each house has views of both the lake

and the common lawn at the center. Below is a view of phase on and the arrangement of the clusters.

The construction of the development commenced in March 2015.

The houses are designed to feel light and undaunting. Pearl Marina is the hidden gem in nature that integrates the

landscaped gardens and views of the lake into the architecture. Some of the concept designs are shown below:

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c) Club House

Development of a club house for the villa owners to host guests and for the public to have conference facilities;

The club house will be run by an international hotel brand

Private Square for private functions such as weddings.

Conference facilities

Swimming pool & Spa

The resort will be operated by an international brand hotel operator.

The apartments will be offered for sale to investors and managed by the resort operator.

d) International School

Uganda has a high demand for good schools. Uganda has a large young population and coupled with a rising

middle class this inherently creates a demand for good schools. Investors realize that Pearl Marina is a great site

for a school as it provides enough space to create a serene learning environment. In addition the development

will be managed privately giving parents assurance of security.

In this regard, Centum leveraging on its strong brand is in discussions with various investors to bring an

International School to the development. In this we are seeking to partner with an international brand. That will

be attractive to the Ugandans and the expatriates in the region

e) An International Hospital

According to the Health Ministry of Uganda, the hospitals country wide have only 61% of the staff required. In

addition to this, Uganda's disease burden is increasing especially lifestyle related illnesses. This creates a gap

for good healthcare provision in Uganda.

To this end Centum is in talks with major health care providers in the world to come into Pearl Marina on a

partnership basis in an effort to relieve this burden. The Hospital will provide health care services to Ugandans

at large.

In Phase II of the project, the following will be included in the development:

i) Office Space: set in an office park environment this will contribute to maximization of synergies of

other mixed uses like retail, hotels, serviced apartments and leisure and thus help in opening up the

development as a commercial destination.

ii) Marina: the development will take advantage of the water frontage to develop a marina that will

provide a variety of water activities that will provide unique experience to residents and visitors. It will

have a jetty for fishing, jet skiing, fish market, boat launching and berthing facilities.

iii) Sporting & Recreational Activities: A wide range of activities including kids club, fitness centre, spa,

tennis, cycling, tennis, swimming, fishing, basketball, mini-soccer, and bird watching .

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iv) Ferry/ boat service: A boat and ferry service is planned that will provide alternative connection

between:

a. Entebbe and Pearl Marina, which is 10 km by water and

b. Between Port Bell (near Kampala) and Peal Marina, which is 26 km by water.

The objective is to reduce commuter time, enhance the quality of the experience and promote

convenience

9.6.5 Education and Healthcare Sector

Sector Strategy:

Critical to the success of any mixed used development is the provision of the full suite of social amenities to secure a

captive catchment to drive commercial activity and boost the attractiveness of the destination. Two of such

amenities are high quality hospitals and schools.

A viable opportunity, therefore, exists to enter into the Education & Healthcare sector through synergies with our

current activities in Real Estate on mixed use developments. Critical success factor of this model is entering into

joint ventures with high quality hospital and school operators and signing long term leases with them on property to

be financed and developed by Centum.

Centum’s currently does not have any investments in this sector.

9.6.6 Agriculture Sector

Sector Strategy:

Kenya has high agricultural potential with high land quality and soil resilience ratings. Varied agro-climatic

conditions favour the production of a wide range of crop and livestock.The lack of commercial investment in

farming and agro-processing is a huge opportunity. Current commercial farms are on average far smaller than world

averages.

Centum will acquire agro-project development expertise to enter the agribusiness sector and deploy early capital as

project sponsor.

Rea-Vipingo Plantations Limited

Following a settlement agreement entered into between the Issuer and Rea Trading Limited, the Issuer is in the

process of acquiring 9,646 acres of land in Vipingo at a price of Kes. 180,000 per acre and Vipingo Estates Limited,

a subsidiary of Rea Vipingo Plantations Limited, which owns approximately 900 acres of land at approximatetly

Kes. 340 Mn. The total transaction prices total to approximatetly Kes. 2.1Bn.

9.6.7 Quoted Private Equity (“QPE”) Portfolio

The QPE asset class leverages on Centum’s private equity expertise to invest and create value in quoted companies

that exhibit private-equity like traits. This business line focuses on making investments in listed entities that are

under-researched, illiquid, with significant growth potential and where Centum can obtain a significant equity stake.

The second mandate of the QPE business line is to provide liquidity management for the overall portfolio. The QPE

business line provides an avenue to deploy surplus funds and is also a source of liquidity by providing collateral for

borrowing or by the disposal of marketable securities. The QPE business line also allows Centum to compare the

valuations of entities in the private markets against those of entities in public markets across the continent. This

flexibility has contributed greatly to more efficient asset allocation.

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In each of the last five years of the 2009-2014 Strategy Period, the QPE business line has outperformed the NSE

Index by an average of 18%. As at 31 December 2014, the QPE business line had Kes 5.02 Billion of assets under

management, which represents 13% of total assets.

Year

QPE Return

NSE 20 Return

Centum Outperformance

2010 56% 43% 13%

2011 10% -4% 14%

2012 0% -13% 13%

2013 53% 44% 9%

2014

43%

2%

41%

Dec-2014

20%

3%

17%

Geometric Average 29% 11% 18%

9.6.8 Other Portfolio

Other investments within the Centum portfolio are described below:

Others

Longhorn

Sector: Publishers

Stake: 31.4%

Longhorn Publishers was incorporated in Kenya in May 1965 as Longmans of Kenya

a wholly owned subsidiary of Longman Group International of the United Kingdom.

Longhorn Kenya Ltd. is a regional publisher of educational books and books for

general readership.

Longhorn ranks second in market share for both primary and secondary level

textbooks.

It has subsidiaries in Uganda and Tanzania and is also exploring opportunities in

other African countries such as South Sudan, Rwanda and Zambia.

GMEA

Sector: Automotive

Stake: 17.8%

General Motors East Africa Ltd, was founded in 1975 as a joint venture between the

Government of Kenya and General Motors Corporation.

GM East Africa (GM) markets and sells Chevrolet, Opel and Isuzu vehicles

and parts. It locally assembles the Isuzu and Chevrolet vehicles.

Majority of GM’s sales are domestic. GM also exports to neighboring countries in the

COMESA region: Uganda, Tanzania, Rwanda, Burundi, Zambia, Zimbabwe,

Mozambique and Ethiopia.

GM East Africa has over 30 years’ experience in the local assembly and services

industry.

NAS Servair

Sector: FMCG

NAS Servair is an on-site airport catering facility supplying over 30 International

airlines that fly into and out of Jomo Kenyatta International Airport (JKIA) in Nairobi

and Moi international Airport (MIA) in Mombasa.

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Stake: 15% It supplies high quality in-flight products and services and is recognized for both its

professional standards and in-depth knowledge and understanding of local and

international aviation hospitality requirements.

NAS has clear leadership credentials within its market.

Source: Centum Annual Report 2014

9.7 Dividend Policy

In 2009/2010 the Board of Directors of Centum made a decision not to recommend the payment of dividend and

instead direct internally generated funds to growing shareholder value. In the new strategy period from 2014-19, the

board of directors has maintained the no dividend policy.

9.8 Principal Shareholders

As at 31st December 2014, the top ten shareholders of Centum were as follows:

Table 3: Principal Shareholders

Shareholder No. of Shares % of Shareholding

Christopher J.Kirubi 160,023,688 24.05%

Industrial & Commercial Development Corporation 152,847,897 22.97%

CfC Stanbic Nominees Ltd A/C R48701 26,664,124 4.01%

Standard Investment Bank Standard Inv Dealing 8,438,922 1.27%

Uganda Securities Exchange 5,949,035 0.89%

John Kibunga Kimani 5,908,221 0.89%

CfC Stanbic Nominees Ltd A/C Nr1030685 5,643,273 0.85%

The Jubilee Insurance Company Of Kenya Limited 5,581,385 0.84%

Standard Chartered Nominees Non-Resd A/C 9537 5,425,300 0.82%

International House Limited A/C 275204 5,394,237 0.81%

Total Top Ten Shareholders 369,205,115 57.40%

9.9 Shareholding by Directors

The Directors shareholding as at 31st December 2014 is as follows:

Table 4: Shareholding by Directors

Shareholder No. of Shares % of Shareholding

Christopher J. Kirubi 160,023,688 24.05%

Industrial & Commercial Development Corporation 152,847,897 22.97%

James M. Mworia 324,294 0.05%

Henry C. Njoroge 256,028 0.04%

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James N. Muguiyi 46,096 0.01%

Total 313,498,003 47.11%

9.10 Distribution of Shareholding

Centum’s range of shareholding as at 31st December 2014 is as shown in the following table:

Table 5: Distribution of Shareholding

Volume Shares % Holders

1-500 2,314,393 0.35% 11,372

501-5,000 37,885,874 5.69% 18,548

5,001-10,000 24,146,416 3.63% 3,382

10,001-100,000 91,206,627 13.71% 3,686

100,001-1,000,000 91,376,857 13.73% 357

>1,000,000 418,511,547 62.89% 38

Total 665,441,714 100.00% 37,381

Centum’s shareholder profile as at 31st December 2014 is as shown in the following table:

Table 6: Shareholder Profile

Domicile Shares % Holders

Foreign Institutions 39,475,757 5.93% 30

Foreign Individuals 1,454,589 0.22% 168

Local Institutions 276,721,400 41.58% 1,775

Local Individuals 347,789,968 52.26% 34,672

Total 665,441,714 100% 36,645

9.11 Employees

At Centum, our greatest asset and key driver behind our exception performance is our team of youthful,

entrepreneurial, ambitious and highly focused individuals. Our entrepreneurial and high performance culture is

enhanced by a relatively flat organizational structure that promotes a free flow of ideas and communication across

the different levels of the organization; board, management and teams.

The standards of behaviour at Centum are guided by our core values;

• Delivery to promise;

• Unity of purpose;

• Partnership; and

• Investing responsibly

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We believe that every team member is a leader and focus on enhancement of leadership capacity through our

leadership development program. Our ultimate goal is to grow an adequate bench of leaders who will steer and drive

the growth of the extraordinary enterprises we create across the African continent.

Centum and its wholly owned operating subsidiaries (Nabo Capital Ltd, Athena Properties Ltd and Centum Business

Solutions Ltd) currently has a combined team of 84members of staff.

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10. TERMS AND CONDITIONS OF THE NOTES

1. The Issued Notes

The issue within the Republic of Kenya of up to Kenya Shillings six billion (Kes 6,000,000,000)

constituting Senior Unsecured Fixed Rate Notes and Senior Unsecured Equity Linked Notes, by the Issuer

was duly authorized by the board of directors by way of a resolution dated [•].

The Notes are available to the general public through subscription.

The Notes are issued with the benefit of, and are subject to the Information Memorandum, the Agency

Agreement and the Trust Deed. The statements in these Conditions include summaries of, and are subject

to, the detailed provisions of the Agency Agreement and the Trust Deed. Noteholders are deemed to have

notice of all the provisions of the Agency Agreement, copies of which are available for inspection at the

Specified Offices of the Fiscal Agent in accordance with the provisions of the Agency Agreement.

The following is the text of the terms and conditions (the “Conditions”) of the Issued Notes.

2. Form, Denomination and Title

(a) Form of Notes and denominations. The Notes are issued in registered form and denominated in Kenya

shillings in denominations of Kes 100,000 each and integral multiples of Kes 100,000 thereof (the

“Specified Denomination”). The Notes will be registered in the CDSC Account of each Noteholder held

with the CDSC in accordance with the CD Act.

The Variable Return in relation to the ELN is, at the option of the Noteholder, detachable from the ELN

and is transferrable in accordance with the Conditions. The Variable Return shall not therefore constitute a

Note nor shall its holder be deemed a Noteholder by mere holding of the Variable Return.

The Registrar shall maintain a Register with respect to the Notes and a separate Register with respect to the

Variable Return in a location within Kenya.

(b) Listing: Approval has been given to list the Notes on the Fixed Income Securities Market Segment of the

NSE.

The Senior Unsecured Equity Linked Notes will be listed on the restricted board of the Fixed Income

Securities Market Segment and trading will be limited to qualified institutional investors.

The Issuer shall use all reasonable endeavours to maintain the listing on the official list of the NSE of the

Notes and the Variable Return or if it is unable to do so, the Issuer will, subject to the approval of the CMA

and the Trustee, provide alternative mechanisms to facilitate trading of the Notes.

(c) Title. Title to the Notes will be evidenced by means of a book-entry in the CDSC Account of a Noteholder

in accordance with the CD Act.

Title to the Variable Return will also be evidenced by means of a book-entry in the CDSC Account of a

Variable Return Holder in accordance with the CD Act.

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The Issuer, the Fiscal Agent and the Registrar may (to the fullest extent permitted by Applicable Laws)

deem and treat the registered owner of any Note or Variable Return as the absolute owner thereof (whether

or not the Note or Variable Return (as the case may be) shall be overdue and notwithstanding any notice of

ownership or other interest therein and neither the Issuer, nor any agent of the Issuer, shall be affected by

notice to the contrary).

“Noteholder” or “Variable Return Holder” when used with respect to any Note or Variable Return (as

the case may be), means the person in whose name the Note or Variable Return (as the case may be) is

registered with the CDSC for the Notes or, as the case may be, Variable Return (or in the case of joint

holders, the first-named thereof).

“Holders” means the Noteholders and/or the Variable Return Holders (as the case may be) and “Holder”

shall be construed accordingly.

(d) Transfer. A Note may be transferred in whole or in part in a Specified Denomination and title to such Notes

shall pass upon the registration of book-entry transfers in accordance with the CD Act and; subject to the

detailed regulations concerning transfers of Notes set forth in the Agency Agreement (the “Regulations”).

The Regulations may be changed by the Issuer with the prior written approval of the Registrar.

The Variable Return may be transferred in whole or in part in a Specified Denomination and title to such

Variable Return shall pass upon the registration of book-entry transfers thereof in accordance with the CD

Act and subject to the Regulations. The Variable Return Holders may from time to time trade the Variable

Return subject to the CD Act and the Regulations.

(e) Registration and transfer. The transfers will be subject to such charges as may be levied by the CDSC,

CMA, NSE or any other regulatory authority or agency and market intermediary through whom the order is

made.

3. Status of the Notes

The Notes constitute direct, general, unconditional, unsubordinated and, subject to the provisions of

Condition 4 (Negative Pledge), unsecured obligations of the Issuer and will at all times rank paripassu in

all respects (including in priority of payment) among themselves and with all other present and future

direct, general, unconditional, unsubordinated and unsecured obligations of the Issuer, except for any

obligations that may be preferred by provisions of law that are both mandatory and of general application.

4. Negative Pledge

The Issuer agrees that, so long as any Notes remain outstanding, it shall not create or permit to subsist any

mortgage, charge, lien, pledge or other security interest upon or with respect to any of its undertakings,

assets or revenues to secure any future indebtedness evidenced by notes, bonds or other securities which are

or which are capable of being, at the request of the Issuer quoted, listed or dealt in for the time being on any

securities exchange or any other similar generally recognized market for securities unless (a) the Notes are

secured equally and rateably therewith; or (b) by providing such other security or arrangement as may be

approved by Extraordinary Resolution of the Noteholders; unless the provision of any such security is

waived by an Extraordinary Resolution of the Noteholders.

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5. Allocation Policy

A combined maximum of Kes 6,000,000,000 (six billion Kenya Shillings) (the “Issue Amount”) in Notes

will be made available for subscription.

The Issuer and the Joint Lead Arrangers will determine the allotment of Notes at their sole discretion. Of

particular note however is that FRN applications will be given preference over ELN applications.

Centum reserves the right, whether the Issue is over-subscribed or not, to reject any application in whole or

in part and may therefore allot less than the amount applied for.

6. Interest

(a) Payment of interest

The Notes bear interest on their outstanding principal amount from the Commencement Date at the Interest

Rate as determined below in accordance with the Payment Interest Dates indicated in Table 12 below.

If any Interest Payment Date would otherwise fall on a day, which is not a Business Day, the next

following Business Day shall be substituted for such day, unless such Business Day falls in the next

calendar month, in which case the immediately preceding Business Day shall be substituted therefore.

The period beginning on and including the date of the issue and purchase of the Notes (the

“Commencement Date”) to but excluding the first Interest Payment Date, and each successive period from

and including an Interest Payment Date to but excluding the next Interest Payment Date is herein called an

“Interest Period”. The Interest Period for each Interest Payment Date will be as follows:

Table 7: Payment of Interest Dates for the ELN and FRN

1 Interest Monday, 14 December 2015

2 Interest Monday, 13 June 2016









(b) Accrual of interest

Interest on each Note will cease to accrue in respect of any redeemed principal, unless payment of principal

on the relevant Principal Repayment Date (as defined below) or, where applicable the due date for early

redemption, is improperly withheld or refused. In such event, each Note shall continue to bear interest in

accordance with the provisions of this Condition 6 and Condition 9(b) (Payment on Business Days and late

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payments) until whichever is the earlier of (i) the date on which all sums due in respect of such Note have

been paid; and (ii) five days after the date on which the full amount of monies payable has been received by

the Fiscal Agent and notice to that effect has been given to the Noteholders in accordance with Condition

15 (Notices).

(c) Calculation of the Interest Rate

The rate of interest from time to time payable in respect of the Notes (the “Interest Rate”) shall be 13% for

the FRN and 12.5% for the ELN.

(d) Calculation of Interest Amounts

The Fiscal Agent will as soon as practicable, but in any event no later than two Business Days prior to the

date on which interest for a particular Interest Payment Date begins to accrue (the “Interest Determination

Date”), compute the amount of interest payable (the “Interest Amount”) for the relevant Interest Period.

For each Interest Payment Date, the Interest Amount shall be calculated by applying the Interest Rate to the

outstanding principal amount of the Notes, multiplying such sum by the actual number of days in the

relevant Interest Period divided by 364, rounding the relevant figure to the nearest Shilling (fifty cents

being rounded upwards).

The computation of each Interest Amount by the Fiscal Agent shall (in the absence of manifest error) be

final and binding upon all parties.

(e) Notification of Interest Rate and Interest Amounts

The Fiscal Agent will cause each Interest Amount for each Interest Period and the relevant Interest

Payment Date to be notified to the Issuer and the Noteholders in accordance with the Agency Agreement

and Condition 15 (Notices) as soon as possible, but in any event no later than the fourth Business Day after

the Interest Determination Date.

7. Computation of Variable Return

The Equity Linked Note will in addition to the coupon payment, have a variable return (the “Variable

Return”) in the event of an increase in the Issuer’s Net Asset Value (“Initial NAV”) over the life of the

Notes.

Increase in NAV will be arrived at by subtracting the Initial NAV from the Final NAV. The Initial Net

Asset Value is Kes 26,950,614,000 as disclosed in the reviewed financial statements for the period ended

31 December 2014. The Final NAV will be determined from (i) the Issuer’s audited financial statements as

at 31 March 2020 or, (ii) in case of early redemption of the ELN, the Issuer’s latest publicly issued

financial statements, being either half year accounts or full year accounts as the case may beThe formula

for computing the final redemption price will be:

Par Value + [Par Value *(min [max [25%*Centum’s company Net Asset Value Change, 0], 10%].

The increase in NAV for purposes of computing the final redemption price will be capped at 10% of par

value. In the event that the final NAV is lower than the initial NAV, the final redemption price will be at

par value.

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Please refer to Section (5)(Frequently asked Questions).

8. Payment of Variable Return

The Issuer shall pay an amount equal to the Variable Return to each registered holder of the Variable

Return (the “Variable Return Holder”) on the Maturity Date (or such other relevant date in the case of an

early redemption) as notified by the Fiscal Agent in the Final Due Amount Notice.

9. Payments

(a) Method of payment

i. Payment to the Holder will be made according to the particulars recorded in the Register at 3.00 p.m.

(Nairobi Time) on the relevant Record Date.

ii. Payments of amounts due on the final redemption of the Notes (the “Final Due Amount(s)”) will be made

by the Fiscal Agent in accordance with the Agency Agreement and subject to the provisions of the CD Act

to the holder of the Note thereof as appearing on the Register as at the Maturity Date.

iii. The amounts due on any prepayment of the Notes (the “Early Redemption Amounts”) will be paid to the

Noteholders appearing on the Register on the applicable redemption date and in accordance with the terms

of the Agency Agreement and subject to the provisions of the CD Act.

iv. Payments will be made by EFT or RTGS to a designated Kenya Shilling bank account belonging to the

Holder with a bank in Kenya which bank account details have been advised by the Holder to the Registrar

in writing and are recorded in the relevant Register held by the Registrar on the Business Day not later than

the relevant due date for payment.

(b) Payments on Business Days and late payments

i. If any day for payment of any Principal or Interest in respect of any Note or the Variable Return is not

a Business Day, then the Holder shall not be entitled to payment until the next Business Day or if the

next Business Day falls in the following calendar month the previous Business Day, nor be entitled to

any interest or other sums in respect of such postponed payment.

ii. If (otherwise than by reason of the application of paragraph (i) above) (a) any payment of principal is

withheld or refused when due in respect of any Note, or (b) any Interest is not paid when due or (c)

the Variable Return is not paid when due (the defaulted amounts mentioned in (a), (b) and (c) above

being referred to in this Condition as “Defaulted Amounts”) then interest shall accrue on each such

Defaulted Amount at the Late Payment Rate and shall be paid against presentation of a Note if the

Defaulted Amount is an amount of principal, and to a person who is shown as the Holder on the

relevant Record Date if the Defaulted Amount is an amount of interest or Variable Return (as the case

may be).

(c) Currency of account and payment. The currency of account and for any sum due from the Issuer hereunder

is the Kenya Shilling.

(d) Interpretation of principal. Any reference in these Conditions to Principal in respect of the Notes shall be

deemed to include, as applicable any premium and any other amounts, excluding interest, which may be

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payable by the Issuer under or in respect of the Notes.

9.1. Redemption and Purchases

9.1.1. Redemption at Maturity

Unless previously redeemed or purchased and cancelled as specified below, each Note will be redeemed by

the Issuer at its Final Due Amount on the Maturity Date.

9.1.2. Redemption at the option of the Issuer

9.1.2.1. The Issuer may upon giving not less than thirty (30) and not more than sixty (60) days’ prior notice in

writing to the Noteholders and the Trustee (the “Early Redemption Notice”) in accordance with Condition

15 (Notices) redeem all or some of the Notes outstanding;

9.1.2.2. The Early Redemption Notice shall specify the date on which the redemption is to be effected which date

shall be an Interest Repayment or Principal Repayment Day; then and upon expiration of such notice, the

Issuer shall redeem such Notes.

9.1.2.3. If the Issuer redeems only some of the Senior Unsecured Fixed Rate Notes, the partial redemption shall be

of an aggregate principal amount of not less than Kes 1,000,000,000 (Kenya Shillings one billion) and

integral multiple of Kes 100,000,000 (Kenya Shillings one hundred million).

9.1.2.4. Senior Unsecured Fixed Rate Notes may only be redeemed after the third anniversary of their issuance and

at a premium of 1% (one per cent).

9.1.2.5. Senior Unsecured Equity Linked Notes will be eligible for early redemption, in which case the Final NAV

will be calculated based on the most recent audited financial statements (being not more than six (6)

months old).

9.1.3. Purchases

The Issuer may at any time purchase Notes and/or the Variable Return at any price in the open market or

otherwise, subject to any approvals required. In the event of the Issuer purchasing Notes and/or the

Variable Return, such Notes and/or the Variable Return (as the case may be) may be held or resold, or at

the discretion of the Issuer, cancelled. All Notes and/or Variable Return which are redeemed or purchased

by or on behalf of the Issuer may be cancelled by giving notice to that effect to the Registrar, the Fiscal

Agent and the CDSC.

9.2. General

All Notes and/or Variable Return, which are redeemed and surrendered for cancellation will forthwith be

cancelled and all Notes so cancelled shall be forwarded to the Fiscal Agent and cannot be reissued or

resold.

10. Financial Covenants

10.1. Financial definitions

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In this Condition:

“Borrowings” means, at any time, the aggregate outstanding principal, capital or nominal amount (and any

fixed or minimum premium payable on prepayment or redemption) of any indebtedness of members of the

Group for or in respect of:

(a) moneys borrowed and debit balances at banks or other financial institutions;

(b) any acceptances under any acceptance credit or bill discount facility (or dematerialised equivalent);

(c) any note purchase facility or the issue of bonds (but not trade instruments), notes, debentures, loan

stock or any similar instrument;

(d) any Finance Lease;

(e) receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse

basis);

(f) any counter-indemnity obligation in respect of a guarantee, bond, standby or documentary letter of

credit or any other instrument (but not, in any case, trade instruments) issued by a bank or financial

institution in respect of (i) an underlying liability of an entity which is not a subsidiary of Centum

which liability would fall within one of the other paragraphs of this definition or (ii) any liabilities of

any subsidiary of Centum relating to any post-retirement benefit scheme;

(g) any amount raised by the issue of shares which are redeemable (other than at the option of Centum)

before the Maturity Date or are otherwise classified as borrowings under IFRS;

(h) any amount of any liability under an advance or deferred purchase agreement if (i) one of the primary

reasons behind the entry into the agreement is to raise finance or to finance the acquisition or

construction of the asset or service in question or (ii) the agreement is in respect of the supply of assets

or services and payment is due more than one hundred and eighty (180) days after the date of supply;

(i) any amount raised under any other transaction (including any forward sale or purchase agreement, sale

and sale back or sale and leaseback agreement) having the commercial effect of a borrowing or

otherwise classified as borrowings under IFRS; and

(j) (without double counting) the amount of any liability in respect of any guarantee or indemnity for any

of the items referred to in paragraphs (a) to (i) above.

"Cash" means, at any time, cash in hand or at bank and (in the latter case) credited to an account in the

name of Centum and to which Centum is alone beneficially entitled and for so long as:

(a) that cash is repayable on demand;

(b) repayment of that cash is not contingent on the prior discharge of any other indebtedness of any

member of the Group or of any other person whatsoever or on the satisfaction of any other condition;

Page 77 of 194

(c) there is no security over that cash (except for any security for any Borrowings) constituted by a netting

or set-off arrangement entered into by members of the Group in the ordinary course of their individual

banking arrangements; and

(d) the cash is freely and immediately available to be applied in repayment or prepayment of the Notes.

"Cash Equivalent Investments" means at any time any investment made by Centum in the ordinary

course of business in such securities or other instruments as Centum considers prudent.

(a) certificates of deposit maturing within one year after the relevant date of calculation;

(b) any investment in marketable debt obligations issued or guaranteed by the Government of Kenya, or

any other country where our investments are domiciled or by an instrumentality or agency of any of

them having an equivalent credit rating, maturing within one year after the relevant date of calculation

and not convertible or exchangeable to any other security;

(c) commercial paper not convertible or exchangeable to any other security:

i. for which a recognised trading market exists;

ii. issued by an issuer incorporated in Kenya, Mauritius, Tanzania or any other country where its

investment could be domiciled; and

iii. which matures within one year after the relevant date of calculation.

(d) in each case, to which Centum is alone beneficially entitled at that time and which is not issued or

guaranteed by any subsidiary of Centum or subject to any security.

“Consolidated Net Finance Charges” means, for any Relevant Period, the aggregate amount of the

accrued interest, commission, fees, discounts, prepayment penalties or premiums and other finance

payments in respect of Borrowings whether paid, payable or capitalised by Centum in respect of that

Relevant Period:

(a) including the interest element of leasing and hire purchase payments;

(b) deducting any accrued interest owing to any subsidiary on any deposit or bank account.

“Consolidated Total Net Debt” means, at any time, the aggregate amount of all obligations of Centum for

or in respect of Borrowings but:

(a) including, in the case of Finance Leases, only the capitalised value therefore;

(b) deducting the aggregate amount of freely available cash at bank and Cash Equivalent Investments held

by any member of the Group as permitted hereunder at such time and in relation to which there are no

impediments (contractual or otherwise) to the ability of a member of the Group to pay such cash at

bank or the proceeds of Cash Equivalent Investments to any Company,

and so that no amount shall be included or excluded more than once.

Page 78 of 194

"Internally generated funds or “IGF” means cash inflows from, dividend, interest, rent, other investment

income and proceeds on investment disposals net of operating expenses.

“Equity” means the Fair Value of the Issuer.

“Finance Lease” means any lease or hire purchase contract which would, in accordance with the IFRS, be

treated as a finance or capital lease.

“Relevant Period” means each period of twelve (12) calendar months.

10.2. Financial conditions

Centum shall ensure that:

(a) Interest coverage: The ratio of internally generated funds to finance charges in any Relevant Period is

equal to or more than 1.5:1;

(b) Net debt to Equity Cover: The ratio of Consolidated Total Net Debt to Equity in respect of any

Relevant Period shall not exceed 1:2.

Below is a historical representation of the Issuer’s relevant ratios:

KShs. M 2010 2011 2012 2013 2014 HY2015

Debt Service Coverage 34.61 13.81 27.43 6.3 5.58 6.9

Net Debt to Equity - 16% 5% 20% 23% 19%

10.3. Financial testing

The financial covenants set out in Condition 10 (Financial condition) shall be calculated in accordance

with IFRS and tested by reference to each of the financial statements provided that the first testing date

shall occur on or after the first anniversary of the Commencement Date.

11. Taxation

The Issuer (or the Fiscal Agent, as the case may be) will deduct withholding tax at the prescribed rate on all

interest payments to Noteholders other than any Noteholder who (a) is exempt from such deduction under

the provisions of the Income Tax Act (Chapter 470 of the Laws of Kenya) and (b) has provided evidence of

such exemption to the reasonable satisfaction of the Issuer.

12. Prescription

The Notes and the Variable Return will become void unless a claim is made for payment within a period of

six (6) years in the case of principal or the Variable Return (as the case be) and six (6) years in the case of

interest after the Relevant Date (as defined below).

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As used herein, the “Relevant Date” means the date on which such payment first becomes due, except that,

if the full amount of the moneys payable has not been duly received by the Fiscal Agent on or prior to such

due date, it means the date on which, the full amount of such moneys having been so received, notice to

that effect is duly given to the Holders in accordance with Condition 15 (Notices).

13. Default

13.1 Events of Default

Unless as result of the occurrence of a Force Majeure Event, each of the events set out below is an Event of

Default:

(a) Non-payment: Centum fails to pay any amount due in respect of all the Notes or some of the Notes

or the Variable Return on the Due Date for payment and such default continues for a period of seven

(7) Business Days unless:

(i) the failure to pay is caused by administrative or technical error;

(ii) payment is made within three (3) Business Days thereafter; or

(iii) the failure to pay is in order to comply with any Applicable Laws or order of any court of

competent jurisdiction or in case of doubt as to the validity or applicability of any such law,

regulation or order, in accordance with advice as to such validity or acceptability given at any

time during such period by independent advisers acceptable to the Fiscal Agent; or

(b) Breach of other obligations: Centum defaults in the performance or observance of any of its other

covenants and obligations under the Note Documents and (except where such default is incapable of

remedy) such default continues for a period of sixty (60) Business Days following service of a notice

by the Note Trustee requiring the same to be remedied; or

(c) Misrepresentation: any representation, warranty or statement made or repeated in, or in connection

with the Agency Agreement or in any accounts, certificate, statement, opinion or the Information

Memorandum delivered by or on behalf of Centum or in connection with the Notes or the Note

Documents is incorrect to a material extent when made or deemed to be repeated; or

(d) Cross-default: any present or future indebtedness of Centum in connection with moneys borrowed or

raised exceeding in aggregate Kes.500,000,000/= (Kenya Shillings five hundred million) (or its

equivalent):

i) Is not satisfied when due, or at the end of any originally applicable grace period; or

ii) Becomes prematurely payable following delivery of an Enforcement Notice by the Note Trustee

to Centum, as the case may be, as a result of a default by Centum except to the extent in any

instance that the existence or enforceability of the relevant obligation is being disputed in good

faith by it by appropriate proceedings; or

iii) Any encumbrance over any assets of Centum or any Subsidiary of Centum becomes enforceable;

or

Page 80 of 194

(e) Insolvency: an Insolvency Event occurs in respect of Centum; or

(f) Winding up: a petition is presented or an application is made (which is not challenged by Centum

within thirty (30) days of such petition or application) in respect of or any order is made or a

resolution is passed for or any notice is issued to convene a meeting for the purpose of passing such

resolution for the winding up or dissolution of Centum; or

(g) Compositions: Centum stops payment or becomes unable to pay its debts within the meaning of

Section 220 of the Companies Act or any steps are taken with a view to proposing, under any

enactment or otherwise, any kind of composition, scheme of arrangement, compromise or

arrangement involving Centum and its creditors generally, or any class of them; or

(h) Appointment of receivers and managers: an encumbrancer takes possession or exercises or purports

to exercise any power of sale or if a receiver or liquidator is appointed by any court or by any other

person over the property and assets of Centum; or

(i) Legal process: a lawful distress, sequestration, execution or attachment either by virtue of any court

order, decree or process or otherwise howsoever for a sum equal to or exceeding the 20% (twenty per

cent) of the Total Assets of Centum is levied or enforced upon or issued against any part of the

property and assets of Centum and which shall not be removed or discharged within sixty (60) days of

it being so levied; or

(j) Cessation of business: Centum ceases, or threatens to cease, to carry on all or a substantial part of its

business or sells or threatens to sell or otherwise disposes of or shall threaten to sell or dispose of all

or a material part of its assets (other than in the normal course of trading it being acknowledged and

agreed that Centum’s business entails the acquisition and disposal, inter alia, shares, equity,

undertakings and businesses and such activities will not therefore constitute an Event of Default)

whether by one or a series of transactions related or not or changes the mode of conduct of its trading

in any respect so that its ability to meet its obligations under and in respect of the Notes is materially

affected; or

(k) Authorisation: any authorisation, approval, consent, license, exemption, filing, registration or

notarization or other requirement necessary to enable Centum to comply with any of its obligations

under the Note Documents or to carry on business as presently carried on is modified (to the extent

that its ability to meet its obligations under and in respect of the Notes is materially affected), revoked

or withheld or does not remain in full force and effect and Centum is unable to obtain the same within

fourteen (14) days of such modification; revocation or extinction; or

(l) Unlawfulness: at any time it is unlawful for Centum to perform any of their respective obligations

under the Agency Agreement; or

(m) Material adverse change: any other event or series of events whether related or not, including,

without limitation, any material adverse change in the business, assets or financial condition of

Centum in an amount equal to or exceeding 20% (twenty per cent) of the Total Assets of Centum,

occurs that, in the opinion of the Fiscal Agent (such Fiscal Agent being so instructed pursuant to an

Extraordinary Resolution), may affect the ability or willingness of Centum to comply with all or any

of its obligations under the Note Documents.

Page 81 of 194

13.2 Acceleration

In the case of any such event as is mentioned in Condition 13.1 (Events of Default), and at any time

thereafter if any such event shall then be continuing, the Note Trustee shall if so directed by an

Extraordinary Resolution, issue an Enforcement Notice to Centum declaring that any outstanding Notes are

immediately due and payable, whereupon the same shall become immediately due and payable together

with all interest accrued thereon and all other amounts payable under the Note Documents.

13.3 Rectification

The right to declare Notes due terminates if the situation giving cause to it has been cured or is otherwise

no longer continuing before such right is exercised and any notice or demand issued by the Fiscal Agent in

accordance with this Condition 13 (Default) shall be of no effect.

14. Agents

The names of the Note Trustee, Fiscal Agent and Registrar and its initial Specified Office are set out below.

Table 8: Note Trustee, Fiscal Agent and Registrar

Party Name of Party Specified Office of Party

Note Trustee Ropat Trust Company Limited Ropat Trust Company Limited

Kenya Re Towers

off Ragati Road

P.O. Box 1243-00100

Nairobi, Kenya

Tel: +254 20 2723322

Fax: +254 20 2723474

Contact Person: Patrick Gacheru


Fiscal Agent Custody and Registrars Services

Limited


6th Floor,

Bruce House, Standard Street

P.O. Box 8484-00100

Nairobi, Kenya

Tel : +254 20 2230518

Fax: +254 20 2211773


Email :[email protected]

Registrar Custody and Registrars Services

Limited


6th Floor, Bruce House, Standard Street

P.O. Box 8484-00100

Nairobi, Kenya

Tel : +254 20 2230518

Fax: +254 20 2211773


Email :

[email protected]




Page 82 of 194

The Issuer is entitled to amend or terminate the appointment of the Fiscal Agent or the Registrar and to

appoint another fiscal agent or registrar provided that it will at all times while any Note is outstanding

maintain a fiscal agent and a registrar having a Specified Office in Nairobi.

Any variation, termination or appointment shall only take effect (other than in the case of insolvency, when

it shall be of immediate effect) after not less than thirty (30) nor more than forty five (45) days’ prior notice

thereof shall have been given to the Holders in accordance with Condition 15 (Notices).

In acting under the Agency Agreement and in connection with the Notes, each of the Agents is acting

solely as agent of the Issuer and does not assume any obligation toward or relationship of agency or trust

for or with any Holder or the owner of any interest therein.

The Trust Deed states the manner in which the appointment of Note Trustee may be amended or

terminated.

15. Notices

Notices to the Holders will be deemed to be validly given if made by fax, delivered to them, or sent by

registered mail or (if posted to an overseas address) by airmail to them, or electronic mail, or posted on the

Issuer’s official website or published in a newspaper with national circulation and:

i. in the case of any communication made by fax, will be deemed to have been validly given when

dispatched with a fax transmission report showing that the entire communication was received by

the intended recipient in legible form at its fax number as recorded on the Register (to be

confirmed by letter but failure to send or receive the letter of confirmation shall not invalidate the

original communication);

ii. in any other case, will be deemed to have been validly given when such communication or

document is left with or, as the case may be, ten (10) days after its being posted to the intended

recipient at its address as recorded on the Register;

iii. in case of electronic transmission , the notice will be deemed to have been validly given when

such electronic communication is sent to the intended Holder;

iv. in case of a notice posted on the Issuer’s official website, the notice will be deemed to have been

validly given when such notice is so posted; or

v. in case of a notice published in a newspaper, the notice shall be deemed to have been validly given

on the date of publication of the newspaper,

provided that a communication or document which is received after 5:00 p.m. on a Business Day, or on a

day which is not a full Business Day, in the place of receipt shall be deemed to be delivered on the next full

Business Day in that place.

Notices given by any Holders shall be in writing and given by lodging the same with the Fiscal Agent.

16. Meetings of Noteholders; Modifications and Waiver

Page 83 of 194

The Trust Deed and the Agency Agreement contain provisions for convening meetings of the Noteholders

to consider any matter affecting their interests, including, without limitation, the sanctioning by

Extraordinary Resolution of a modification of the Notes or certain provisions of the Trust Deed. Such a

meeting may be convened by the Issuer or Noteholders holding not less than 20% (twenty per cent) in

nominal amount of the Notes for the time being remaining outstanding. The quorum at any such meeting

for passing an Extraordinary Resolution is one or more persons holding or representing more than fifty

(50%) in nominal amount of the Notes for the time being outstanding, or at any adjourned meeting one or

more persons being or representing Noteholders whatever the nominal amount of the Notes so held or

represented, except that at any meeting the business of which includes the modification of certain

provisions of the Notes (including modifying the date of maturity of the Notes or any date for payment of

interest or principal thereof, reducing or cancelling the amount of principal or the rate of interest payable in

respect of the Notes or altering the currency of payment of the Notes), the necessary quorum for passing an

Extraordinary Resolution will be one or more persons holding or representing not less than three-quarters in

nominal amount of the Notes for the time being outstanding, or at any adjourned such meeting one or more

persons holding or representing a clear majority in nominal amount of the Notes for the time being

outstanding. An Extraordinary Resolution passed at any meeting of the Noteholders must be carried by a

majority of not less than three-quarters present and entitled to vote and, if so carried, shall be binding on all

the Noteholders, whether or not they are present at the meeting, and whether or not they vote in favour. A

Noteholder may appoint a proxy or representative in accordance with the provisions of the Trust Deed. The

quorum for passing any resolution (other than an Extraordinary Resolution) at a meeting of Noteholders

shall be any two or more Noteholders (not being the Issuer or any Representative of the Issuer) present in

person or by proxy or representative and representing in the aggregate more than one third of the aggregate

Principal Amount of the Notes for the time being outstanding. Such resolution shall be decided by a

majority of votes of the Noteholders present and entitled to vote.

The Note Trustee and the Issuer may agree, without the consent of the Noteholders, to:

i. any modification (except as mentioned above) of the Agency Agreement which is not prejudicial

to the interests of the Noteholders; or

ii. any modification of the Notes or the Agency Agreement, which is of a formal, minor or technical

nature or is made to correct a manifest error to comply with mandatory provisions of Kenyan law;

or

iii. listing of the Notes on the NSE.

Any such modifications shall be binding on the Noteholders and any such modification shall be notified to

the Noteholders in accordance with the Trust Deed as soon as practicable.

17. Governing Law

The Notes, the Trust Deed and the Agency Agreement shall be governed by, and construed in accordance

with, the laws of Kenya.

18. Jurisdiction

The Issuer hereby agrees, for the benefit of the Holders, (i) that any suit action or proceedings (together

referred to as “Proceedings”) arising out of or in connection with the Notes, Variable Returns or the

Page 84 of 194

Agency Agreement may be brought before any competent court in the Republic of Kenya and irrevocably

submits to the jurisdiction of such court; (ii) agrees that a judgment in any such Proceedings brought in any

such court shall be conclusive and binding upon it and may be enforced in the courts of any other

jurisdiction; (iii) hereby agrees that nothing contained in this condition shall limit the rights of any Holder

to take Proceedings against the Issuer in any other court of competent jurisdiction, nor shall be taking of

Proceedings in one or more jurisdiction preclude the taking of proceedings in any other jurisdiction,

whether concurrently or not.

Service of any writ, judgment or other notice of legal process shall be received by the Issuer at its office in

Nairobi, presently at International House, 5th Floor, Nairobi, Kenya.

Nothing in this Condition 18 shall affect the right of any Holder to serve any writ, judgment or other notice

of legal process in any manner permitted by Applicable Law and the Issuer hereby consents to service

being effected in any such manner, whether by mail or otherwise.

To the extent that the Issuer may in any jurisdiction claim for itself or its assets immunity (to the extent that

such immunity may now or hereafter exist, whether on the ground of sovereign immunity or otherwise)

from suit, execution, attachment (whether in aid of execution, before judgment or otherwise) or other legal

process (whether through service or notice or otherwise), and to the extent that in any such jurisdiction

there may be attributed to itself or its assets such indemnity (whether or not claimed), the Issuer irrevocably

agrees for the benefit of the Holders not to claim, and irrevocably waives, such immunity to the full extent

permitted by the laws of such jurisdiction.

Page 85 of 194

11. KEY INVESTMENT CONSIDERATIONS

The investment considerations below do not constitute a guarantee neither are they indicative of future returns.

Potential investors are advised to consult with their investment, legal and tax advisers to determine the suitability of

an investment in the Notes, and the appropriate amount, if any, of an investment of this nature

11.1 Business Model

Centum’s business model is to create investment grade opportunities of scale that will attract investment at

significant return to initial capital. Centum is currently focusing its development activities in several key sectors: (i)

financial services, (ii) fast moving consumer goods (FMCG), (iii) real estate and (iv) power (v) agriculture, (vi)

education, (vii) healthcare and (viii) ICT.

The proceeds from the bond issue will be applied to funding these early stage opportunities and are expected to

deliver significant value to Centum at the growth phase (as illustrated below) especially given the increase in

competition for the few investment grade assets available in the region.

As a developer and promoter, Centum realizes early-stage value by creating investment-grade opportunities for

down-stream investors as illustrated in the chart below.

Centum funds these opportunities during development phase with the aim to invite financial investors after de-

risking projects. The projects funding cycle is illustrated in the chart below:

Page 86 of 194

11.2 Track Record of Consistent Performance and long term growth

In the period from April 2009 to 31 December 2014, we have delivered consistent performance and growth:

1. During the period, we delivered an annualized return of 30% against NSE 20 share index performance of 11%,

representing a 19% outperformance.

2. The value of Centum’s portfolio grew by Kes 27.8 Billion from Kes 9 Billion in March 2010 to Kes 36.8

Billion in December 2014. Total assets under management (including third party funds) stood at Kes 176Billion

in December 2014, representing a 19.5 times growth since March 2010. This is illustrated in the charts below:

Page 87 of 194

Assets under Management Portfolio Value

Source: Company reports

Centum’s Net Asset Value grew by 357% from Kes. 5.9 Billion in April 2009 to Kes. 26 Billion in December 2014.

This represents growth or at a rate of 30% compounded annually. Market value of shareholder funds grew from Kes.

5.6 Billion in April 2009 to Kes. 40.6 Billion in December 2014 representing 625% growth in value generated to

shareholders.

Net Asset Value Growth


11.3 Unutilised debt carrying capacity

Centum has a relatively low level of gearing, with debt to shareholder funds ratio at 15% as at 31 March 2015 as

shown below:

Kes. M 2010 2011 2012 2013 2014 2015

Net Debt (Total debt less cash) - 1,988 678 2,647 4,649 3,763

Gearing

16% 5% 20% 23% 15%

9

14 16

22

147

176

0

10

20

30

40

2010 2011 2012 2013 2014 Dec-14

9.0

14.5 14.7

19.3

28.8

37.6

0

10

20

30

2010 2011 2012 2013 2014 Dec-14

5.9 9.212.6 13.7 16.1

22.926.0

5.68.6

13.0

9.8

13.2

24.3

40.6

2009 2010 2011 2012 2013 2014 Dec-14

Book Value

Mkt Cap

Kes

. B

illi

on

Page 88 of 194

With the current debt issue of Kes.6 billion being fully subscribed, the level of gearing will increase to 38%, which

is still relatively low and within Centum’s existing debt covenants of a ceiling gearing ratio of 50%.

The level of gearing at Centum excludes debt at subsidiary levels. At subsidiary level, project specific funding at no

recourse to Centum is procured. Therefore, the value at risk for Centum in relation to the debt at subsidiary levels in

limited to the extent of Centum’s equity investment in the respective subsidiary.

11.4 Strong cash flows

Centum has strong cash flows from dividend, interest and exits from its portfolio of assets. The table below

highlights the cash generated from operations over the last six years. With our dual focus on cash return and

investment value appreciation, Centum is set to maintain healthy cash flows into the future.

Kes. M 2010 2011 2012 2013 2014 Dec 2014

Operating inflows 1,722 2,349 6,619 2,547 4,146 4,112

Operating outflows (199) (305) (309) (380) (463) (565)

Cash from Operations 1,523 2,044 6,310 2,167 3,683 3,547

Interest paid 44 148 230 344 660 (391)

Debt service coverage 34.61 13.81 27.43 6.30 5.58 9.07

A minimal average of 14% of our cash inflows goes towards servicing of operating expenses at Centum Investment

Company Limited. This therefore means that the bulk of cashflows generated from operations by Centum are

available to service additional debt as well as repay our current Kes 4.2Bn bond in 2017.

Over the period, Centum has maintained debt service coverage way above the bond covenant of 1.5 times.

Centum is rated for credit quality by the Global Credit Rating Company (GCR). Centum received an initial rating of

A- in 2012. Its current rating is A for both short term and long term credit quality, well above the minimum

investment grade rating.

Diversified income streams

The diversified nature of Centum’s portfolio helps diversify risks associated with liquidity. Centum’s investments in

marketable securities were valued at Kes. 4.2Bn as at 31st December 2014. Centum expects to maintain its

investments in marketable securities at approximately 10-15% of total assets for the medium term.

Forecast debt service capacity

Given current cashflows from operations and an assumption of no growth, Centum will still be in a position to

adequately service the additional Kes.6 billion debt. This is illustrated below.

Assuming that cash from operations remains at the average of the past five years at Kes 4Bn and an additional

annual debt service of approximately Kes 800 million from the bond raise, the debt service coverage will be 2.5

times which is within the bond covenant target.

Kes. M 2015 2016

Cash from Operations 8,352 3,846

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Interest paid 730 1,325

Debt service coverage 11.44 2.54

Minimum debt service coverage ratio 1.5 1.5

11.5 A well-Diversified Investment Portfolio

In its 48 year history, Centum has diversified its portfolio into different industries to help manage sector specific

volatility and give its stakeholders market beating returns. In addition, through a well-managed sector diversification

strategy, Centum has given its stakeholders access to a wide range of economic sectors helping to broaden

participation in the economy as well as minimize the impact of market fluctuations on their portfolio returns.

As at 31 December 2014, Centum’s portfolio of Kes 37.6 billion was invested across several sectors as summarized

below:-


In line with its Pan African Vision , Centum continues to diversify geographically giving its stakeholders access to

other geographical markets as well as manage overall macro-economic risks. The company presently has a presence

in 12 countries as summarized below:-

Financial Services, Kes 9.1Bn

Fast Moving Consumer Goods, Kes 6.0Bn

Energy, Kes 0.7n

Others, Kes 3.4Bn

Real Estate, Kes 12.9Bn

Asset Management,

Kes 4.7Bn

Page 90 of 194

Current Exposure

Egypt

Kenya

Tanzania

Uganda

Nigeria Ghana Ivory Coast

Zambia

Zimbabwe

Botswana

The above approach has given Centum key presence outside the Kenyan market. Presently over 19% of its portfolio

is held outside Kenya representing assets in excess of Kes 5.3 billion. This has given investors access to

opportunities in fast growing markets while insulating them against the impact of country specific fluctuations.

11.6 Strong Corporate Governance

Centum’s success is anchored on the practice of world class corporate governance. The Company’s Board of

Directors is committed to ensuring that the business is run in a professional, transparent, just and equitable manner

so as to protect and enhance shareholder value whilst satisfying the interests of all other stakeholders. The principles

and standards established by the Board have been developed with close reference to guidelines on corporate

governance issued by the Centre for Corporate Governance, the Capital Markets Authority for publicly listed

companies in Kenya, the Central Bank of Kenya for the banking industry and other best practices. The Board

members have a broad range of skills, expertise and experience and each brings independent judgment and valuable

contribution to the business.

Centum’s success is founded on a team of young, professional and highly experienced individuals. Centum has

endeavored to preserve its entrepreneurial culture through a relatively flat organization culture that enables

deliberate yet quick decision making. Centum intends to organize itself around projects at hand rather than

traditional corporate charts.

The company has won the following Awards in the recent past from, inter alia, the Champions of Governance

(COG) Awards by the Institute of Certified Public Secretaries of Kenya and the Financial Reporting Excellence

(FIRE) Awards by the Institute of Certified Public Secretaries of Kenya:

Rwanda

Morocco

Page 91 of 194

In addition, Centum Group CEO, Mr James Mworia served on the Capital Market’s Steering Committee on

Corporate Governance that drafted the Kenya Corporate Governance Blue Print.

11.7 Strong Brand Name

Founded in 1967 as ICDC Investment Company Limited, Centum has grown to be one of the largest investment

companies 5in East Africa. It is listed on the Nairobi Securities Exchange (NSE) and cross listed on the Uganda

Securities Exchange (USE). It presently has over 36,000 shareholders spread all over the world and is one of the

most recognizable brands, with over 93% of the shareholders spread over East Africa.

Its investments are in leading companies in Africa in its quest to become Africa’s foremost investment channel.

Centum is Kenya’s biggest publicly traded investment company. It has over the years availed a quality diversified

pool of assets to institutional investors, which they would otherwise not have.

Recently, Centum was able to attract a US$ 70 million investment in its Two Rivers project from a Chinese

corporation and US$5 million from a local corporation. This investment was significant not only for Centum, but

also for the country, as it is one of the foreign direct investments (FDI) by a Chinese corporation into a private sector

led enterprise. For Centum, the investment further confirmed the company’s ability to create investment-grade assets

that attract considerable investment from local and foreign sources.

5 BloombergBusiness, “Centum of Kenya in Talks on Healthcare, Education Ventures”

http://www.bloomberg.com/news/articles/2014-11-26/centum-of-kenya-in-talks-on-healthcare-education-partnerships

http://www.bloomberg.com/news/articles/2014-11-26/centum-of-kenya-in-talks-on-healthcare-education-partnerships

Page 92 of 194

12. ECONOMIC OVERVIEW

12.1 Kenya Macro - Economic Overview

Selected Macro Economic Indicators

The table below summarizes the key macroeconomic indicators in Kenya:

Indicators 2011 2012 2013 2014 2015F

GDP (Current prices) – USD ‘Billions 34.3 40.7 45.1 51.8 59.2

Real GDP Growth 4.4% 4.6% 5.7% 5.7% 6.9%

Inflation 14.0% 9.6% 5.7% 6.9% 5.0%

Population 42.0

mn 43.2mn 44.2mn 45.3mn 46.4mn

Source: Kenya National Bureau of Statistics, IMF World Outlook Database

**Kenya rebased its GDP figures in 2014 leading an increase of 25.3%

Economic Outlook

In 2014, Kenya’s economic growth improved significantly with Gross Domestic Product (GDP) growth estimated at

5.7%.This growth has greatly been supported by infrastructure developments. According to the Kenya budget policy

document 2015, Kenya's GDP is projected to grow by 6.9% in 2015 and by 7.0% over the medium term. This robust

broad based growth will be underpinned by improved performance in the agricultural, manufacturing, construction,

retail, financial and insurance industries.

The main impediment to economic growth in the recent past have been the upsurge of security risks associated with

terrorism attacks which has adversely affected the output from Kenya’s Tourism industry. Other factors that may

impede expected growth are drought and the continuous fiscal expansion.

Kenya Annual GDP Growth

5.8%

4.4% 4.6%5.7% 5.7%

6.9%

0.0%

2.0%

4.0%

6.0%

8.0%

2010 2011 2012 2013 2014 2015

2010 2011 2012 2013 2014 2015

Page 93 of 194

Source: World Bank and Kenya Budget Policy Document

Inflation

Overall inflation remained largely stable through 2014 on the back of prudent monetary policies by CBK. In January

2014, inflation stood at 7.2% rising to a year high of 8.2% in August and closing the year at 6.0%.

Kenya Overall Inflation

Source: Kenya National Bureau of Statistics

Overall inflation declined to 5.5% in January and marginally increased to 5.6% in February of 2015. The increase

was a result of increase in food prices. However, inflation is relatively low and well within the CBK medium term

target of between 2.5% and 7.5%. The low inflation comes on the back of low global oil prices.

Going forward, the main risk to the inflation outlook is the expected drought in some parts of the country which may

result in a decline in agricultural output prompting food imports. However, low fuel prices occasioned by the global

decline in the price of crude oil is expected to maintain downward pressure on the rate of inflation.

Interest Rates

All through 2014 and in Quarter 1 of 2015, the short term interest rates generally remained stable. This has been

occasioned by high liquidity as well as general convergence of the short term rates in line with the Central Bank

Rate (CBR) which has been retained at 8.5% since May 2013. In the first week of January, the 91 day T-bill, 182

day T-bill and 364 day T-bill rates were at 8.5%, 10.2% and 10.7% respectively and closed the week ending 18th

March 2015 at 8.5%, 10.3% and 10.6% respectively.

Interest Rates

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Feb-

14

Mar-

14

Apr-

14

May-

14

Jun-14 Jul-14 Aug-

14

Sep-

14

Oct-14 Nov-

14

Dec-

14

Jan-15 Feb-

15Overall Inflation Annual Average Inflation

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

04-F

eb-1

4

04-M

ar-1

4

01-A

pr-

14

29-A

pr-

14

27-M

ay-1

4

24-J

un-1

4

22-J

ul-

14

19-A

ug-1

4

16-S

ep-1

4

14-O

ct-1

4

11-N

ov-1

4

09-D

ec-1

4

06-J

an-1

5

03-F

eb-1

5

03-M

ar-1

5

%

91 day Tbill 182 day Tbill 364 day Tbill

Page 94 of 194


The average lending rate in 2014 was 16.5%, the average overdraft rate was 15.5% and the average deposit rate was

6.6%. As of end of January 2015 the average deposit rate was 6.5% and lending rate was 15.9%.

Exchange Rates

The Kenya shilling exchange rate remained stable against major world currencies all through 2014 supported by

increased remittances from the Diaspora, IMF disbursements under the Extended Credit Facility programme and the

Central Bank’s activities in the Foreign Exchange markets.

Exchange Rates

Source: Central Bank of Kenya

Although stable, the Kenya Shilling exchange rate has demonstrated mixed performance against major international

currencies through Q1 of 2015.The Kenya shilling appreciated against both the Sterling pound and Euro to trade at

Kes 137.05 and 96.77 on 12th March 2015 from Kes 141.00 and Kes 109.39 respectively in January 2015. Against

the dollar, the Kenya shilling depreciated to trade at Kes 91.72 on 12th March 2015 from Kes 90.70 in January 2015.

12.2 Uganda Macro - Economic Overview

The table below summarizes the key macroeconomic indicators in Uganda

Indicators 2011 2012 2013 2014F 2015F

GDP ( Current Prices )– USD

‘Billions

18.1 21.1 23.05 25.6 27.2

Real GDP Growth 5.9% 2.8% 4.7% 6.0% 6.6%

Inflation 18.7% 14.2% 5.5% 4.3% 5.4 %

80.00

90.00

100.00

110.00

120.00

130.00

140.00

150.00

160.00

2/9

/20

14

3/9

/20

14

4/6

/20

14

5/4

/20

14

6/1

/20

14

6/2

9/2

01

4

7/2

7/2

01

4

8/2

4/2

01

4

9/2

1/2

01

4

10/1

9/2

014

11/1

6/2

014

12/1

4/2

014

1/1

1/2

01

5

2/8

/20

15

KES/US $ KES/GBP KES/Euro

Page 95 of 194

Population - millions 32.9 34.1 35.4 36.6** 37.6

Source: IMF World Economic Outlook, October 2014, Uganda Bureau of Statistics.

**actual population count in 2014 returned a figure of 34.9 million.

Uganda Economic Outlook

The Uganda economy saw the consolidation of macroeconomic stability and a continued, albeit modest recovery of

economic activities. The country’s Gross Domestic Product (GDP) is estimated to have grown at 6.0% in 2014 on

the back of a fiscal and monetary policy stance focused on containing inflationary pressures, while ensuring debt

and exchange rate stability.

The forecast for 2015 is positive with GDP growth expected to be around 6.6% on the back of steadily improving

economic conditions. However, the ongoing conflict in South Sudan (one of Uganda’s key trade partners) is

expected to negatively impact exports.

Uganda plans to hold Presidential and Parliamentary elections in early 2016. Expectations are that the increased

government expenditure relating to these elections will expand monetary supply leading to inflationary pressures

and consequently a reduction in real GDP growth. Below is a summary of GDP growth rates for the period 2011 –

2015

Source: Uganda Bureau of Statistics

Inflation

Overall inflation in Uganda was on a downward trend in 2014. The Bank of Uganda statistics show that

while 2014 began with core inflation of around 3.9%, this declined to end the year at 2.7%. There is

however evidence of an upward creep in core inflation with Central Bank data recording this at 3% as at

February 2015.

The diagram below summarizes core inflation and electricity, fuel and utilities (EFU) inflation for the

period February 2014 to February 2015.

Page 96 of 194

Source: Bank of Uganda

In the short term Uganda is likely to face inflationary pressure mainly due to three factors:-

Increased government borrowing and spending on the planned presidential and parliamentary elections to be

held in in 2016 which is expected to expand monetary supply;

The uncertainties surrounding elections are likely to see a cut back on spending by businesses. It is expected

that the declining investments in manufacturing capacity will see a decline in output which will lead to increase

in general prices.

Speculative activities in the foreign exchange markets which are expected to negatively impact foreign

exchange reserves reducing the Central Bank’s capacity to manage the currency depreciation.

Interest Rates

The interest rate environment in Uganda remained largely stable in 2014 against a background of increasing market

liquidity. The Central Bank Rate (CBR) began the year at 11.5% but was cut to 11% in June 2014 where it has

remained since. The Treasury bill rates however showed modest increase as shown below:-

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Feb

-14

Mar

-14

Ap

r-1

4

May

-14

Jun

-14

Jul-

14

Au

g-1

4

Sep

-14

Oct

-14

No

v-1

4

Dec

-14

Jan

-15

Feb

-15

%

Elec, Fuel & Utilities (EFU) Core

Page 97 of 194

Source: Bank of Uganda

A Standard Chartered Bank report forecasts an increase in the Central Bank Rate to around 13% levels due to

expected inflationary pressure in 2015. The inflationary pressure is expected to arise out of increased government

borrowing and expenditure on election related activities. This is in turn expected to further increase Uganda’s

traditionally high lending rates.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Jan

-14

Feb

-14

Mar

-14

Ap

r-1

4

May

-14

Jun

-14

Jul-

14

Au

g-1

4

Sep

-14

Oct

-14

No

v-1

4

Dec

-14

Jan

-15

Feb

-15

91 Days 182 Days 364 Days

Page 98 of 194

13. INDUSTRY OVERVIEW

13.1 Power Sector

13.1.1 Overview of the East African Power Sector

The East African governments have been actively addressing the energy problem in the region, which until recently,

severely constrained economic development. Several new projects have been initiated with the aim of increasing the

region’s electricity production. In 2011, Ethiopia’s prime minister announced that the country was working towards

increasing its renewable energy output five-fold within the next five years. State-owned Ethiopian Electric Power

Corporation (EEPCo) recently announced a revised 25-yearpower-sector strategy, aiming to boost power generating

capacity to 37,000MW by 2037. A substantial amount is intended to be surplus power earmarked for export mainly

to East African countries. The vast natural resources and favourable climate could place Ethiopia at the centre of an

emerging electricity network across the region, driven largely by renewable energy.

Construction of the Lake Turkana Wind Power project in Kenya started in the first quarter of 2014. The project had

been delayed for years due to funding concerns, but it finally reached financial close in 2014. If the construction

timeline is adhered to as planned, the first 50MW of power could be generated by the first quarter of 2016, and the

ramp-up to full capacity of 300MW by Q4 2016. When completed, Lake Turkana could be the largest wind power

project in Africa.

The Tanzanian government recently released a document emphasising that the domestic market will be prioritised

over the export market with regard to gas supply, and as a result, all liquefied natural gas (LNG) and other

processing facilities will be located onshore. The government also plans to facilitate the establishment of industrial

parks where natural gas will be utilised. Additionally, Tanzania plans to start exporting power in 2015 to

neighbouring countries. Completion of a new gas pipeline should double the country’s electricity generating

capacity to about 3,000MW.

The East African Power Pool aims to connect the power grids of at least 10 countries, including Ethiopia, Kenya,

Rwanda, Uganda, Burundi, Tanzania, the DRC, Sudan, Libya and Egypt. It may also extend to northern and

southern Africa.

13.1.2 Power Sector in Kenya

13.1.2.1 Structure of the Power Sector

The power sector in Kenya has been undergoing restructuring and reform since the mid-1990s, culminating with the

Energy Act 2006. Under the Energy Act, the Ministry of Energy is responsible for formulation of policies through

which it provides an enabling environment to all operators and other stakeholders in the energy sector.

As a result of the Energy Act, the Energy Regulatory Commission (ERC) was established in 2007 as an

autonomous, independent energy sector regulator with powers to formulate licensing procedures, issue licenses and

permits, make recommendations on regulation (to be implemented by the Minister of Energy), formulate, enforce

and review environmental, health, safety and quality codes and standards, set, review and adjust electricity tariffs,

approve power purchase and network service contracts, investigate complaints between parties, protect stakeholders

interests and prepare an indicative national energy plan. On recent Independent Power Producers (IPPs), the ERC

has also issued a comfort letter to assist with the requirements of project finance lenders.

KenGen is an electrical power generation company in Kenya, supplying the country with about 80% of its

electricity. KenGen is a publicly listed company and is majority-owned by the Government. KenGen provides

electricity from numerous energy resources, such as hydropower, wind, geothermal and thermal.

Page 99 of 194

KPLC is a publicly listed company that transmits, distributes and retails electricity to customers throughout Kenya.

KPLC is also responsible for ensuring that there is adequate line capacity to maintain power supply and quality over

the Kenyan electricity network, covering approximately 41,486 km.

Kenya Electricity Transmission Company (KETRACO) is the Kenyan national grid operator and its main business is

to plan, design, build, operate and maintain new electricity transmission lines and associated substations.

Geothermal Development Company Limited (GDC) is a 100% state owned special purpose company set up to fast-

track the development of geothermal resources. Part of its mandate is to enhance geothermal exploration in Kenya.

GDC has a 10-year US$2.6 billion exploration plan which will involve drilling 566 wells and locating 2,336MW of

geothermal energy. These potential energy reserves have been located in 14 “high-potential” areas and estimates of

their value are around US$30 billion. Whilst the GDC has this mandate of “exploration”, it also tenders contracts for

IPPs, such as a recent expression of interest regarding the development of a power plant to process 400MW of

reserves in the Menengai field and an open tender for an 800MW geothermal plant at Bogoria- Silai. GDC will

harness steam discovered and this will be sold on to IPPs who will construct power plants to process it.

13.1.2.2 Power Generation & Supply

The Kenyan electricity market is structured as a single buyer market with KPLC, the transmission and distribution

utility, buying electricity from all generators on the basis of negotiated Power Purchase Agreements (PPAs) for

onward transmission, distribution and retail to consumers. Kenya’s energy generation market is rather liberalised,

with several IPPs contributing to the national grid, a collective installed capacity of 507MW and KenGen as the

dominant market player with an installed capacity of 1,268MW.

Power generation mix

Sources Installed Capacity (MW) % Share

Hydro 797.5 44.9%

Thermal 587.5 33.1%

Geothermal 348.0 19.6%

Co-generation 21.5 1.2%

Wind 5.1 0.3%

Isolated Grid 15.0 0.8%

Total 1,774.6 100.0%

Source: KPLC 2014 Annual Report

The Ministry of Energy and Petroleum is focused on deregulating both the supply and demand in the power value

chain to create a more competitive market in the future. The Kenya government has set forth its “Vision 2030,” a

programme to transform Kenya into an industrialised middle-income country. However, Kenya has less than

2,000MW of generation capacity to serve its population of over 44 million. Kenya aims to increase generation

capacity to 5,000MW by 2017 and by 15,000MW by 2030. While these are aggressive targets, the Kenya

government is focused on achieving this through:

Sustaining a stable investment climate for private sector participation in the sector;

Page 100 of 194

Developing expanded transmission and distribution networks to deliver power to customers;

Maintaining a creditworthy off-taker in the country’s transmission and distribution utility – KPLC;

Continuing to enforce cost-reflective tariffs; and

Reducing inefficiency in the sector to support more affordable end-user tariffs

The planned capacity expansion drive will be largely met through the exploitation of clean energy resources such as

geothermal, wind and biomass in the medium to long-term. The country possesses over 10,000MW of undeveloped

geothermal energy resources found in fields situated in the country’s Great Rift Valley. Geothermal Development

Company Ltd (GDC) intends to exploit these untapped resources for base load power generation. If the

government’s targets are realised, Kenya’s power sector is set to undergo a dramatic change in the energy mix by

2030, with non-hydro renewables set to overtake hydro power as the dominant source of electricity.

Centum is in the process of building a 140MW geothermal power plant in Olkaria, Naivasha as part of the

company’s move into the energy sector..

Projected power generation mix (2014-2017)

Source: KPLC 2014 Annual Report, MoEP

Over-dependence on hydro power generation has resulted in supply disruptions during periods of drought, with

costly oil-fired sources being used to boost output. As a result, the government aims to introduce coal, as well as

gas-fired capacity, into the power generation mix.

In 2014, the Kenya government invited bids for the construction of a 1,050MW coal power plant in Lamu County

which was won by a consortium led by Centum on a Build-Own-Operate model. Other players in the consortium

included Gulf Energy and Sichuan Electric Power Design and Consulting Company Limited (SEDC).

The government’s Vision 2030 strategy also stipulates the development of nuclear energy as a viable means of

providing the much-needed reliable and affordable electricity.

To date, over 4,000MW of projects are in progress, with most of these expected to be completed by 2016.

40 Month Government 5000+ MW Strategy (Start date: 2013)

Hydro,

44%

Thermal,

33%

Geotherma

l, 20%

Cogenerati

on, 1%

Wind , 0%

Isolated

Grid, 1%

2014

Hydro,

12%

Thermal,

6%

Geotherma

l, 28%

Cogenerati

on, 1%Wind, 9%

Coal, 28%

Natural

gas, 16%

2017

Page 101 of 194

Time in months 6 12 18 24 30 36 40 Total (MW)

Hydro 24 - - - - - - 24

Thermal 87 163 - - - - - 250

Geothermal 90 176 190 50 205 150 785 1,646

Wind - - 20 60 300 250 - 630

Coal - - - - 1,050 - 960 2,010

Natural Gas - - - 700 350 - - 1,050

Co-generation - - 18 - - - - 18

Total 201 339 228 810 1,905 400 1,745

Cumulative

additions (MW) 201 540 768 1,578 3.483 3,883 5,628

Source: KPLC 2014 Annual Report

Kenya’s power supply has been growing at CAGR of 6% over the last 5 years mainly driven by increased investor

activity in the power sector with IPPs playing a pivotal role, particularly in the renewable power sub-sector. Much of

the growth was catalysed by the reforms in the Energy sector through the Energy Act, 2006 which among other

changes included pre-negotiated pricing and procedures for renewable energy projects.

Power Supply (GWh)

Source: KPLC 2014 Annual Report, KNBS Economic Survey

13.1.2.3 Power Transmission

In light of the power generation plans of increasing power generation by approximately ten times in approximately

14-15 years, there needs to be a corresponding increase in transmission and distribution infrastructure to ensure

government’s objectives of increasing electrification rates at affordable prices are to be realised. In line with its

mandate, Kenyan Electricity Transmission Co. Ltd (KETRACO), has identified for implementation on a priority

basis, a total of 18 projects of 1,471km of 132KV lines, 645km of 220KV lines, 608km of 400KV lines and 686km

of 500KV HVDC lines to be implemented over the next 3-4 years. The Kenya government, jointly with the

6,489 6,692

7,303 7,670

8,087

2009/10 2010/11 2011/12 2012/13 2013/14

CAGR:

6%

Page 102 of 194

Tanzania Government, will also undertake the implementation of the 330KV transmission line between Arusha

(Tanzania) and Nairobi.. Funding for this already secured. Similarly, the Kenya government in conjunction with the

Ethiopian government are in the advanced stages of implementing the 1,070km power line that will export power

from Ethiopia to Kenya. The World Bank and AfDB are expected to lend US$684 million and US$338 million

respectively towards the project.

13.1.2.4 Power Demand

KPLC’s key mandate is to plan for sufficient electricity generation and transmission capacity to meet demand;

building and maintaining the power distribution and transmission network and retailing of electricity to its

customers. The company is currently on an expansion programme to extend power connectivity to the majority of

Kenyans with a goal of connecting 70% of Kenyans by 2020 from the current 32%. They have connected more

customers in the last 5 years, than they had since independence with power connections having grown by CAGR of

16% since 2010.

Customers connected to the grid


Power demand continues to grow steadily at CAGR 6% - slightly higher than annual GDP growth - exerting

pressure on power producers to ensure there is adequate increase of power supply to meet the increasing demand.

Power demand


1.8mn

2.0mn

2.3mn

2.8mn

2010/11 2011/12 2012/13 2013/14

CAGR:

16%

1,072MW 1,107MW1,194MW

1,236MW

1,354MW

1,468MW

2008/09 2009/10 2010/11 2011/12 2012/13 2013/14

CAGR:

6%

Page 103 of 194

Projected power demand to the year 2030

Source: KenGen, MoEP

Nairobi remains a significant consumer of power by region due to its huge urban population accounting for over

50% of total power consumed. With devolution however, this share is expected to decrease as economic activities in

the counties increase and as KPLC and Rural Electrification Authority (REA) extend the national power grid to the

rural areas.

Power consumption by region


13.2 Fast Moving Consumer Goods (FMCG) Sector

13.2.1 About FMCG

FMCG are quick to package, move and sell. They include toiletries, processed food stuffs and alcohol. FMCG is a

low profit margin, high volume industry. Given their fast-paced, traceable nature, they are an excellent litmus test

for assessing the state of many other variables in the markets including transport, trade and consumer sentiment.

2,300 4,700

7,900

15,400

19,900

33,300

1,800 3,100

5,400

11,900

17,600

26,500

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2012 2015 2018 2023 2027 2030Projected Capacity (MW) Peak Demand (MW)

Nairobi, 52%

Coast, 17%

West, 16%

Mt. Kenya, 8%

R.E.P, 6%Exports, 1%

Page 104 of 194

FMCG trends allow economists to track the rise of the emerging consumer class on the African continent, and the

consumer price index (CPI) is a largely accepted statistical gauge of inflation.

Africa’s consumer-facing industries are expected to grow by more than $400 million by 2020. The economic growth

accelerated in the years following 2000, making it the world’s second fastest growing region after emerging Asia

and equal to the Middle East. Resources contributed less than a third of total GDP growth in the 2000s, while 45%

of growth came from consumer-facing or partially consumer-facing sectors. The African market opportunity is

concentrated, with 10 of 53 countries (Algeria, Angola, Egypt, Ghana, Kenya, Morocco, Nigeria, South Africa,

Sudan and Tunisia) accounting for 81% of Africa’s private consumption in 20116.

According to McKinsey & Co. GDP per capita is the single most important driver of global growth in the

consumption of fast-moving consumer goods, accounting for an average of around 73% of total growth across 60

product categories. While the influence of other factors, such as education and local customs, varies between

categories, GDP per capita dominates how much money people spend in Africa because most markets are in the

early stages of development.

The graph below shows the expected consumer spending growth in selected African countries:

Source: Euromonitor Africa Consumer Spending

As a result, Africa presents a solid opportunity for producers and retailers of FMCG but requires strategies tailored

and executed market-by-market to account for different rates of economic growth and local consumer needs and

preferences. In addition, speed is very important. Companies that can quickly establish a foothold or expand their

presence will be well positioned to capture the value at stake as the continent’s consumers increase their spending in

the years to come7.

6 Ventures Africa 7 McKinsey & Company

1423

15 15 1020

115

18

3729 30

23

43

167

0

20

40

60

80

100

120

140

160

180

Angola Kenya Ghana Uganda Ethiopia Zambia Nigeria

Expected Consumer Spending in 2020 (USD billion)

2010 2020

Page 105 of 194

174

9482

6853 49 44 39 38 38

0

50

100

150

200

Largest Populations in Africa (2013,

million)

273

138104 103

79 66 63 58 55 49

0

50

100

150

200

250

300

Largest Populations in Africa (2030F, million)

13.2.2 Key Drivers of FMCG in Africa

13.2.2.1 Market Size

FMCG retailers generally operate in a low-margin environment. As a result, the existence of a large market is

crucial to the success of these companies. Despite Africa having a population of around one billion, the continent

remains relatively under-served by FMCG companies8.

The graphs below show the 10 African countries with the largest population sizes in 2013 and 20309:

Source: United Nations Population Division

Nigeria’s estimated population size in 2013 was roughly equal to the sum of the next two most populated nations on

the continent, Ethiopia and Egypt. On the forecast, the top two countries remain unchanged, although Nigeria is

forecast to widen the gap with Ethiopia due to the former’s fertility rate, which is projected to decline at a slower

pace. For the same reason, the DRC is expected to surpass Egypt in population numbers while Tanzania is expected

to rise above South Africa, which is expected to fall from the fifth to the eighth position. Kenya and Uganda are also

expected to move up the rankings due to high population growth rates.

13.2.2.2 Urbanization

The UN forecasts that SSA’s urbanization rate will reach 45.9% by 2030 and 56.7% by 2050 from just 36.3% in

2010. The urbanization rate of East Africa is much lower than the rest of SSA. In 2010, East Africa’s urbanization

rate was almost 17 percentage points lower than the second least urbanized region on the continent, namely the

Francophone. East Africa’s low level of urbanization can be ascribed to the substantial importance of subsistence

agriculture in most of these countries. Central and West Africa are expected to have higher urbanization levels than

North Africa by 202510.

13.2.2.3 Market Concentration

FMCG retailers need a steady flow of consumers purchasing their products on a daily basis, so they have to operate

in a local market with a large enough size. In 2010, there were 50 urban agglomerations in Africa with a population

of one million or more, of which three had a population of five million or more. By 2025, the UN expects there to be

8 KPMG Africa 9 United Nations Population Division 10KPMG Africa

Page 106 of 194

93 agglomerations in Africa of at least one million, of which 12 are forecast to have a population of five million or

more.

13.2.2.4 Distribution Channels

It is important for FMCG to have predictable and trustworthy distribution channels, as such related industries like

agricultural and manufacturing sectors are key. This is also why many retailers opt for vertical integration, and this

is particularly relevant for African countries, where distribution channels are generally weak. The strength of local

agriculture and manufacturing, the quality of transport infrastructure, and the scope and extent of tariffs on imported

goods are crucial issues in FMCG sectors.

International FMCG companies in the region commonly use one of the following two ways to distribute their

products:

Distribution through Importers: In this model, FMCG companies send their shipments to importers who, in

turn, sell them to distributors or wholesalers. FMCG companies play an inactive role and do not participate in

any operational activities within the destination country. All the marketing and distribution-related activities are

undertaken by importers, based on mutual agreement with FMCG companies. FMCG companies select this

distribution model to minimize their risks, make short-term gains, or understand the market and gauge market

response for their products before making significant investments.

Distribution through “Key” Distributors: In this model FMCG companies distribute their products to

wholesalers or retailers through one or several “key” distributors. FMCG companies play an active role in this

model. They are involved in marketing, consumer research and distribution coverage. FMCG companies opt for

this model when they want to invest and develop a market from a long-term perspective11.

13.2.2.5 Spending Power

Since FMCG retailers generally sell products that can be classified as necessities, income per person is a less

important consideration than for retailers of luxury or durable products. The trend in income levels is however still

important in order to establish what types of FMCG products can be offered to a specific market. In addition, over

time, retailers would want to benefit from shifts in consumer spending patterns as they move up the income chain, so

a high growth market is still preferable.

The graph below illustrates that 184.8 million Africans had daily per capita expenditure of between US$2 and US$4

in 2010, while 77.9 million spent between US$4 and US$1012.

11 Arthur D Little, FMCG Opportunities and Challenges in Africa 12AfDB

Page 107 of 194

Source: AfDB

13.2.2.6 Buying Habits

Since FMCGs are generally similar within categories, retailers have to compete on the basis of price. In a market

with fierce competition, margins are squeezed to their minimum levels and the least efficient companies are pushed

out of business. However, companies that can convince consumers to purchase their brand name rather than that of a

competitor can maintain market share without necessarily having to offer lower prices. Key strategies in this regard

are loyalty programmes, enhancing the shopping experience, advertising, promotions, offering products in smaller

packages to make them more affordable and adapting to local needs. Convincing a consumer that your product is

somehow superior to that of a competitor offering a similar product is crucial in ensuring long-term success in a

given market. A well-known example is Coca-Cola vs. PepsiCo soft drinks: the products taste similar and fulfill the

same need, but consumers generally have a very clear preference for one or the other.

13.2.2.7 FMCG Industry in Kenya

Kenya has a total population of approximately 44 million, and the middle class is approximately 45%. Kenya has a

total food and beverage consumption of approximately US$11 billion per annum, and expected GDP per-capita

growth of 3% (until 2025). The Kenyan FMCG market is similar to the Nigerian market in terms of consumer

preferences and distribution network, except that modern trade has grown faster in Kenya due to the growth of the

tourism sector. Modern trade comprises 10–15% of total retail sales in Kenya. In addition, an increasing number of

FMCG companies are setting up local manufacturing units to cater to the needs of local as well as neighboring

countries’ markets13.

13.2.2.8 Food

Kenya’s food retail sector is well developed in an African context. Foreign retailers are yet to break into the market

with four local players (Nakumatt, Tuskys, Uchumi, and Naivas) dominating the scene. Nakumatt has the biggest

13 Arthur D Little, FMCG Opportunities and Challenges in Africa

39.3

16.8

19.5

9.3

18.1

4.9

16.9

6.2

11.6

7

10.83

5.86

10.7

4.2

6.3

3.2

51.53

20.41

0

20

40

60

80

100

120

140

160

180

200

$2-$4 $4-$10

Number of People in Spending Brackets by Country (millions, 2010)

Other Ghana Ethiopia Kenya South Africa Algeria Morocco Nigeria Egypt

Page 108 of 194

market share, although Tuskys has a larger number of branches. Stores of these companies are also very prevalent in

other East African countries, especially Uganda.

In January 2014, it was revealed that Nakumatt was looking to buy three of Shoprite’s stores in Tanzania, where

Kenyan retailers still have only a limited presence. Kenyan retailers are expected to increase the range of their

product offerings over the outlook period in order to build market share. They will also be looking to expand further

in the region, especially in countries where their presence is still relatively limited such as Tanzania, Rwanda and

South Sudan.

13.2.2.9 Beer

While still the dominant producer in Kenya, East African Breweries Limited (EABL, a subsidiary of Diageo) has

seen competition intensify in recent years from small local brewers and imports of international brands such as

Heineken and SABMiller. Still, East African Breweries controls around 90% of the Kenyan beer market, and

continues to expand into the rest of East Africa. A glance at the company’s subsidiaries acts as confirmation of this:

Kenya Breweries Limited, Uganda Breweries Limited, Serengeti Breweries Limited, United Distiller Ventnor,

Central Glass Industries, and East African Malting Limited. EABL is listed on the Nairobi, Uganda, and Dar es

Salaam stock exchanges. The company has invested in new supply chain capacity, including a new canning line, in

order to boost production levels. East African Breweries has 26,000 local partners across the value chain, and

sources 10,000 tonnes of sorghum in Kenya (from only 400 tonnes four years ago), while two new varieties of high-

yielding barley seed were recently launched14.

Although EABL clearly dominates, competition in Kenya’s beer industry has increased in recent years, as both

macrobrewers and microbrewers attempt to take advantage of naturally expanding markets. At the end of 2012,

Keroche Breweries (Kenya’s only local brewery) stated that it plans to raise its share of the beer market in Kenya to

20% (from around 3% then) in two years, and is increasing capacity to meet that target. This includes the

construction of a brew house with an annual capacity of one million hectolitres, which is expected to be completed

an estimated cost of US$29.4million. Apart from boosting production of existing brands, the company also plans to

start producing other products that are not currently in its portfolio, such as stouts and non-alcoholic drinks. Keroche

also plans to expand into Tanzania, Rwanda, and Uganda over the medium term.

Centum through its subsidiary, King Beverage Limited, entered the Kenyan beer market in 2015 with the signing of

a local distribution contract with Danish brewer, Carlsberg. The contract also gives Centum distribution rights for

Carlsberg products in Uganda.

13.2.2.10 Soft Drinks

Kenya has a strong domestic soft drinks manufacturing sector. Soft drinks production increased notably during 2007

to 2009, rising by an annual average of 4.9%. Production stagnated somewhat in 2010, before increasing by 2.8% in

the subsequent year and falling again in 2012.

Data for 2013 indicates that production has once again increased. In fact, during the first 11 months of 2013,

Kenya’s soft drinks production increased by 19.1% year-on-year, while domestic sugar production rose by 18.9%

year-on-year over the same period. It is estimated that Kenya’s soft drinks consumption increased from 306.8

million litres in 2007 to 350.7 million litres in 2011. Over this period, per capita consumption of soft drinks rose

from 8.13 litres per person per year to 8.35 litres. Per capita consumption of soft drinks in Kenya is projected to

reach 14 litres p.a. by 2030, and 30 litres by 2050.

14KPMG Africa

Page 109 of 194

13.2.2.11 Coca-Cola

Coca-Cola has dominated the soft drinks industry in Kenya for a number of years. Coca-Cola’s dominance may in

fact have contributed to the industry not growing at such robust levels as in some neighboring countries where there

is more competition. Pepsi has tried to re-enter the Kenyan market since 2010, and has quite a bit of lost ground to

make up, having exited Kenya in the 1970s. Coca Cola has six bottling plants in Kenya, and has been operating in

the country for 65 years. Following Pepsi’s move, Coca Cola recently injected some US$50 million into its

manufacturing plants in Kenya. Consumption of Coca-Cola products has shown moderate growth in recent years,

with per capita consumption of company beverage products (in units of 237 ml of a finished product) falling from 35

in 1992 to 31 in 2002, before increasing to 39 (approximately 9.2 litres) in 2012. In comparison, per capita

consumption was 26 servings (6.2 litres) in Nigeria, 39 in China, and 87 (20.6 litres) in Morocco. According to

Coca-Cola, it is facing rising competition from fruit juices due to consumers becoming increasingly averse to

carbonated drinks for health reasons. This also contributed to higher imports in recent years, in turn forcing local

carbonates manufacturers to cut production levels. In response, Coca-Cola recently launched its Coke Zero brand in

Kenya, as well as its Minute Maid fruit juice. The company also cut its price for a 300 ml soda from Kes25 (US$0.3)

to Kes23 (US$0.27) in June 2012 in order to boost demand. Other players in Kenya’s juice industry include Kevian

Kenya and Del Monte.

One of Coca Cola bottling companies in Kenya is Nairobi Bottlers Limited in which Centum has a 27.6% stake.

Centum through its subsidiary, Almasi Beverages Limited, is also one of Coca Cola’s bottling company in Kenya.

Almasi is a holding company for 3 Coca Cola bottling companies:

Mount Kenya Bottlers Limited

Rift Valley Bottlers Limited

Kisii Bottlers Limited

13.3 Financial Services Sector

13.3.1 Kenya Banking Sector Overview

The banking sector comprised of 43 commercial banks, 1 mortgage finance company, 9 microfinance banks, 7

representative offices of foreign banks, 94 foreign exchange bureaus, 7 money remittance providers and 2 credit

reference bureaus as at 30th September 2014.

Banking industry structure


Page 110 of 194

The Kenyan Banking Sector registered improved performance with the size of net assets standing at Kes 3.1 trillion,

loans and advances worth Kes 1.9 trillion, while the deposit base was Kes 2.3 trillion and profit before tax of Kes

104.5 billion as at 30th September 2014. Over the same period, the number of bank customer deposit and loan

accounts stood at 26.6 million and 4.0 million respectively.

13.3.2 Industry Performance

13.3.2.1 Asset base

The banking sector total assets stood at Kes 3.08 trillion as at September 2014. The major items on the balance sheet

were loans and advances, government securities and placements, which accounted for 59.9%, 20.5% and 4.7% of

total assets respectively.

13.3.2.2 Loans and Advances

The sector’s gross loans and advances grew from Kes 1.8 trillion in June 2014 to Kes1.9 trillion in September 2014,

translating to a growth of 7.3 percent. The growth was in 10 out of 11 sectors as shown in below. Tourism,

Restaurants and Hotels sector registered a decline due to higher repayments than the new loans granted during the

period.

Lending to the different economic sectors as at 30 September 2014


13.3.2.3 Deposit Liabilities

Deposits were the major source of funding for the banking sector, accounting for 73.1% of total funding liabilities.

The deposit base increased by 4.7% from Kes 2.2 trillion in June 2014 to Kes 2.3 trillion in September 2014

supported by branch expansion, remittances and receipts from exports. The increased use of alternative delivery

channels of banking services such as agency banking model has also contributed to increased deposits. The number

of bank deposit accounts increased from 25.3 million in June 2014 to 26.6 million in September 2014 representing a

growth of 1.3 million accounts or 5.1%

13.3.2.4 Capital and Reserves

The banking sector registered enhanced capital levels in September 2014 with total capital increasing by 4.9% from

Kes 436.6 billion in June 2014 to Kes 458.1 billion in September 2014, whereas shareholders’ funds increased by

21 bn

34 bn

70 bn

82 bn

84 bn

91 bn

144 bn

240 bn

281 bn

378 bn

483 bn

- 100 200 300 400 500 600

Mining and Quarrying

Tourism, Restaurant and Hotels

Financial services

Agriculture

Building and construction

Energy and Water

Transport and Communication

Manufacturing

Real Estate

Trade

Personal/Household

Page 111 of 194

6.4% from Kes 459.4 billion in June 2014 to Kes 488.7 billion in September 2014. Similarly, the ratios of core and

total capital to total risk-weighted assets increased from 15.0 % and 17.5% to 15.1% and 17.8% respectively. The

increase in capital adequacy ratios is due to a higher growth in capital base than the growth in total risk weighted

assets during the period under review.

13.3.2.5 Assets Quality

The stock of gross non-performing loans (NPLs) increased by 2.0% from Kes101.7 billion in June 2014 to Kes

103.7 billion in September 2014. The quality of assets, measured as a proportion of net non- performing loans to

gross loans improved from 2.1% to 1.9% over the same period. Similarly, the ratio of gross NPLs to gross loans

declined from 5.7% in June 2014 to 5.4% in September 2014. Moreover, banks have adopted enhanced appraisal

standards to mitigate credit risk.

13.3.2.6 Profitability

During the 3rd quarter of 2014, the sector recorded Kes 33.5 billion pre-tax profits, which was a decrease of 10.9%

from Kes 37.6 billion registered in the quarter ending June 2014. Total income stood at Kes 104.0 billion in the third

quarter which was similar to what was registered in the second quarter of 2014. The total expenses increased by

5.7% from Kes 66.6 billion in June 2014 quarter to Kes 70.4 billion in September 2014 quarter. On an annual basis,

the profitability of the sector increased by 13.0% from the Kes 92.5 billion registered in September 2013 to Kes

104.5 billion in September 2014. Interest on loans and advances, fees and commissions and government securities

were the major sources of income accounting for 59.2%, 18.7% and 15.1% of total income respectively. On the

other hand, interest on deposits, staff costs and other expenses were the main components of expenses, accounting

for 32.7%, 28.2% and 24.1% respectively.

13.3.2.7 Liquidity of the Banking Sector

For the period ended 30th September 2014, average liquid assets stood at Kes 816.3billion while average liquid

liabilities were worth Kes 2,180.9 billion, resulting to an average liquidity ratio of 37.4%, against 38.7% registered

in June 2014, which was well above the minimum statutory limit of 20.0%.

13.3.3 Challenges

13.3.3.1 Increased competition

Competition within the banking sector is becoming more aggressive both from conventional and non-conventional

banking players. Substitute products and services have emerged to a great extent in the banking industry mostly in

the form of money transfer services provided by mobile telephony companies. Consequently, this development is

likely to revolutionize how the banking industry players perform their financial intermediation services.

13.3.3.2 Money laundering

Persons who are engaged in criminal activities are seeking ways of concealing the origins of illegally generated

funds. However the government has come up with The Proceeds of Crime and Anti Money Laundering Act, 2009.

The Act seeks to create a comprehensive legislative framework to combat the offence of money laundering in Kenya

and to provide for the identification, tracing, freezing, seizure and confiscation of the proceeds of crime among other

measures.

13.3.4 Opportunities

13.3.4.1 A growing SME market

The Small and Medium Enterprises (SMEs) in Kenya have developed considerably over the last ten years both in

numbers and in economic scale. This growth provides the banks with a perfect opportunity as a number of SMEs

continually demand financial services.

Page 112 of 194

13.3.4.2 Agency Banking

Agency Banking is a concept introduced to the banking sector by Central Bank of Kenya in 2010. This concept

allows banks to offer limited services through business outlets that are not banks and not necessarily financial

services e.g. supermarkets, chemists etc. This will enable banks to extend banking services to a wider population in

areas where physical bank branches may not be viable.

13.3.4.3 Technology

General technological advancement and stiff competition in the banking industry has led to major implementation of

technology such as internet banking and mobile banking applications. This has impacted positively on the industry,

that is, transaction time as well as better customer experience. Banks are increasingly using social media not only in

advertising but also for receiving customer feedback.

13.3.4.4 Banking Sector Outlook

The banking sector is expected to maintain its growth momentum mainly driven by the rollout of full file credit

information sharing, regional integration initiatives, advances in information and communication technology and the

introduction of the devolved governance system in Kenya.

13.3.5 Overview of Kenya Insurance Industry

Data from the Insurance Industry regulator, the Insurance Regulatory Authority, indicates that as at December 2014,

there were 49 insurance companies, 84 licensed insurance brokers and 22 Medical Insurance providers (MIPS).

Other licensed insurance players included 129 investigators, 96 motor assessors, 20 loss adjusters, 1 claims settling

agent, 8 risk managers, 26 insurance surveyors and more than 4,600 insurance agents.

13.3.6 Industry Performance

13.3.6.1 Industry Premiums

The industry’s insurance premiums grew by 20.4% during the year 2014. The annual premiums stood at Kes 157.8

billion growing from Kes 131.0 billion. The premium income reported under life insurance business amounted to

Kes 56.5 billion while general business premiums were Kes 101.3 billion. The Kenyan insurance industry continues

to be non-life business driven.

13.3.6.2 Claims experience and underwriting expenses

The claims incurred under general insurance business were Kes 41.9 billion by the end of 2014 increasing by 25.3%

from Kes 33.4 billion recorded in year 2013. Total policyholder benefits under life business amounted to Kes 17.0

billion during the same period. The change in claims experience was consistent with the industry business volume

expansion. Underwriting expenses included business acquisition costs (commissions) and expenses of management.

The commissions paid by the insurers during the year amounted to Kes 9.3 billion compared to Kes 7.4 billion

reported during the previous year. Management expenses amounted to Kes 30.4 billion compared to Kes 24.4 billion

reported in 2013, an increase of 24.8%.

13.3.6.3 Shareholder Funds

The increasing capitalization in the insurance industry saw common stock holders’ equity grow significantly during

the year. As at 31st December 2014, the shareholders’ funds amounted to Kes 122.5 billion representing a growth of

24.8% from Kes 98.2 billion as at the end of 2013.Stronger balance sheet position of insurance companies is likely

to improve confidence in the industry with more capital resources being available to cover losses.

13.3.6.4 Assets and Liabilities

The insurance industry asset base was Kes 426.3 billion as at 31st December 2014. This was a growth of 19.1%

from Kes 358.0 billion held as at the end of 2013. The liabilities amounted to Kes 303.8 during the same period.

Page 113 of 194

13.3.6.5 Investments

The insurers held a total of Kes 352.4 billion of their assets in income generating investments as at the end of

December 2014. These had grown by 19% during the last twelve months. The investments constituted 82.7% of the

total industry assets. The investments under life insurance business amounted to Kes 225.3 billion (63.9% of total

industry investments) while general business investments were Kes 127.1 billion (36.1% of total investments for the

industry).

13.3.7 Kenya Insurance Market Outlook

The Kenyan insurance industry’s attractiveness has been the reason for the recent entry of multinational insurance

groups that are acquiring local insurance firms to set up operations in the local market. Factors that are contributing

to this interest include: the increasing ease of doing business in Kenya, a growing middle class that is appreciating

the need for insurance, and the emerging oil and gas sector in the country.

Kenya is the focus of large scale Private Equity (PE) activity in East Africa, mostly on the back of improving

infrastructure, a fairly diversified economy compared to its regional peers, and steadily improving regulatory

regime. Some notable funds operating in the region include Centum Investments Company (formerly ICDC), which

is listed on the Nairobi Securities Exchange, Catalyst Partners, Fanisi Fund, Abraaj, Actis Fund, and Emerging

Capital Partners (ECP).

Kenyan companies have the most regional outlook, expanding their footprints in East Africa in sectors such as

financial services, hotels, airlines and agro business. Most of these companies look beyond being leaders in the

Kenyan economy, but have broader ambitions of tapping into new geographies to scale their products and services.

This aggressive nature of Kenyan companies offers exciting opportunities for PE firms.

Kenya accounted for 46% of the total number of deals in Eastern Africa and 69% of total reported values in 2013.

Key to this was the Norway’s Norfund and Africa Infrastructure Investment Manager (AIIM) investment of US$60

Mn in equity to build a wind power project in Kenya worth US$150Mn (US$90 Mn will be funded by debt from

Standard Bank Group).

Tanzania had three deals valued at US$5m in 2013. Two large deals were completed by Carlyle and Standard

Chartered PE. Kenyan investment firm TransCentury sold their entire stake in Tanzanian Chai Bora Ltd, a tea

manufacturer, to Catalyst Principal Partners. The deal value, however, was not disclosed.

Rwanda saw a surprising increase in number of deals, with five deals with a reported value of US$41.3m. These

deals mainly involved Fusion Capital’s US$34 Mn investment in a real estate development project in Kigali and a

US$2 Mn investment in Rusororo, a stone extraction mining company. Another deal was Fanisi Capital’s first

investment made outside Kenya, US$2 Mn in Sophar Limited, a pharmaceutical wholesaler.

13.3.8 Performance Overview

Kenya accounted for 46.0% of the total number of deals in Eastern Africa and 69.0% of the total reported value as

summarized below:-

Page 114 of 194

Sources: EMPEA

13.4 Recent Private Equity Transactions in East Africa

The table below summarizes recent PE transactions in East Africa:

No. Private Equity

Fund Year Target Company Sector Region Value Deal

1 Centum 2014 K-rep Bank Financial

Services Kenya O/S

2013 Almasi Beverages Food and

beverage Kenya $5m

2 Pearl Capital

Partners

2013 Freshco Kenya Ltd Agribusiness Kenya $ 600,000

2014 Eldoville Dairies

Limited

Food and

beverage Kenya Kes 200m

2014 Meru Greens

Horticulture Ltd Agribusiness Kenya Kes 210m

3 East Africa

Capital Partners 2014 Wananchi Group

Telecommunicati

on Kenya n/a

4 Acumen

2014 MilikiAfya Health Kenya $ 600,000

2013 Sanergy Water Kenya n/a

5 Helios Investment

2014 Wananchi Group Telecommunicati East

$40.0m

46%

19%

11%

4%

12%

8%

2013 Number of deals by country

Kenya

Rwanda

Tanzania

Ethiopia

Uganda

Regional

69%

25%

3%3%

2013 Value of Eastern Africa Deals by Country

Kenya

Rwanda

Tanzania

Uganda

Page 115 of 194

Partners Holdings on Africa

6 Proparco 2014 Lake Turkana Wind

Power Project (LTWP)

Power and

Energy Kenya

Euros

50.0m

7 Catalyst Principal

Partners 2014

Mimosa Pharmacy

Limited Health Kenya n/a

2013 Yes Brands Food and

beverage Ethiopia n/a

2013 Chai Bora Food and

beverage Tanzania n/a

8 Norfund

2013 Ascent Rift Valley

Fund SME Fund

East

Africa n/a

2013 Asilia Tourism Kenya &

Tanzania n/a

2014 Housing Finance

Company Ltd

Financial

services Kenya n/a

9 Amethis Finance 2013 Chase Bank Banking Kenya $10.5m

10 8 Miles Fund 2013 Eleni LLC Logistics Kenya $5m

11 Fusion Capital 2013 Rusororo Aggregate Mining Rwanda $2m

Source: East Africa PE confidence survey, 2014, EIB Analysis

13.5 The Asset Management Industry

The asset management industry comprises of the portfolio management of funds for private clients and institutional

funds such as pension funds and provision of investment funds such as unit trusts and other collective investment

schemes. The key driver for growth in the recent past has been industry reforms in both Kenya and Uganda.

The enactment of the Retirement Benefits Authority (RBA) legislation in 1998 in Kenya opened space for more

players in the Industry. The legislation requires pension funds and retirement benefit schemes to appoint licensed,

professional fund managers to manage the assets of the pension schemes and other retirement benefit schemes. A

similar legislation, the Uganda Retirement Benefits Regulatory Authority Act, 2011 is now under implementation in

Uganda whose expected outcome is an expansion of the pension sector beyond the National Social Security Fund

(NSSF), the Public Service Pension Scheme and a few occupational voluntary savings schemes which presently

cover less than 5% of the Uganda population. The proposed Retirement Benefits Sector Liberalization law is

expected to improve governance and lead to long term sustainability through building of trust and confidence in the

pension industry as well as an increase in the number of players and overall growth of the industry.

The Issuance, in Kenya of the regulations for Collective Investment Schemes (CIS) by the CMA in 2001 also

assisted in spurring the development and growth of collective investment schemes such as unit trusts. Additionally,

Page 116 of 194

increased economic development in the region has led to growth of a new class of high net worth individuals

seeking out the services of personal wealth management firms to protect their assets.

13.5.1 Traditional Asset Managers

Traditionally Asset Managers have focused on listed equity, privately placed corporate debt, government debt and

money market instruments. Most of the Traditional Asset Managers within East Africa are off balance sheet

investors.

The industry comprises the portfolio management of funds for private clients and institutional funds such as pension

funds, and provision of investment funds such as unit trusts and other collective investment schemes. The current

market size is estimated at over 8,000 clients with total assets under management in excess of Kes 400 billion.

Growth in the industry has mainly been fuelled by sustained economic growth, increasing appreciation of the

importance of saving and investing within the population and the growth of the middle class segment of the

population.

As at the end of 2014, there were 24 fund managers and 18 unit trust funds licensed in Kenya. The number continues

to grow as more players seek licencing.

13.5.2 Pension Industry

13.5.2.1 Pension Industry Performance

The Retirement Benefits Authority (RBA) implemented various policies and initiatives geared towards enhancing

development and growth of the pensions subsector. The target was increased pension coverage; promote good

governance and ensure better risk management for licensees. Total industry assets grew by 26.9% between

December 2012 and December 2013.

Overall Industry Investment Portfolio (Kes, Billions)

Source: RBA

Actual assets grew from Kes 548.7 billion to Kes 696.7 billion in the between December 2012 and December 2013.

Of the total fund managers and insurance firms held Kes564.8 billion; National Social Security Fund (NSSF)

internally administered Kes92.9 billion and Kes39 billion of property investments directly managed by scheme

trustees. In terms of portfolio allocations, fund managers preferred Government Securities and Quoted Securities,

190

130

102

48 27 27

9 13 3

235

177

120

71

30 34 15 9 4

-

50

100

150

200

250

Dec-12 Dec-13

Page 117 of 194

which accounted for 59.2 % of the total industry assets under management. All asset classes recorded market growth

except for the cash and property asset classes which registered divestiture of 16.4% and 1.2%, respectively.

Allocation of Investment Assets (December 2013)

Source: RBA

13.5.3 Individual Retirement Benefits Schemes and Service Providers

Individual retirement benefits schemes membership grew steadily from 88,509 in December 2012 to 113,316

registered members in December 2013. Total assets on the other hand grew from Kes 13.7 Billion to Kes 17.4

billion in the period under review. The growth is attributed to the public awareness undertaken by the RBA and

various service providers. For example, the Blue MSME‘s Jua Kali retirement benefit scheme popularly known as -

Mbao Pension Plan which caters mainly for the individuals in the informal sector grew significantly, from 39,013

members in December 2012 to 50,057 members in December 2013. Its assets grew from Kes 39.8 million to Kes

64.4 million during the period. Real Estate Industry

13.6 Real Estate Industry in Africa

Africa’s growth over the last decade has, to a large extent, been driven by rising commodity prices. Most notably,

the oil producing nations of West Africa have benefitted greatly from soaring oil prices, while growth in Zambia has

been boosted by its copper industry, which accounts for around 75% of the country’s export earnings. However, the

commodity boom has not been the sole engine of Africa’s growth, and countries with fewer natural resources, such

as Rwanda and Ethiopia, have also grown strongly in recent years. Increased political stability, reduced trade

barriers and improved governance have all been important factors aiding growth in many countries.

The International Monetary Fund expects Africa’s growth story to continue, forecasting annual GDP growth of 5-

6% over the next five years. This should not, however, disguise the fact that Africa still only accounts for about 4%

of global GDP and that living standards remain low in much of the continent.

Forecasted GDP Growth Rates For East African Economies

34%

26%

17%

10%

4%

5%2%1%1%

Government Securities Quoted Equities Immovable Property

Guaranteed Funds Fixed Income Fixed Deposits

Offshore Cash Unquoted Equities

Page 118 of 194

Source: World Bank

The growing urbanisation of Africa has aided economic growth, by bringing large numbers of people close together,

it helps to create more efficient labour markets and bigger customer bases, and reduces transport costs. According to

UN-HABITAT data, the proportion of Africans living in urban areas grew from 32% in 1990 to 40% in 2010, and is

expected to rise to 47% by 2025. Many of the largest cities in Africa are growing rapidly. Nairobi, Kinshasa and Dar

es Salaam, for example, are expected to see population growth of over 70% by 2025. Africa’s mega-cities, which

include Lagos, Cairo, Luanda and Johannesburg, are increasingly the engines of its economic growth.

Proportion of Population Living In Urban Areas in SSA By 2050

Source: Department of Economic and Social Affairs, United Nations

Africa’s city dwellers generally earn more and spend more than their rural counterparts, and the urban middle class

is growing across much of the continent. This is helping to create dynamic consumer markets and attracting overseas

investors. A recent survey by the Economist Intelligence Unit found that institutional investors now regard the

emergence of Africa’s middle class and its growing consumerism as the most attractive aspect of investing in Africa,

rather than its commodities.

African retail markets are developing as the demand for consumer goods grows. In SSA, the most well developed

and sophisticated retail market by far is South Africa, with numerous large shopping centre across the country.

Elsewhere, there are many countries where modern shopping malls are a relatively new phenomenon; The Palms in

Lekki, Lagos, regarded as Nigeria’s first modern shopping centre, was opened in 2006, while Accra Mall, the first of

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

2013A 2014A 2015F 2016F 2017FEthiopia Tanzania Uganda Rwanda Kenya Average

0%

20%

40%

60%

80%

100%

1990 2014 2050

Urban Population

Rural Population

Page 119 of 194

its type in Ghana, opened in 2008. Nairobi has also seen the development of modern malls with the most notable one

being the Westgate mall that was destroyed during a terrorist attack in September 2013.

Nigeria and Ghana, along with other SSA countries including Kenya, Angola and Zambia, have all seen additional

shopping centres either completed or commenced in recent years, although their scale is generally smaller than the

mega-malls of South Africa and Northern Africa. The construction of further, and larger, shopping centres can be

expected, as developers seek to meet the demand for high quality retail space from increased numbers of

international retailers entering SSA markets and major South African chains such as Shoprite and Pick n Pay

pursuing expansion plans in the rest of Africa. Development activity is, however, likely to be concentrated on the

biggest and wealthiest cities. In smaller African cities and less well-off countries, small-scale local trading may

continue to be the dominant form of retail activity.

13.7 Real Estate Industry in Kenya

The real estate sector has remained vibrant and has lately been one of the key contributors to economic growth. With

the introduction of devolved governments as envisioned in the new constitution (The Constitution of Kenya, 2010),

more opportunities for real estate development as well as property values are likely to be on the rise in the medium

term. Demand for land for the establishment of public utilities and construction of housing units will also sustain

increased property values.

Currently, Kenya's annual housing deficit is estimated at 300,000 units. The country’s state run, National Housing

Corporation (NHC), estimates that the current urban housing needs are 150,000 units per year to cater for the

backlog. However, it is estimated that the current production of new housing in urban areas is only about 30,000

units annually, a shortfall of 80%.

13.7.1 Property Market Segment

13.7.1.1 Retail, Entertainment and Lifestyle market

The Kenyan retail market is diverse ranging from roadside shops to large world-class styled enclosed shopping

malls. The improving macroeconomic environment in Kenya has seen significant increase in suburban retail nodes

supported by increasing consumer spending and purchasing power.

The market has shown strong growth. New retail centers' in the market include Galleria Mall and T-Mall (opened

±2010), Ridgeways (2011), New Greenspan Mall (opened 2012), Thika Road Mall (2013). Furthermore, there is a

host of upcoming retail malls namely: Garden city mall (60,000 sq m), Karen (35,000 sq m), Rosslyn Riviera

(13,000 sq m), Rosslyn Park (7,000sq m) and, the Two Rivers Mall ( 82,000 sq m) currently under construction.

Kenya is set for a major retail boom with the entry of four global retail chains. Retailers such as Carrefour, Wal-

Mart (represented by its South African subsidiary, Massmart), Game Stores, Jet and Edgars plan to open retail

outlets in Kenya while local formal retailers Nakumatt, Tuskys, Uchumi and Naivas continue to expand.

13.7.1.2 Office market

The office market in Kenya has moved from a position of oversupply to one of stability over the last twelve months,

as Nairobi reinforces its position as the regional commercial hub of SSA. A significant proportion of the recent take-

up has been due to large corporates setting up regional headquarters in Nairobi, in preference to the traditional

regional hub of Johannesburg, mainly because of new routes opened up by Kenya Airways which enable direct

flights to Central and West Africa and the increasing push to make Nairobi both an aviation and financial hub.

The total effective demand is over 1.3 million sq ft. of office space and average effective demand of 8,000 sq ft. per

requirement. In Q2 of 2014 marked a decline in office space take up of Grade A& B with a 6% drop in office space

Page 120 of 194

absorbed from Q1. The most notable decline was experienced in Nairobi Upper Hill financial district that registered

a 90% drop in Q2. This was mainly attributed to ongoing road and infrastructure works.

The table below summarizes the cost of office space in selected parts of Nairobi.

Location Avg. Prime Rental Rate per Sq Meter

Westlands $15

Upperhill $13

Kilimani $11

CBD $10

Source: Knight Frank, 2013

13.7.1.3 Residential market

The Kenyan residential market has seen significant growth over the past decade leading to a more than fourfold

growth in the prices of both land and houses. Increased demand and supply of residential units has been largely

driven by economic growth, improving purchasing power, access to mortgages, policy changes that have seen

significant improvements in infrastructure and increased remittances from diaspora.

According to the global real estate firm, Knight Frank, there is a discernible shift in demand from three and four

bedroom apartments to smaller units such as studio, one and two bedroom apartments. This is thought to be due to

the former’s saturation in the market. Market activity in the lower to middle price bracket remains positive.

13.7.1.4 Industrial market

Kenya has not traditionally experienced a high degree of speculative industrial development, with most occupiers

tending to own their property. However, this market is now beginning to emerge, particularly along the Mombasa

Road in Nairobi. Rents are very low and take-up is slow, so it will be some time before this becomes an established

sector in Kenya’s property market. Some developers are looking at purpose - built speculative logistics parks which

may see a migration of light industrial occupiers from the traditional industrial center to new locations on the

periphery of Nairobi, thereby taking advantage of the new road infrastructure.

Nairobi prime rents and yields

Segment Prime rents Prime yields

Offices US$ 15 per sq m per month 9%

Retail US$ 31 per sq m per month 10%

Industrial US$ 4 per sq m per month 12%

Residential US$ 4,400 per month 6%

Source: Knight Frank, 2013

Page 121 of 194

13.8 Real Estate Industry in Uganda

13.8.1 Property Market Segment

Much of Kampala’s office stock falls below international construction standards, so major companies seeking space

in the capital have fairly limited options. Good quality space is therefore at a premium and tends to be leased

quickly. Currently, the biggest source of demand for offices is from the oil, gas and telecoms sectors. In addition,

recent years have seen increased interest in modern serviced rental accommodation within a 5 km radius of

Nakasero Hill, the CBD.

However, 2014 experienced increased construction activity with most of buildings expected to be completed in

2015.o a price war that has exerted downward pressure on rental rates in Kampala. Huge exposure to debt is another

major reason that is contributing to declining rates as developers rush to have their properties occupied to ensure

they have income to meet their debt obligations.

13.8.2 Retail market

The quantity and quality of retail provision is gradually improving, as domestic developers respond to rising demand

from established national and international operators who were becoming frustrated at the lack of suitable space.

Two new shopping centres were completed in Kampala in 2014, namely the Acacia Mall in Kisementi (16,192 sq

m) and the Village Mall in Bugolobi (9,707 sq m).

The longer term outlook for the city’s retail sector is generally positive, on the back of continued growth in

disposable incomes and increasing consumer demand for better quality shopping facilities.

13.8.3 Industrial market

The capital’s main industrial location is the Kampala Industrial and Business Park, which lies approximately 15 km

to the east on the Kampala-Jinja highway. To date, the park has seen only a handful of new businesses. However,

the government is encouraging factories and industries who have acquired plots to relocate to the business park or

run the risk of losing their land. The growth of the park has boosted the area’s critical mass and industrial land

values along the main road have risen steadily. A number of large manufacturers such as Riley Packaging, APDL

and Chinese companies have been attracted to the area and have built state of the art factories on vast plots of land to

accommodate their future expansion plans.

13.8.4 Residential market

Interest rates in Uganda have averaged over 20% in the last few years. This, and more stringent lending criteria, has

led to a very sluggish housing market for much of the past year, particularly in the mid-price bracket, with a sharp

reduction in the number of purchases. In addition, there has been an increase in the number of houses for sale from

owners unable to cope with higher repayments.

Kampala prime rents and yields:

Segment Prime rents Prime yields

Offices US$ 18.50 per sq m per month 10%

Retail US$ 25 per sq m per month 14%

Industrial US$ 10 per sq m per month 14%

Residential US$ 5,000 per month 9%

Source: Knight Frank

Page 122 of 194

Centum recently entered the Uganda real estate market with its Pearl Marina project. Pearl Marina, which broke

ground in February 2015 is an integrated golfing estate and water front development set on 385 acres of prime land

located on the Garuga Peninsula, on the shores of Lake Victoria. In addition to residential housing, the development

will comprise of European standard 9-hole golf course, a public marina, water related leisure activities such as water

transport, sporting activities among others. This will create a vibrant public place on the water edge that will

accommodate a range of activities which will include shops, restaurants, fresh produce and craft markets,

entertainment as well as festivals and marine related events.

13.9 Education Sector

13.9.1 Overview

While there has been progress towards education for all since 2000 in the SSA region, it has been uneven. The pace

of progress towards Universal Primary Education (UPE) in the region has been faster than during the 1990s, with the

average primary net enrolment ratio (NER) increasing from 57% to 76% between 1999 and 2013. However, some

countries have lagged behind and some goals – such as early childhood care and education (ECCE), the learning

needs of young people and adults, adult literacy and the quality of education –have received insufficient attention.

The region is still home to 33 million children not enrolled in school. Imbalances in the way many education

systems are developing have both created and reinforced disparities. These must be redressed if children, youth and

adults are to benefit equally from the opportunities education provides.

The Kenyan education sector has witnessed tremendous growth since the turn of the millennium. In the 1990s, the

country was faced with declining enrolment levels, increasing cost of education due to the introduction of cost

sharing policies between government and households and general lack of investment in the sector. However, since

the year 2003, the government sought to dramatically increase access to primary education through abolition of fees

charged to parents. This resulted in a massive increase in enrolment with Net Enrolment Rate (NER) reaching 95.9%

in 2013, above the SSA average of 76%. Nonetheless, critics point out that the increased enrolment has come at the

price of compromised quality of education due to overcrowding and a high student-teacher ratio.

Comparative growth rates


13.9.2 Key Drivers for Growth of the Education Sector in Kenya

13.9.2.1 Favourable demographics

Kenya is in the middle of a demographic transition with the population growing at a much slower pace than at the

time of independence, mortality rates that are falling rapidly and declining birth rates. The country adds an estimated

1 million inhabitants per year resulting in the need for an expanded education system to absorb the surge in student

numbers.

2.7%

4.5%4.8%

5.4%

4.9%

2.7%

5.8%

4.4%4.6% 4.7%

2009 2010 2011 2012 2013

Education sector growth GDP growth

Page 123 of 194

13.9.2.2 Government intervention

Kenya’s education sector has greatly benefitted through government intervention especially since 2003 when the

then President Mwai Kibaki introduced Free Primary Education (FPE) programme. The resultant effect of this was a

dramatic increase in student enrollment at the primary school level where there was an estimated increase of 1

million new students. The abolition of school fees increased access significantly albeit with teething problems of

overcrowding and high student-teacher ratio which has led to decline in the quality of primary school education. In

2008, the government introduced Free Day Secondary Education (FDSE) with the goal of increasing the transition

rate from primary to secondary education. By 2012, the transition rate from primary to secondary education stood at

75% up from 46% in 2002.

Source: KNBS, Ministry of Education

13.9.2.3 Increased private sector participation

Kenya’s private sector has played a key role in supporting the government’s efforts for universal access to

education. Many private schools have been opened to cater for the increased numbers of student enrolled in all

levels of education particularly in the urban areas. The emergence of low cost private schools especially in low

income areas has played a key role in promoting access to education as the public schools alone cannot

accommodate all the students. There is also a perception that the quality of education in private schools is higher

than public schools, a fact that is demonstrated by the better rankings private schools get in national examinations.

Source: KNBS, Ministry of Education

9.0m

9.4m

9.9m10.0m

10.2m

2009 2010 2011 2012 2013

CAGR:

3.2%

Primary school enrollment

1.5m

1.7m

1.8m

1.9m

2.1m

2009 2010 2011 2012 2013

CAGR:

9.3%

Secondary school enrollment

18.5 19.1 19.8 20.3

21.2

8.1 8.4 8.7 8.9 8.9

2009 2010 2011 2012 2013Public schools Private schools

Number of primary schools ('000)

5.0 5.3 5.3

6.2 6.8

2.0 2.0 2.0 2.0 2.0

2009 2010 2011 2012 2013Public Schools Private Schools

Number of secondary schools ('000)

Page 124 of 194

13.9.3 Rising disposable income

In 2014, Kenya crossed the threshold to become a low-middle income economy following the rebasing its GDP

figures with GDP growing 25% to US$55.2 billion and per capita GDP increasing from $994 to $1256. The

country’s growing middle class has led to a significant increase in discretionary spending which has led to the

growth of private schools as more parents prefer them over government run schools. This in turn has resulted in the

growth of an eco-system around private education which includes, training colleges and universities, education

material publishers, e-learning etc.

13.10 Healthcare Sector

13.10.1 Healthcare in Africa

Africa needs to reassess its health care systems to ensure that they are viable over the next decade. Unlike other

regions, however, Africa must carry out this restructuring while grappling with uniquely broad range of healthcare,

political and economic challenges. The continent is confronting multiple epidemiological crises simultaneously.

High levels of communicable and parasitic disease are being matched by growing rates of chronic conditions.

Although the communicable diseases (malaria, tuberculosis, HIV/AIDS) are the best known, it is the chronic

conditions such as obesity and heart disease that are looming as the greater threat. These are expected to overtake

communicable diseases as Africa’s biggest health challenge by 2030.

Additionally, continued high rates of maternal and child mortality and rising rates of injuries linked to violence,

particularly in urban areas, are weighing down the system. Healthcare delivery infrastructure is insufficient; skilled

healthcare workers and crucial medicines are in short supply; and poor procurement and distribution systems are

leading to unequal access to treatment15.

The below graph shows the leading causes of deaths in the African region (2004):

Source: The Economist Intelligence Unit Ltd.

*The disability adjusted life year (DALY) provides a consistent and comparative description of the burden of

diseases and injuries needed to assess the comparative importance of diseases and injuries in causing premature

death, loss of health and disability in different populations.

Public spending on health is insufficient. In the absence of public health coverage, the poorest Africans have little or

no access to care. What is more, they frequently also lack access to the fundamental prerequisites of health: clean

water, sanitation and adequate nutrition.

Considering these challenges, several major reforms will be required continent-wide to ensure their viability over

the long-term:

Shifting focus of health care delivery from curing to preventive care.

15The Economist Intelligence Unit Ltd.

12.4 11.28.6 8.2

3.6 3.6 3 2.9 1.9 1.9

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% of total DALYs*

Page 125 of 194

Giving local communities more control over healthcare resources.

Improving access to health care via mobile technologies.

Tightening controls over medicines, medical devices and improving their distribution.

Reducing reliance on international aid organizations to foster development of more dependable local

supplies.

Extending universal health insurance coverage to the poorest Africans.

13.10.2 Healthcare in Kenya

Kenya has made great efforts in controlling diseases such as Malaria, TB, Cholera and actively fighting the

HIV/AIDS pandemic. Similar efforts have been made in controlling communicable diseases such as poliomyelitis,

neonatal tetanus and measles. Kenya has committed to spending 15% of its national budget on healthcare amid plans

to transform itself into a middle income nation by 2030. With public-private partnerships (PPPs) shaping the

healthcare market and membership of the East African Community trading bloc reducing regulatory hurdles to

entry, Kenya is forecast to have a CAGR of 17% through 2016. This reflects opportunities in both communicable

diseases, such as Malaria and HIV, and NCDs which are a growing challenge in the country. The rapid increase in

Diabetes, for example, has seen the launch of a major Diabetes treatment and management pilot project sponsored

by Novo Nordisk.

13.10.3 Pharmaceutical

Kenya has the most well-established pharmaceutical manufacturing industry in the region. The pharmaceutical

industry consists of three segments namely the manufacturers, distributors, and retailers. All these play a major role

in supporting the country's health sector, which is estimated to have near 5,000 health facilities countrywide. Kenya

is currently the largest producer of pharmaceutical products in the Common Market for Eastern and Southern Africa

(COMESA) region. Out of the region's estimated 50 recognized manufacturers, approximately 30 are based in

Kenya. The industry compounds and packages medicines, repack formulated drugs, and process bulk drugs into

doses using predominantly imported active ingredients and excipients. The bulk of the locally manufactured

preparations are non-sterile over-the-counter products. The local industry has further greatly benefited from

licensing agreements with MNCs16.

13.10.4 Private Healthcare Sector in Kenya

The private health care market in Kenya is estimated at Kes 27 billion, or $318 million annually, contributing to

22% of all health services17. In the last three years there has been rising disposable income, regulatory changes, and

market developments in the healthcare sector each having invigorated an industry increasingly dominated by the

private sector. This period has seen investments and successes in all parts of Kenya’s health sector, from health

provision and insurance to pharmaceutical production. This is consistent with research that states that Kenyan

consumers spend more of their shillings on health care. At the same time, 33 million Kenyans lack any form of basic

insurance, and are treated in ill-equipped and poorly staffed facilities.

Due to the poor quality of the public sector offering, Kenyans increasingly look to the private sector for quality and

value for their money. Regardless of the specific business models, success in Kenyan private health insurance and

service delivery will depend on capital-intensive solutions. It is estimated that private expenditure on healthcare will

range $1.8 - $3.1 billion by 2025 (depicted in the graph below):

16 IMS Health, Pharmaceutical Measurement Unit 17 US AID

Page 126 of 194

Source: Open Capital Advisors

This translates into capital requirements exceeding $1 billion. Investors have noticed rising demand and are turning

their attention to this space through recent investments in medical insurers, medical facilities, and other Kenyan

healthcare companies. The race to serve the untapped mass market has accelerated thanks to increased innovation

and investments and recent changes in the regulatory space, including a new policy covering Medical Insurance

Providers (MIPs) and general insurers18.

To serve the Kenyan mass market, private health care players require innovative business models that can supply

consistent quality and coverage at lower prices with higher volumes. Many of these emerging private sector players

are Small and Medium Enterprises (SMEs) that seek capital to grow. The expected capital needs for the private

healthcare sector by 2025 are as shown in the figure:

Source: Open Capital Advisors

18 Open Capital Advisors

0.4

1.0

0.9

3.1

0 0.5 1 1.5 2 2.5 3 3.5

2009

2025

Projected Annual Health Expenditure (USD billion)

Private Public

$550.4

$407.6

$400.2

$78.3

Expected Capital Needs in Private Healthcare Sector by 2025 (USD

million)

Impatient Care Outpatient Care Health Insurance Retail Pharmacy

Page 127 of 194

13.11 Information and Communications Technology(ICT) Sector

13.11.1 Industry Overview

ICT has been an important driver of East Africa’s economic growth over the last 15 years. In the year 2000, East

Africa (Kenya, Uganda and Tanzania) had approximately 250,000 internet users, and accounted for 5% of the total

internet uses in the continent. By the end of the year 2014, the region had a total of 29 million internet users,

accounting for 10% of the total internet users in Africa. Kenya accounted for 74% of the total internet users in East

Africa. The exponential growth began approximately in 2002 – 2004, when governments realized the potential

impact of ICT on Economic Growth. Kenya has stood out as one of the most dominant frontier market countries in

terms of ICT growth and development.

13.11.2 Kenya ICT Sector

Kenya continues to have a marquee story when it comes to ICT growth and development. The number of Kenyans

using new forms of communication has increased rapidly in recent years, with mobile telephony providing the

biggest gauge of penetration of new technologies. This is evidenced by the mobile penetration rate hitting 80.5% in

Q3 2014, according to the sector statistics report by the Communications Authority of Kenya (CAK) shows.

Internet penetration stands at 47%, well above the Africa average of 26%. These statistics are among the highest for

any frontier market nation across the globe. Growth in the sector has been driven by a culture of innovation,

championed by ICT innovations such as the mobile money transfer service- M-Pesa - by the mobile telephone

company, Safaricom.

Kenya is also seen as an ICT hub, with a multitude of ICT conglomerates such as CISCO, SAP, Microsoft, Google,

IBM, and Oracle, establishing regional offices in Nairobi. The culture of innovation has also led to the emergence of

local ICT companies, such as Seven SeasTechonology, Cellulant, Craft Silicon, and Africaonline, which have grown

to become regional powerhouses.

13.11.3 Opportunities in ICT

Kenya’s ICT sector is set to contribute up to 8 per cent to the country’s GDP through IT-enabled services (ITES)

and create 180,000 jobs by 2017. Forecasts show the sector will attract up to USD 500 M in Private Equity (PE) and

Venture Capital (VC) funds to catalyze growth and development in the sector. Strong population growth,

-

5

10

15

20

25

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Kenya Tanzania Uganda

Inte

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Inte

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of

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Internet Users & Penetration in EA

Internet Penetration Internet Users

Page 128 of 194

development of ICT infrastructure by the public sector, and increasing data penetration, are all key factors that will

drive revenues in the sector. Additionally, ICT transactions have proven to be very lucrative for investors, with a

majority of investments yielding IRR’s greater than 30%. Sectors within ICT that continue to attract PE investment

are Fiber communication, Software Development, Supply Chain management, and Public Sector ICT projects.

13.12 Agricultural Sector Overview

13.12.1 Agriculture in Africa

Africa is characterised with an abundance of agricultural potential with high land quality and soil resilience ratings

but with low productivity occasioned by unused or degraded land, low global fertilizer application and low irrigation

rates.

Going forward, it is expected that developing countries will supply majority of additional land required to meet

growth in global food demand. Worldwide increase in population will require increased import of staple and other

produce. According to Faostatbook (2004-2010) much of the increased production will come from SSA and Latin

America. (SSA accounts for ~32% of global unused arable land). With increases in arable land use, cropping

intensity and yield productivity, crop production in SSA is projected to grow at quicker rate than any other region.

Factors such as low cost of land and labour cost in SSA, as well as improving investment environment, will result in

increased capital flow into primary agriculture and agro processing.

13.12.2 Agriculture in Kenya

Agriculture is the leading economic sector in Kenya, accounting for a significant share of the country’s GDP, 65.0%

of total exports and provides more than 18.0% of formal employment.

The agricultural sector is heavily dependent on rain with very little acreage under irrigation. A large proportion of

the country, accounting for more than 80.0%, is semi-arid and arid with an annual rainfall average of 400 mm.

Kenya’s agriculture is predominantly small-scale farming mainly in the high-potential areas. Production is carried

out on farms averaging 0.2–3 ha, mostly on a commercial basis. This small-scale production accounts for 75.0% of

the total agricultural output and 70.0% of marketed agricultural produce.

Key Crop Production

Commodity Volumes 2012 2013 % change

Tea (‘000 Tonnes) 369.4 432.4 17.1

Coffee (‘000 Tonnes) 49.0 39.8 -18.8

Fresh horticultural produce (‘000 Tonnes) 205.7 213.8 3.9

Maize (‘million Tonnes) 3573 3501 -2.0

Wheat (‘000 Tonnes) 162.7 194.5 19.5

Rice (‘000 Tonnes) 83.6 90.5 8.3

Source: Economic Survey 2014

Earnings from Agricultural Output

Page 129 of 194

Source: KNBS Economic Survey 2014

13.12.3 Factors Driving Agriculture Business in Kenya

13.12.3.1 Rapid Urbanization and increasing demand for processed foods

Up to thirty percent of Kenyans live in urban areas and the rate of urbanization is high at 4.2% per year. As people

get richer and more live in towns and cities, this offers great business opportunities for agriculture if well-harnessed.

Urban consumers will demand better quality, packaged, processed and more diverse food products: the products of

agribusiness. Recent consumption of dairy and meat products provides evidence of this trend. This demand could

create jobs, especially for young people.

13.12.3.2 High world food prices

Surging world prices have highlighted Kenya’s dependence on food imports: more than half of the country’s rice,

oranges, wheat and vegetable oils are imported. This trend is set to continue and provides plenty of reasons to

support and strengthen local production through sector support.

13.12.4 Opportunities

13.12.4.1 Gallana Irrigation Scheme

Gallana- Kulalu is a US $3bn irrigation project launched in Kenya’s Coastal region, to increase food security in the

country. The development of the one million acre irrigation scheme will be undertaken under the public-private

partnership. The Kenyan government will invest US$1.4bn in infrastructure development with US$2.9bn coming

from the private sector

13.12.5 Challenges

13.12.5.1 Infrastructure

Poor road network and other key physical infrastructure have led to high transportation costs for agricultural inputs

and products. It also leads to spoilage of perishable commodities during transportation. This causes high losses to

farmers.

13.12.6 Technology

Although Kenya has a well-developed agricultural research system, use of modern science and technology in

agricultural production is still limited. Inadequate research–extension–farmer linkages to facilitate demand-driven

research and increased use of improved technologies continue to constrain efforts to increase agricultural

24

90

23

119

25

83

25

108

-

20

40

60

80

100

120

140

Cereals Horticulture Temporary industrial

crops

Permanent crops*

Ke

s B

illio

ns

2012 2013

Page 130 of 194

productivity as farmers continue to use outdated and ineffective technologies. This brings the need of extension

services that can link research and the farmers.

Page 131 of 194

14. SUMMARY OF FINANCIAL INFORMATION AND OTHER SELECTED DATA

14.1 Auditors

As at the date of this Information Memorandum, the auditors of the Issuer were PricewaterhouseCoopers, Certified

Public Accountants located at PWC Tower, Waiyaki Way/ Chiromo Road, Westlands, P.O. Box 43963-00100,

Nairobi Kenya. The auditors have audited the Issuer’s annual accounts for the years ended 31 March 2011 to 31

March 2014.

The financial statements for the year ended 31 March 2010 were audited by Deloitte & Touche,

The last audited accounts and financial statements were in respect of the 12-month period ending 31 March 2014,

whereupon the auditors gave an unqualified audit opinion. The auditors have also carried out a limited review of the

nine (9) month management accounts up to 31 December 2014.

14.2 Company Statement of Comprehensive Income

For the Year ended 31 March

2014 2013 2012 2011 2010

Ksh’000 Ksh’000 Ksh’000 Ksh’000 Ksh’000

Income 1,988,227 1,913,776 764,460 1,684,796 1,121,464

Expenses

Administration expenses (282,580) (364,482) (136,368) (201,853) (122,154)

Other operating expenses (148,097) ( 77,649) (90,707) (89,113) (76,897)

Finance costs (461,954) (400,697) (49,979) (154,697) (46,940)

Total expenses (892,631) (842,828) (277,054) (445,663) (245,991)

Profit before tax 1,095,596 1,070,948 487,406 1,239,133 875,473

Income tax (expense)/credit (48,323) (36,850) (41,264) (1,950) 12,967

Profit for the year

1,047,273 1,034,098 446,142 1,237,183 888,440

Other Comprehensive Income

Reserves released on disposal of

investment (133,208) (1,423,723) (127,243) ( 833,339) (626,700)

Fair value in subsidiaries 3,636,745 1,657,737 13,619 902,681 565,992

Page 132 of 194

Fair value in associates 421,153 382,919 882,934 1,990,419 1,867,270

Fair value gain in unquoted investments 1,852,303 371,936 114,597 12,165 18,961

Fair value gain/ (Loss) in quoted investments (24,759) 428,270 (196,952) 86,192 583,711

Total other Comprehensive Income 5,752,234 1,417,139

686,955

2,158,118

2,409,234

Total Comprehensive Income 6,799,507 2,451,237 1,133,097 3,395,301 3,297,674

14.3 Consolidated Statement of Financial Position

As at 31 March

2014 2013 2012 2011 2010


Assets

Deferred income tax - - - 30,443 29,477

Prepaid operating lease rentals - - - - 35,940

Current income tax - - - 2,654 3,075

Investment property 10,845,392 5,456,057 3,992,754 3,525,578 -

Motor vehicle and equipment 59,954 43,999 26,467 26,813 11,347

Intangible assets 988,756 5,298 1,926 5,404 601

Investment in associates 3,900,851 3,659,198 3,614,550 3,377,305 2,948,585

Unquoted investments 7,569,310 4,306,221 1,427,206 1,338,664 1,251,209

Quoted investments 3,036,299 2,732,872 1,666,309 3,208,611 2,967,876

Bonds at fair value through profit or loss 1,071,046 995,313 480,000 539,188 505,371

Receivables and prepayments 1,071,947 260,825 36,079 240,140 108,849

Cash and cash equivalents 843,648 1,501,769 322,410 6,776 393,641

Total assets 29,387,203 18,961,552 11,567,701 12,301,576 8,255,971

Capital and reserves

Share capital 332,721 332,721 332,721 302,474 274,976

Share premium 589,753 589,753 589,753 589,753 589,753

Investment revaluation reserve 6,170,187 2,828,301 1,736,198 2,443,738 3,032,911

Retained earnings 12,912,168 9,891,966 7,382,570 6,223,412 3,958,527

Non-controlling interest 268,008 - - - -

Total equity 20,272,837 13,642,741 10,041,242 9,559,377 7,856,167

Liabilities

Page 133 of 194

Borrowings 4,201,029 4,149,532 1,000,000 1,000,000 -

Bank overdraft 1,291,101 - - 987,980 -

Payables and accrued expenses 1,840,552 287,858 355,956 719,170 357,154

Unclaimed dividends 28,987 32,504 34,437 35,049 42,650

Current income tax 210,913 19,254 5,114 - -

Deferred income tax 1,541,784 829,663 130,952 - -

Total Liabilities 9,114,366 5,318,811 1,526,459 2,742,199 399,804

Total Equity & liabilities 29,387,203 18,961,552 11,567,701 12,301,576 8,255,971

14.4 Company Statement of Financial Position

As at 31 March

2014 2013 2012 2011 2010


Assets

Deferred income tax 5,317 7,354 5,150 30,539 29,477

Prepaid operating lease rentals - - - - 35,940

Current income tax - - - 832 3,044

Investment property - - - 265,000 -

Motor vehicle and equipment - 43,999 26,467 26,754 11,347

Intangible assets - 1,720 1,926 3,052 601

Investment in subsidiaries 8,159,156 3,442,759 1,784,954 1,753,506 850,163

Investment in associates 6,594,340 6,152,947 7,128,721 6,230,521 4,240,102

Unquoted investments 5,495,272 3,539,417 1,427,206 1,338,664 1,251,209

Quoted investments 686,348 1,088,778 1,289,540 2,422,116 2,080,599

Bonds at fair value through profit or

loss - 105,560 480,000 539,188 505,371

Due from subsidiary companies 7,668,573 5,969,488 3,104,780 2,221,780 412,623

Receivables and prepayments 27,499 123,796 155,344 165,745 26,658

Cash and cash equivalents 174,932 930,896 317,340 5,903 393,168

Total assets 28,811,437 21,406,714 15,721,428 15,003,600 9,840,302


Share capital 332,721 332,721 332,721 302,474 274,976

Share premium 589,753 589,753 589,753 589,753 589,753

Investment revaluation reserve 15,962,362 10,210,128 8,792,989 8,106,034 5,947,916

Retained earnings 6,051,372 5,004,099 3,970,001 3,554,106 2,344,421

Total equity 22,936,208 16,136,701 13,685,464 12,552,367 9,157,066

Liabilities

Borrowings 4,201,029 4,149,532 1,000,000 1,987,980 -

Bank overdraft 1,291,101 - - - -

Payables and accrued expenses 204,467 230,182 134,078 144,332 356,906

Due from subsidiary companies 121,846 838,300 862,303 283,872 283,680

Unclaimed dividends 28,987 32,504 34,437 35,049 42,650

Current income tax 27,799 19,495 5,146 - -

Page 134 of 194

Total Liabilities 5,875,229 5,270,013 2,035,964 2,451,233 683,236

Total Equity & liabilities 28,811,437 21,406,714 15,721,428 15,003,600 9,840,302

14.5 Statement of Cash Flows (Internally Generated Funds)


2014 2013 2012 2011 2010


Operating Inflows:

Dividends receivable 661,481 523,715 430,892 410,222 407,957

Rent income 17 7,062 6,136 6,276 2,259

Interest receivable 225,480 222,211 45,446 77,950 6,022

Other income 307,183 (148,714) 31,172 55,099 45,551

Proceeds from disposal of investments 2,678,770 3,286,280 6,105,779 1,799,547 1,271,422

3,872,931 3,890,554 6,619,425 2,349,094 1,733,211

Operating outflows:

Operating & Administrative expenses (106,852) (297,496) (299,181) (302,784) (197,999)

Taxes paid (50,825) (25,726) (9,897) (2,591) (603)

(157,677) (323,222) (309,078) (305,375) (198,602)

Internally generated cash flows 3,715,254 3,567,332 6,310,347 2,043,719 1,534,609

Cash flows from investing activities:

Investments in equity (4,951,105) (5,095,520) (4,769,396) (4,240,959) (920,632)

Investment in motor vehicle & equipment (45,209) (27,406) (4,303) (26,944) (10,000)

(4,996,314) (5,122,926) (4,773,699) (4,267,903) (930,632)

Cash flows from financing activities:

Net proceeds from borrowings - 4,149,532 - 1,000,000 -

Dividends paid to Company’s shareholders (3,517) (1,933) (612) (1,392) (5,728)

Dividends paid to non-controlling interests (41,739) - - - -

Loan Repayment - (1,000,000) - - -

Interest paid (622,558) (400,763) (229,872) (147,914) (44,758)

(667,814) 2,746,836 (230,484) 850,694 (50,486)

Net increase/(decrease) in cash (1,948,874) 1,191,242 1,306,164 (1,373,490) 553,491

Movement in cash and cash equivalents

At start of year 1,501,769 322,410 (981,204) 393,641 (159,850)

Increase/(decrease) (1,948,874) 1,191,242 1,306,164 (1,373,490) 553,491

Exchange losses on cash equivalents (348) (11,883) (2,550) (1,355) -

At end of year (447,453) 1,501,769 322,410 (981,204) 393,641

The statement of cashflows as presented in the Accountant’s Report has been reformatted to conform to Centum

Investment Company Limited’s business model. Refer to Appendix XXX of the Accountant’s Report.

Page 135 of 194

14.6 Company Statement of Total Return


2014 2013 2012 2011 2010

Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000

Dividend income 1,788,646 283,468 404,347 509,797 455,548

Interest income 39,784 107,979 52,143 77,950 6,022

Other income 11,189 79,686 52,177 24,842 33,195

Realized value movements 15,401 9,360 83,913 131,091 87,735

Unrealized value movements 5,885,438 2,850,422 858,835 3,099,234 2,948,198

Gross return 7,740,458 3,330,915 1,451,415 3,842,914 3,530,698

Finance costs (461,954) (400,697) (49,979) (154,697) (46,940)

Portfolio costs (430,677) (442,131) (227,075) (290,966) (199,051)

(892,631) (842,828) (277,054) (445,663) (245,991)

Net return 6,847,827 2,488,087 1,174,361 3,397,251 3,284,707

Tax (48,323) (36,850) (41,264) (1,950) 12,967

Total return 6,799,504 2,451,237 1,133,097 3,395,301 3,297,674

Gross return (%) 48.0% 24.34% 11.6% 42.0% 60.3%

Total return (%) 42.1% 17.91% 9.0% 37.1% 56.3%

Opening net asset value:

Portfolio value 19,307,445 14,694,418 14,462,892 9,014,620 5,930,043

Other net assets 978,788 (8,954) 77,455 142,446 99,330

Borrowings (4,149,532) (1,000,000) (1,987,980) - (169,981)

16,136,701 13,685,464 12,552,367 9,157,066 5,859,392

Closing net asset value

Portfolio value 29,371,500 19,307,445 14,694,418 14,462,892 9,014,620

Other asset/(liabilities) (943,165) 978,788 (8,954) 77,455 142,446

Borrowings (5,492,130) (4,149,532) (1,000,000) (1,987,980) -

22,936,205 16,136,701 13,685,464 12,552,367 9,157,066

Page 136 of 194

14.7 Proforma Financial Information

14.7.1 Projected consolidated statement of comprehensive income

March

2016

Kshs’000

Dividends from Unquoted Investments 378,290

Dividends from Quoted Investments 248,680

Interest Income 2,716,407

Fund Management Income 691,884

Gains on disposal of Investments 1,814,593

Fair value gains on Investment Property 7,168,690

Sales Revenue 7,589,723

Rental income 462,469

Other Income 947,053

Total Income 22,017,789

Cost of sales (5,020,383)

Administrative & Operating Expenses (5,165,086)

Finance costs (1,856,236)

Share of associate profits 386,270

Profit Before Tax 10,362,353

Tax (2,897,848)

Profit After Tax 7,464,505

Other Comprehensive income 9,940,683

Total Comprehensive Income 17,405,188

Page 137 of 194

14.7.2 Projected company statement of comprehensive income

March

2016

Kshs’000

Dividend income 1,751,222

Interest income 158,420 Gain on disposal of investments 1,186,093

Directors Fees 6,800

Income 3,102,536

Expenses

Administrative & operating expenses (471,203) Finance costs (1,344,224)

(1,815,428)

Profit before tax 1,287,108

Income tax expense (59,645)

Profit for the year 1,227,463

Other comprehensive income; net of deferred tax 8,525,373

Total comprehensive income 9,752,836

Page 138 of 194

14.7.3 Projected consolidated statement of financial position

At 31 Mar

2016

Kshs’000

Assets

Investment property 38,035,316

Property, plant & equipment 4,753,079

Intangible assets 92,782

Prepaid operating lease rentals 9,513

Investment in associates 5,351,001

Unquoted investments 14,069,160

Quoted investments 5,828,901

Equity linked note assets 7,091,037

Government securities and Bonds at fair value through profit or loss 2,331,763

Loans and advances 15,509,031

Tax recoverable 135,950

Inventories 944,336

Deferred income tax asset 88,820

Receivables and prepayments 2,909,186

Cash and cash equivalents 9,590,105

Total Assets 106,739,979


Share capital 332,721

Share premium 589,753

Investment revaluation reserve 13,864,003

Retained earnings 19,615,508

Shareholders equity attributable to Equity holders of the company 34,401,986

Non-controlling interest 10,643,459

Total equity 45,045,444

Liabilities

Borrowings 21,108,950

Shareholder Loans 6,834,606

Equity linked note liability 7,091,037

Customer deposits 17,089,637

Deferred income 158,838

Payables and accrued expenses 2,552,858

Dividends payable to non-controlling interests 42,863

Current income tax 287,896

Deferred income tax 6,527,850

Page 139 of 194

Total liabilities 61,694,535

Total equity & liabilities 106,739,979

14.7.4 Projected company statement of financial position

At 31 Mar

2016

Kshs’000

Assets

Investment in subsidiaries 36,235,826

Investment in associates 5,351,001

Unquoted investments 10,088,959

Quoted investments 345,201

Other assets 7,491

Cash and cash equivalents 734,546

Total Assets 52,763,024

Capital & reserves

Share capital 332,721

Share premium 589,753

Investment revaluation reserve 27,318,735

Retained earnings 11,894,835

Total equity 40,136,044

Liabilities

Borrowings 10,830,000

Bank overdraft 0

Deferred tax 1,405,704

Current income tax 59,645

Payables & other liabilities 331,631

Total liabilities 12,626,980

Total equity & liabilities 52,763,024

Page 140 of 194

14.7.5 Consolidated Statement of cash flows

Consolidated Statement of cash flows

31 Mar

2016

Operating Activities Kshs’000

Inflows

Sales income 7,502,483

Dividends and interest 3,648,386

Rental income 462,469

Fund management income and other income 2,222,683

Proceeds from disposal of equity 2,044,494

Net decrease in customer deposits & loans and advances (30,857)

15,849,657

Outflows

Cost of sales & Portfolio costs (16,078,258)

Tax paid (472,029)

(16,550,286)

Internally generated Cash flows (700,630)

Investing Activities

Purchase of equity and Investment Property (15,565,795)

Capital expenditure (1,418,870)

Dividends to non-controlling interests (18,655)

Investing Cash flows (17,003,320)

Financing Activities

Proceeds from borrowings 15,019,763

Repayment of borrowings (3,150,000)

Issue of capital 7,327,000

Interest on borrowings (646,435)

Financing Cash flows 18,550,328

Opening Cash 8,743,726

Closing Cash 9,590,105

Page 141 of 194

15. RISK FACTORS AND MITIGATION MEASURES

Prospective Noteholders should carefully consider the risk factors set out below before making the decision whether

or not to invest in the Notes. These are however not intended to be exhaustive.

15.1 Investment Risks

15.1.1 Investment Decisions

The ability to originate deals on a proprietary basis and the pricing of assets could have a significant effect on the

Issuer’s competitive position and on the sustainability of returns.

The Issuer’s ability to originate, evaluate and execute high quality investments is dependent upon a range of factors.

The most important of these include:

the ability to attract and develop people with the requisite investment experience and cultural fit;

organization of teams whose structure is market-adapted and whose compensation is results-oriented; and

effective application of collective knowledge and relationships to each investment opportunity.

The Issuer’s investment appraisal process is rigorous as it includes approval by relevant managers and the

Investment Committee.

15.2 Investment Performance

The performance of Centum’s portfolio is dependent upon a range of factors. These include, but are not limited to:

the quality of the initial investment decision;

the ability of the investment to successfully execute its business strategy and generate positive cash flow; and

actual outcomes against the key assumptions underlying the investments financial projections.

Any one of these factors could have an impact on the valuation of a portfolio company and on the Issuer’s ability to

make a profitable exit from the investment within the desired timeframe.

A rigorous process is put in place for managing investments from inception through to realization. This includes

regular asset reviews and, in many cases, representation on the board of the investee companies by an Issuer

investment executive. Portfolio diversification also mitigates the risk of underperformance of any of the portfolio

companies.

15.3 Investment Concentration

The Issuer invests across a range of economic sectors. Over-exposure to a particular sector could increase the impact

of adverse changes in macroeconomic or market conditions on the Issuer. An increase in the average size of

investments over time could also increase the exposure of the Issuer to the performance of a small number of large

investments, albeit in different sectors.

Sectoral investment limits have been defined and the portfolio is subject to periodic reviews by the Investment

Committee in order to monitor exposure to any one sector and larger investments.

15.4 Investment valuations and exit opportunities

Private-equity holdings are valued according to private-equity and venture capital guidelines, which set out the

methodology for fair valuation. The valuation is relatively subjective and may vary from time to time.

Page 142 of 194

Since valuation of the Issuer’s portfolio and opportunities for realizations depend to some extent on stock market

conditions, changes in market or macroeconomic conditions could impact the valuation of portfolio assets and the

ability to exit those investments profitably within the desired timeframe.

Quoted securities are valued at market prices, thus, are subject to adverse market movements.

Valuation risks are mitigated by comprehensive reviews of the underlying investment by management every quarter.

The appropriateness of the valuation is then considered by the audit committee and the internal auditor.

The risk of fluctuation of the prices of quoted securities is mitigated by choice of defensive stocks with strong

fundamentals.

15.5 Financial Risks

15.5.1 Liquidity risks

This is the risk that the Issuer will be unable to meet its financial obligations as and when they fall due. This risk

may materialize due to lack of cash reserves when required or the inability to convert assets to cash quickly and at a

good price. This can result in failure to repay Noteholders and fulfil commitments to lenders. Liquidity risk may also

cause the Issuer to miss out on attractive investment opportunities due to lack of funding.

The Issuer has adopted prudent liquidity risk management measures including:

consistently maintaining sufficient cash flows to facilitate day-to-day running of Centum’s operations;

pre-arranged open lines of credit with its panel of banks in order to bridge the timing difference between

available opportunities and expected cash inflows;

maintaining a ‘marketable securities’ asset class which constitutes highly liquid available-for-sale listed equity

and debt securities;

continuous forecasting and monitoring the Group’s liquidity needs against expected cash flows in order to

identify and guard against liquidity gaps.

matching maturity profiles of financial assets and liabilities.

15.5.2 Interest rate risk

The Issuer from time to time temporarily holds excess cash in a variety of money-market instruments waiting to be

redeployed in the next most attractive opportunity. The interest rates on the cash deposits are fixed and agreed upon

in advance. There is the risk that the value of the Issuer’s fixed interest-bearing assets will fall due to variability in

interest rates.

The Issuer also faces the risk of incurring a higher cost of borrowing on its short term borrowings which are usually

floating rate based. Interest rates on short term borrowings are usually pegged on the relevant bank’s base lending

rate or prevailing Treasury Bills rates.

In the absence of material contractual liabilities, the Issuer’s exposure to interest rate risk has been minimal and only

limited to its liquidity management assets. Nevertheless, management closely monitors the interest rate environment

in order to lock-in favourable interest rates for both short term borrowings and deposits. The Issuer works with a

panel of banks to ensure competitive rates.

Page 143 of 194

15.5.3 Inflation risk

There is a risk that the Issuer’s portfolio holdings may decline due to unexpected changes in inflation rate. This risk

may also occur when investee companies are unable to pass on inflation costs in full to its customers due to price

sensitivity.

This risk will be partially mitigated through the Real Estate and Infrastructure asset class, which is considered to

provide inflation hedge benefits as rental yields have a tendency to adjust to take into account inflation. Returns

from investments in equities also provides a good buffer for inflation.

15.5.4 Foreign Exchange Risk

This is the Issuer’s exposure to fluctuations in the foreign currency rates relating to conversion rates for valuation of

overseas holdings. This risk can also arise if the Issuer acquires a foreign subsidiary which maintains financial

statements in its local currency which is different from the reporting currency of the consolidated group.

Impact of fluctuations in exchange rates on the value of assets and investments is closely monitored through mark to

market evaluations.

Hedging strategies are applied where necessary.

15.5.5 Credit Risk

This the risk arising from a borrower’s inability to repay loans/advances as per agreed lending terms. Credit

exposures for the Issuer may arise from onward lending activities to Subsidiaries and investee companies..

The Issuer seeks controlling stake in order to be actively involved in the management of its investee companies.

15.5.6 Commodity Risk

Commodity risk refers to the uncertainties of future market values and of the size of the future income, caused by

fluctuation in the prices of commodities. This risk will be relevant with the Issuer’s participation in the Energy and

Agricultural sectors.

The development of the derivatives market in Kenya will provide stability and enable prediction of commodity

prices.

15.6 Operational Risks

Risk of financial loss arising from failed internal controls, people and systems. These risks are highlighted below:

a perceived failure to meet ethical and governance principles regulating Centum’s conduct and activities may

lead to a loss of business reputation, erosion of market confidence and inability to close business deals;

resourcing inefficiencies, especially lack of qualified investment professionals could lead to loss of competitive

advantage and intellectual edge;

information technology failures and breaches could lead to transaction failures, loss of business records and

potential financial and legal exposures; and

external events resulting from natural disasters, crime, social unrest, civil war and terrorism could harm both

Centum’s staff and assets.

Operational risks have been mitigated through detailed operational procedures provided in relevant manuals

supported with Business Continuity and Disaster Recovery plans. The Issuer has a framework of core values and a

code of conduct that influence its organizational culture. An outsourced internal audit function provides independent

assurance that internal controls are in check.

Page 144 of 194

15.7 External Risks

These are risks that are outside of the Issuer’s control. Some of the risks are:

political risks - changes to the political climate and any negative political events may have a direct effect on the

value of the Issuer’s investments;

changes in legislation, taxation, regulation and the expropriation of property including matters relating to land

tenure, titles, securities, pricing, environmental protection, trade sanctions, cancellation of licenses and

agreements, social impact and repatriation of profits can cause investment losses to the Issuer;

cross border investment risk arising from delays in acquiring approvals and consents to undertake cross border

transactions as well as foreign exchange fluctuations; and

competitive rivalry within the investment industry can significantly reduce the number of investment prospects.

The risks are largely mitigated by best business practice operations. Perils arising out of natural disasters are

mitigated by Business Continuity Planning and insurance. Risk arising from cross border investment risk is

mitigated by the fact that Uganda has been a favorable investment destination for investors compared with other

East African countries. It is politically and economically stable as it is growing at a reasonable rate. The Uganda

Securities Exchange runs on a Securities Central Depository platform and aims to have an automated trading system.

The Bank of Uganda has foreign exchange rate policies to control the fluctuation of the currency.

15.8 Reputational Risk

Reputational risk is the risk of damage to Centum’s image through negative publicity, which may affect its

shareholder value and its ability to retain and generate business.

Centum’s management strives to conduct the business affairs of the company according to international best

practice. Environment, Social and Corporate Governance (ESG) are key pillars of the business operations.

Additionally, the Issuer maintains compliance with the relevant regulatory requirements.

15.9 Project Risk

The Issuer’s strategy has shifted from being a portfolio manager looking for growth capital and consolidation

opportunities to become an active promoter and developer of high quality investment grade opportunities. Project

risk will be particularly prevalent in the Real Estate and Infrastructure sectors in which the Issuer is actively

operating.

Project risk has three components as explained below

15.10 Execution Risk

This risk emanates from managing of various players and roles required to see the project through mainly from a

planning and actual construction perspective.

In the Real Estate Sector, the Issuer has formed Athena Properties, whose role is the development management of

the current and future real estate projects. Athena boasts of top class skill sets with international experience.

In power generation, the Issuer will rely on competent and experienced Engineering, Procurement, Construction and

Maintenance (EPCM) firms.

15.11 Finance Risk

These projects by their very nature are capital intensive as evidenced in the portfolio weighting and project

highlights. Project finance is consequently a primary concern.

Page 145 of 194

The Issuer prioritizes the structuring of project funding. The objective is to optimize capital utilization by reducing

weighted average cost of capital while maximizing the equity return. Centum has used a mix of both core developer,

direct equity and senior and mezzanine debt initiatives to anchor these investments.

15.12 Market Risk

This risk refers to the timing and realization of a price for the project’s output. While the power generation projects

carry a ready off take agreement in the form of a Power Purchase Agreement (PPA) with KPLC, the Real Estate

Projects would carry market risk.

The Issuer has embarked on various initiatives including off plan sales as well as engaging anchor and ancillary

tenants at various stages of the real estate developments.

An in house risk and compliance management team is actively involved in continuous and proactive risk

management of emerging risks.

Page 146 of 194

16. CORPORATE GOVERNANCE

As a leading institutional investor and public listed company, Centum appreciates the value of strong corporate

governance. The Issuer upholds best practices in corporate governance. Centum’s culture is a reflection of the

commitment of its Board to the principles of transparency, professionalism and high performance for the benefit of

our shareholders and Centum’s stakeholders.

Centum’s governance structure is as shown below:

The Board is the principal governance organ of the Issuer. The key roles of the Board are:

a) To provide leadership and direction: the Board leads the strategy development process. It has contributed to

the realization of short-term and long-term strategies for the business by ensuring adequate resourcing, target

setting and following up on implementation.

b) To act as the steward of the Issuer’s resources: the Board acknowledges that the fiduciary responsibility over

the assets and actions of the Issuer lies with the Board.

c) To grow capital: the Board is actively involved in the evaluation of the Issuer’s growth agenda and steers the

approval of investment opportunities, capital allocation and divestures.

d) To oversee risk management: the Board is primarily responsible for the management of risk and ensures that

business is conducted responsibly. The internal control framework facilitates the identification and mitigation

of all risks.

e) To ensure high compliance with relevant laws and regulation.

f) To ensure observance of environmental, social and governance best practices: the Board acknowledges and

strives to ensure a holistic model for value creation that covers social, economic and environmental

performance.

Shareholders in General meeting

Nomination and

Governance Committee

Branding Committee

Investment Committee

ICT Committee

Co

mm

itte

es

Audit & Risk Committee Board of Directors

Management Internal Audit

Page 147 of 194

g) To review and approve financial statements and ensure accountability to the Issuer’s shareholders and

responsibility to all stakeholders.

The Board

Centum maintains a unitary Board structure. The current Board comprises one (1) Executive Director and eight (8)

Non-Executive Directors, four of whom are Independent Directors. Therefore, almost the entire Board is made up of

independent directors. In reviewing its composition, the Board consistently seeks to ensure that its size, diversity and

demographics contribute to robust decision making and make it effective. Directors develop strategy, review the

performance of management, monitor performance and ensure accountability. The Board seeks assurance on the

integrity of the financial information that the financial controls and systems of risk management are robust and

defensible.

The roles of Chairman and Managing Director/Chief Executive Officer are separate. The Chairman leads the Board

while the Managing Director and Chief Executive Officer has the direct charge of day to day business of the Issuer.

Currently, the Board of Centum is made up as explained below.

Mr. James N. Muguiyi; Chairman & Non Executive Director

Age: 71 years

• Joined the Board in December, 2003.

• Immediate former Group Managing Director of UAP Holdings Limited.

• He is a fellow of ICPAK, a member of CIMA and the Chartered Institute of

Public Finance and Accountancy.

• He is a Non Executive Director of UAP Insurance Company Limited, UAP

Insurance (Uganda) Limited, UAP Insurance Sudan Limited, UAP Properties

Limited, UAP Financial Services Limited, One Network Limited, Aimsoft

Kenya Limited, One Solution Limited and Mount Kenya Bottlers Limited.

Mr. James M. Mworia; Group Chief Executive Officer & Managing Director

Age: 37 years

• Was appointed Chief Executive Officer of Centum Investment Company

Limited and its subsidiaries in October, 2008.

• He has fifteen years experience and he is the recipient of many regional and

international awards in recognition of his outstanding business leadership. The

most recent of this was the Africa Business Leader of the Year award by the

Corporate Council on Africa in Washington DC.

• He is a CFA Charter holder, CPA(K), a Global Chartered Institute of

Management Accountant, a holder of LLB from the University of Nairobi and

an Advocate of the High Court of Kenya. He is a Fellow of the Archbishop

Desmond Tutu African Leadership Institute.

• He is the Chairman of K-Rep Bank and a non-executive director of the Lewa

Conservancy.

Page 148 of 194

Dr. Christopher Kirubi; Non Executive Director

Age: 72years

• Dr. Kirubi has been a Director since December 1997. He served as Chairman

of the Board between 1998 and 2003. He is the Chairman of Centum

Investment Committee.

• A well-known Kenyan industrialist with interest in fast moving consumer

goods, media and communications; Dr. Kirubi is a graduate of INSEAD and

the Harvard Business School.

• He was appointed a Director Harvard Business School in 2012, and also serves

as the Chairman of DHL World Wide Express Limited, Haco Industries Kenya

Limited, Kiruma International Limited, International House Limited, Nairobi

Bottlers Limited, Sandvik East Africa Limited and Capital FM.

• He is a Non-Executive Director of Bayer East Africa Limited and Beverage

Services of Kenya Limited.

Mr. Peter Kimurwa; Non Executive Director

Age: 44 years

• Mr. Kimurwa represents the Industrial Commercial and Development

Corporation (ICDC) on the Board of Centum. He has been on the Board since

May 2011.

• He serves as the Chairman of The Nomination and Governance Committee and

Centum Business Solutions Limited.

• He is the Executive Director at ICDC and is a specialist in strategy and

financial management with extensive and varied business experience spanning

over 15 years in senior positions at PricewaterhouseCoopers (PWC), British

American Tobacco (BAT), BOC Kenya Limited, East African Breweries

Limited (EABL) and Linksoft Communications System Limited.

• He is a CPA (K) and holds a MBA from INSEAD and Bachelor of Commerce

degree from Kenyatta University.

• He represents ICDC as a Non-Executive Director on the boards of Eveready

Batteries E.A Limited, Rift Valley Bottlers Limited, Mount Kenya Bottlers.

Page 149 of 194

Ms. Laila Macharia; Non Executive Director

Age: 44 years

• Ms. Macharia joined the Board in October, 2013.

• She is the Founder and Chief Executive Officer of Scion Real Estate Limited, a

property investment company based in Nairobi that provides financing for

builders in Africa’s rapidly growing cities through its Africa Metro Property

Facility.

• Laila has vast experience managing multi-currency portfolios and transactions

in the United States of America and East Africa. While at the New York office

of Clifford Chance, a global law firm, she coordinated a US$9 billion multi-

currency bond program.

• Prior to that, she headed the Africa Initiative at the Global Fund for Women in

the San Francisco Bay Area.

• Laila is currently the Vice Chairman, Kenya Private Sector Alliance (KEPSA)

and a member of Capital Markets Tribunal. She has previously served as the

Chairman, Kenya Property Developers Association.

Mrs. Margaret M. Byama; Non Executive Director

Age: 59 years

• Mrs. Byama is the representative of the PS Ministry of Trade on the Board

since January, 2009.

• She is the Chief Finance Officer in the Ministry of Trade with over 20 years’

experience in public financial management.

• Mrs. Byama holds a BA from the University of Nairobi and Certificate in

Public Financial Management from Manchester University.

• She is the Chairperson of the Wildlife Clubs of Kenya and was the immediate

former Chief Executive Officer of the National Humanitarian Fund for

Internally Displaced Persons.

Mr. Imtiaz Khan; Non Executive Director

Age: 46 years

• Mr. Khan joined Centum in November 2008 and serves as the Chairman of the

Audit and Risk Committee. He is a qualified accountant and holds a MBA with

distinction from The London Business School and a Bcom from the University

of Nairobi.

• He is a specialist in corporate finance and private equity investments with over

20 years’ experience undertaking projects in 18 countries across four

continents, including Brazil, Russia, India, China and South Africa which are

widely regarded as some of the world’s leading emerging markets.

• He is a founding partner and Executive Co-Director of Cassia Capital Partners

Limited, which focuses on private equity investments in East Africa and chairs

Oltepesi Properties Limited and represents Cassia Capital Partners Ltd on the

board of EA-Power Limited.

Page 150 of 194

Mr. Henry Njoroge; Non Executive Director

Age: 46 years

• Joined the Board in October 2005 and serves as the Chairman of the Centum

Branding Committee.

• He is currently Executive Director of Xtranet Communications Limited. Prior

to this, he was the Managing Director of Open View Business Systems and

UUNET Kenya respectively. He worked at Telcorp and Fintech Kenya both as

General Manager.

• He is a Non Executive Director of X&R Technologies Limited; the sole

authorized XEROX distributor and Global Equity Ventures Limited. He is also

a Trustee of the Kenya Youth Business Trust, a non-profit organization which

empowers youth entrepreneurs through mentorship and micro business loans.

Board Structure

The complementary roles of and responsibilities of the Board and the boards of Subsidiaries are formally

documented in their respective board charters. The implementation and adoption of policies, processes or procedures

across the entire Group are considered and approved by each of the Subsidiaries.

The Board has delegated certain functions to committees with formal terms of reference which are reviewed yearly.

The chairpersons of the committees appraise the full Board of their activities on a quarterly basis through oral and/or

written reports. The Board committees are: Audit and Risk Committee, Investment Committee, Branding

Committee, Nominations and Governance Committee. The ICT Committee is currently being constituted to oversee

key projects on automation of business processes for efficiency.

The details of the Committees are as summarized below:

Audit and Risk Committee

Membership

The Audit and Risk Committee (ARC) consists of four non-executive directors, the majority of who are independent

directors. The Managing Director, the Finance Manager and the lead audit partner in charge of the internal and

external audit are in attendance at meetings.

The Chairman of the ARC is an Independent Director.

Mandate

The role of the ARC is to assist the Board in discharging its duties relating to the safeguarding of assets, the

operation of adequate systems, control processes and the preparations of accurate financial statements in compliance

with all applicable legal requirements and accounting standards.

Nomination and Governance Committee

Membership

The Nomination and Governance Committee (NGC) consists of five directors who are all non-executive directors.

Mandate

The role of the NGC is to develop and implement policies with respect to both the strategic priorities of the Board

on issues of human resources and matters of governance.

Page 151 of 194

Investment Committee

Membership

The Investment Committee (IC) is made up of six directors and includes the Group Chief Executive Officer and

Managing Director in addition to non-executive directors.

Mandate

The key role of the IC is to review and recommend investment opportunities to ensure attractive returns on

investment. The committee provides clear guidelines on investment policies that a consistent and structured,

research-based and risk sensitive approach to value investing. The IC exercises oversight on the implementation of

the investment strategy and policy of Centum.

Branding Committee

Membership

The Branding Committee (BC) comprises of a four members being a mix of the executive and non-executive

directors.

Mandate

The role of the BC is to oversee the development of the brand of the Group ensuring consistency with the group’s

strategic direction necessary for creating tangible wealth.

Board Appointments and continuous improvement

The Nominations and Governance Committee is charged with the responsibility of appointment of Directors through

a well outlined process. Appointment of directors is geared towards bringing on board the right skill set and zeal to

ensure maximum value for shareholders. Newly appointed directors are taken through a rigorous induction program

managed by the Chairman, Chief Executive Officer and Company Secretary. The programme is aimed at imparting

relevant organizational knowledge for an in-depth understanding of the Centum culture. The induction also provides

awareness for relevant policies such as disclosure of conflict of interest and obligation to declare interests, the

insider trading policy and code of ethics and business Conduct.

Continuous improvement is key in ensuring the Board keeps abreast with the economic environment that Centum

operates. The Issuer ensures continuing exposure to directors on topical issues on soft skills and technical trainings

to cover investment strategies and portfolio management.

Re-election of Directors

A third of directors retire by rotation annually, and if eligible their names are submitted for re-election at the Annual

General Meetings. Also all director appointments to fill casual vacancies are subject to confirmation by

shareholders at the subsequent annual general meeting.

Evaluation of Board performance

At Centum, feedback is integral in continuous improvement for peak performance. The Board undertakes an

evaluation of its performance annually at a retreat at which candid discussions and feedback on Board performance

are had. The evaluation covers among other matters:

Individual understanding of the role of director at the respective Committee and Board level;

General understanding of the Group’s vision, mission and strategy;

Personal initiative and development to keep abreast with trends and topical issues affecting the business of

the Group;

Skill set of each member and the match of skills with the expectations for value addition to the Group;

Page 152 of 194

Adequate preparation and active participation in meetings at the Committee as well as Board level;

Attendance of Board and Committee meetings; and

Awareness and adherence to regulations and policies on Corporate Governance and Ethics.

Company Secretary

The Company Secretary provides guidance to the Board on the duties of the directors and good governance, ensures

Board and Committee charters are kept up to date, prepares and circulate board papers, elicit responses, input,

feedback for board and Board Committee meetings, assist in drafting yearly board work plans and ensure

preparation and circulation of minutes of board and committee meetings.

Remuneration of Directors

The Board remunerates directors and executives fairly and responsibly based on a compensation structure aligned

with the strategy of the company and linked to individual performance. The Shareholders at every Annual General

Meeting approve the director’s remuneration.

Compliance with Laws, Rules, Codes and Standards

Compliance is an ethical imperative. Compliance with applicable laws is understood not only in terms of the

obligations that they create, but also for the rights and protection that they afford.

The Board through the guidance of the Company Secretary ensures that the Issuer complies with applicable laws and

considers adherence to non-binding rules codes and standards. Exceptions permitted in law, shortcomings and

proposed changes expected are handled ethically.

Code of Conduct

The Code of has outlined the ethical standards which the directors, employees and other stakeholders who come

into contact with the Issuer would adhere to when conducting the affairs of the Group.

The Board ensures that the Issuer’s ethics are managed effectively. Annually all directors, employees and other

stakeholders renew their written commitment to abide to the Code of Conduct. The Issuer builds and sustains an

ethical corporate culture in the company through recognition of ethical staff. The Issuer is looking into ways of

measuring ethical standards.

Insider Trading Policy

Centum complies with the rules of the securities exchanges on which they are listed in respect of insider trading.

The Insider Trading policy provides the guidelines in dealing in securities by directors, officers and selected

employees. Centum’s Policy and Guidelines on Insider Trading is a reflection of the Capital Markets restrictions on

transactions of the Company’s directors, employees, agents and consultants in relation to its securities as well as the

securities of other companies where it is a corporate director or insider. Such covered persons have an open period

to transact on restricted securities so as to avert any occurrence of insider trading. The open period runs thirty days

after the making of any public announcement and disclosure of all material non-public information.

Closed Period

The closed period is the time between the completion of financial results and the announcing of these results to the

public. The closed period is intended to prevent trading in a company's shares by its insiders ahead of the public

dissemination of its financial results.

In the closed period, all the investor interaction is limited to discussions on publicly available information.

Conflict of interest policy and independent advice

Page 153 of 194

The Board has implemented a conflict of interest policy that requires utmost honesty and adherence to the code of

conduct and code of ethics for directors, management and employees.

The directors or the Board or Committees are permitted to take independent advice in connection with their duties at

the cost of the Issuer subject to an approved process being followed. The committee is permitted to consult with

specialists or consultants subject to board-approved process.

Subsidiaries

To ensure that the policy and decisions of Centum are emulated and carried out at the subsidiary level, Centum

ensures that it has adequate representation in all the boards of its subsidiaries.

Details of the directorship of its key subsidiaries is provided below:

K- Rep Bank Limited Genesis Kenya Nabo Capital

James Mworia James Mworia Imtiaz Khan

Tom Kariuki Charles Ogalo Pius Muchiri

Mary Ann Musangi Mukite Musangi Robert Bunyi

Donald B Kipkorir Patrick Kariuki Robert Mbugua

Henry Chege Fahima Zein

Kimanthi Mutua

Catherine Mturi - Wairi

Polycarp Igathe

Albert Ruturi

Amu Power Company Limited Platcorp Holdings Limited

Francis Koome Njogu Imtiaz Khan

Ahmed Bajaber Ignatius Obara

Dr. Christopher Kirubi Brett Sievwright


(rep. James Mworia)

Centum Investment Co. Ltd

(rep. James Mworia)

Control Services Corporation

Page 154 of 194

Senior Management

Centum’s senior management is made up as explained below.

Mr. James M. Mworia; Group Chief Executive Officer & Managing Director

Age: 37 years

• Was appointed Chief Executive Officer of Centum Investment Company

Limited and its subsidiaries in October, 2008.

• He has fifteen years experience and he is the recipient of many regional and

international awards in recognition of his outstanding business leadership. The

most recent of this was the Africa Business Leader of the Year award by the

Corporate Council on Africa in Washington DC.

• He is a CFA Charter holder, CPA(K), a Global Chartered Institute of

Management Accountant, a holder of LLB from the University of Nairobi and

an Advocate of the High Court of Kenya. He is a Fellow of the Archbishop

Desmond Tutu African Leadership Institute.

• He is the Chairman of K-Rep Bank and a non-executive director of the Lewa

Conservancy.

James Kaguchia; Director Private Equity; Centum Capital

Age: 40

Age: 37 years

Joined Centum in March 2013 having previously worked with Kewberg

Cables in South Africa as Managing Director and Chief Executive Officer.

He is currently the Director; Centum Capital; the business unit within Centum

that is responsible for executing the sector strategies.

He holds Bcom (Accounting option) from the Kenyatta University, and is a

CPA (K).

Mr. Chris Ochieng; Managing Director Athena Properties Limited

Age: 34 years

Mr. Ochieng is the Managing Director of Athena Properties Limited, the

subsidiary that provides real estate development and project management

services to Centum and third parties.

He is a certified Project Management Professional (PMP) and holds a Bachelor

of Science in Civil Engineering from Egerton University.

Prior to this appointment in January 2015, he served as the Deputy Director for

Athena Properties. Previously, he worked for Lordship Group, Dubai Sports

City and Hedley Engineering. He has over eight years experience in real estate

development.

Page 155 of 194

Mr. Pius Muchiri; Managing Director Nabo Capital Limited

Age: 39 years

Mr. Muchiri is the Managing Director of Nabo Capital Limited, a wholly owned

fund management subsidiary of Centum. Prior to this appointment, he served as

the Investment Manager in charge of the quoted investment portfolio.

He has over twelve (12) years investment management experience gained in

various roles within Centum, Toyota East Africa and AAR Healthcare.

He is a member of East African Investment Professionals and holds a Bcom from

the University of Nairobi. He is CPA(K) finalist and CFA.

He is a Fellow of the Archbishop Desmond Tutu African Leadership Institute

Mrs. Risper Mukoto; Managing Director Centum Business Solutions Limited

Age: 40 years

Mrs. Mukoto is the Managing Director of Centum Business Solutions (CBS)

which provides non-investment related business solutions across Centum. She

also serves as the Director, Finance & Operations.

She has over 14 years experience in Financial and operations management,

most of which she served in various positions within Centum.

She is a member of ICPAK and a Fellow of the Association of Certified

Chartered Accountants (FCCA). She holds a BA in Business Management

from Moi University as well as an MBA from the United States International

University-Africa (USIU-A).

She is a Fellow of the Archbishop Desmond Tutu African Leadership Institute.

Mr. Fred Murimi; Director Corporate Affairs and Company Secretary

Age: 35 years

Mr. Murimi is the Corporate Affairs Director & Group Company Secretary. He

acts as the Group’s general counsel and additionally oversees the Group’s

investor relations, company secretarial and risk functions.

He has over 10 years’ experience in the investment industry. Prior to joining

Centum in January 2013, he worked with Dyer & Blair Investment Bank and

later with Renaissance Capital as Vice President – Legal & Compliance.

He holds a Bachelor of Laws degree (LL.B), a Master of Business

Administration (MBA) degree, is a Certified Public Accountant (CPA) and as a

Certified Public Secretary (CPS) and is a member of the Law Society of Kenya

(LSK) and Institute of Certified Public Secretaries of Kenya (ICPSK).

Page 156 of 194

In 2014, he was awarded Certified Secretary of the Year in the Champions of

Governance Awards by ICPSK.

Mrs. Nelly Kanja; Director Marketing & Communications

Age: 41 years

Mrs. Kanja joined Centum in March 2015 as the Marketing and

Communications Director. She has over 15 years experience in Marketing

and Communication.

Prior to Centum, she worked for Scanad and rose through the ranks to

become the Business head of Scanad Kenya.

Mrs. Kanja holds a Masters in Strategic Management from Strathmore

University and a BA in Government & Public Administration from Moi

University. She also holds certificates in Public Relations Management

from Kenya Institute of Management and the Marketing Society of Kenya.

Managing Directors of our other subsidiaries

Nicholas Macharia: Managing Director, King Beverage Limited

Age: 39 years

Nicholas joined King Beverage Limited (KBL) as Managing Director in

2014. KBL is currently the sole distributor of Carlsberg in Kenya and is a

100% subsidiary of Centum.

Prior to joining KBL, Nick was the Regional Commercial Manager at

Weetabix East Africa. He has over 14 year’s leadership experience in the

FMCG sector. He also worked at Coca Cola Sabco as Country Finance

Manager in Uganda, Finance Manager & Acting Country Manager in

Mozambique and later as Country Commercial Manager in Kenya.

Nick holds a MBA from Hertfordshire University in the U.K, a Diploma in

Business Management from Herriot Watt University and is a member of the

Association of Certified Chartered Accountants (ACCA).

Charles Orony Ogalo: Managing Director, Genesis Kenya Investment Management Limited

Age: 57 Years

Page 157 of 194

Charles serves Genesis Kenya as the Managing Director, a position he has

held since joining the entity in 1996. Genesis Kenya the second largest

Asset19 Manager in the country, specializing in investment management and

pension scheme advisory services. Centum holds a 73% stake in Genesis.

Prior to taking this position, he served in key senior positions at KCB with

his last posting as Chief Manager, Correspondent Banking and International

Trade. During his 11 years’ service with KCB, he spent four years as the

first London Representative, developing business in Europe and America. He

has over 15 year’s leadership experience in the banking sector and fund

management.

Charles holds a masters degree in Economics from Rutgers University and a

Bachelor of Arts degree from State University of New York.

The Management Operating Structure is highlighted below

19 Retirement Benefits Authority Industry Performan Report, December 2013 to June 2015, published on 31 March 2015

Page 158 of 194

17. LEGAL AND CORPORATE INFORMATION

17.1 Name, Place and Date of Registration

The Issuer was incorporated in Kenya as ICDC Investment Company Limited, a public company limited by shares

on 13 April 1967 under the Companies Act (Chapter 486) with registration number C 8/67. The initial name - ICDC

Investment Company Limited - was changed to ‘Centum Investment Company Limited’ following the passing of a

special resolution of the shareholders dated 21 February 2008. This was effected by a Certificate of Change of Name

issued by the Registrar of Companies dated the 25 February 2008, in the name of Centum Investment Company

Limited.

The Issuer is registered as a branch in Uganda under the Companies Act (Cap.110 Section 371(1) of the Laws of

Uganda) (Registration No F 2158).

The Issuer’s registered office is at 5th Floor, International House, Mama Ngina Street, Nairobi, Kenya.

Centum Investment

James Mworia, CEO

Centum Capital

(Division of Centum)

James Kaguchia;

Director

FMCG; James Kaguchia

Energy; Job Muriuki

Financial Services; Francis Nasyomba

Agribusiness, Steve Chege

Athena Properties Ltd

Chris Ochieng, MD

Project Delivery, Tim Hitchen

Architure & Urban Planning; Arthur

Adeya

Corporate Finance;

Karumba Kinyua

Nabo Capital Ltd.

Pius Muchiri,MD

Product Structuring;

Teresia Muthoni

Centum Business Solutions Ltd.

Risper Mukoto, MD

Corporate Affairs; Fred Murimi

Marketing & Communications; Nelly Musembi

Legal;

Lois Gakumo

Finance; Gideon Maina

Risk; Charlene Kavulani

ICT; Steve Karechio

HR; Doris Ndanu

Page 159 of 194

17.2 Capital Structure

The Issuer’s nominal share capital is Kes 400,000,000 divided into 800,000,000 ordinary shares of Kes 0.50 cents

each. The Issuer has 665,441,714 issued ordinary shares.

17.3 Voting Rights and Control

All the issued shares in the company have equal voting rights. Article 66 of the Issuer’s Articles of Association

provides:

“Subject to any special terms as to voting upon which any shares may be issued or may for the time being

be held, on a show of hands every Member who (being an individual) is present in person or (being a

corporation) is present by a representative duly authorized pursuant to these Articles, shall have one vote

and on a poll every Member shall have one vote for each share of which he is the holder.”

17.4 Listing

The Issuer’s shares are listed on the NSE and the USE.

17.5 Issues of shares in the three years immediately preceding the date of this Information

Memorandum

The Issuer has not issued any new shares in the three years immediately preceding the date of this Information

Memorandum:

17.6 Principal objects (as contained in the Memorandum of Association)

The Issuer’s principal objects are listed below.

1) To carry on the business of an investment company, unit trust, mutual fund and to raise and borrow money by

the issue of shares, debentures, debenture stock, bonds, obligations, deposit notes and otherwise howsoever

and to underwrite any such issue.

2) To invest the money so borrowed and raised and other moneys of the Issuer in the purchase or upon the

security of shares, stocks, debentures, debenture stock, bonds, mortgages, obligations and securities of any

kind issued or guaranteed by any company, corporation or undertaking existing, formed or to be formed or

registered and carrying on business of whatever nature and howsoever constituted and in shares, stocks,

debentures, debenture stocks, bonds, mortgages, obligations and other securities issued or guaranteed by any

Government or by any municipal, local or other authority or body of whatever nature.

3) To acquire any such shares, stocks debentures, debenture stocks, bonds, mortgages, obligations and other

securities by original subscription, syndicate participation, tender, purchase, exchange or otherwise and to

subscribe for the same either conditionally or otherwise and to guarantee the subscription thereof.

4) To vary the investments of the Issuer from time to time.

5) To make advances upon, hold in trust, issue on commission, sell or dispose of any of the investments aforesaid

and to act as agent for any of the above or the like purposes.

6) To purchase or otherwise acquire, develop, improve, manage, use, turn to account and dispose of immovable

and moveable property of any description.

7) To carry on all kinds of promotion business and, in particular, to form, constitute, float, lend money to, assist,

manage and control any companies, associations or undertakings of any kind, incorporated, established or

constituted in Kenya or elsewhere.

Page 160 of 194

8) To carry on and undertake any business transaction or operation commonly carried on or undertaken by

promoters of companies, financiers, concessionaires and contractors for public and other works and to carry on

any other business which may seem to the Company to be capable of being conveniently carried on in

connection with the above objects or any of them or to be likely, directly or indirectly, to enhance the value of

or render profitable or more profitable any of the Company’s assets, property or rights or to develop any

branch of the Issuer’s business.

In addition, the Memorandum of Association also includes an all-encompassing object which permits the Issuer “To

do all such other things as may be deemed incidental or conductive to the attainment of the above objects or any of

them”.

17.7 Provisions of the Articles relating to borrowing

Under the provisions of Clauses 3(1) and (2) of the Memorandum of Association of the Issuer, the Issuer has the

power to:

1) raise and borrow money by the issue of shares, debentures, debenture stock, bonds, obligations, deposit notes

and otherwise howsoever and to underwrite any such issue; and

2) invest the money so borrowed and raised and other moneys of the Company in the purchase or upon the

security of shares, stocks, debentures, debenture stock, bonds, mortgages, obligations and securities of any

kind issued or guaranteed by any company, corporation or undertaking existing, formed or to be formed or

registered and carrying on business of whatever nature and howsoever constituted and in shares, stocks,

debentures, debenture stocks, bonds, mortgages, obligations and other securities issued or guaranteed by any

Government or by any municipal, local or other authority or body of whatever nature.

Under the provisions of Article 112 of the Issuer’s Articles of Association:

112. The board of directors may exercise all powers of the Issuer to borrow or raise money and to mortgage or

charge its undertaking, property and uncalled capital or any part thereof and to issue income notes,

bonds, debentures and other securities whether outright or as security for any debt, liability or obligation

of the Issuer or of any third party.

17.8 The Issuer’s Subsidiaries and Associated Companies

The Issuer invests through its wholly owned subsidiaries and special purpose vehicles tailored to suit each

investment.

The following is a list of the Issuer’s subsidiaries:

17.8.1 Direct Subsidiaries

17.8.1.1 Real estate, infrastructure and related business

Subsidiaries Shareholding

%

Registration

Number Jurisdiction Business Activity

1. Athena Properties Limited

. 100% C.7147 Kenya Development and Project

Company 2. Two Rivers Development

Limited 58.33% CPR/2009/9831 Kenya Property Holding

Company 3. Centum Development

Limited 100% C.104002 Mauritius Property Holding

Company 4. Amu Power Company

Limited 51% CPR/2013/121381 Kenya Special purpose vehicle

for investment in the

Lamu coal project

17.8.1.2 Investment holding, trading and management


%

Registration


Page 161 of 194

1. Rasimu Limited 100% C.157384 Kenya Investment Holding

Company 2. Investpool Holdings

Limited 100% C. 109667 Mauritius Investment Holding

Company 3. Shefa Holdings 100% C114013355 Mauritius Investment Holding

Company 4. Almasi Beverages

Limited 50.95% CPR/2012/64390 Kenya Investment holding

company for Centum

interest in Kisii Bottlers,

Mount Kenya Bottlers

and Rift Valley Bottlers

5. Bakki Holdco Limited 100% CPR/2013/121272 Kenya Non-operating holding

company for investment

in K-Rep Bank. 5. Centum Exotics Limited 100% C.104001 Mauritius Investment Trading

Company

17.8.1.3 Other services


%

Registration


1. Nabo Capital Limited 100% CPR/2010/66999 Kenya Fund Management

2. King Beverage Limited 100% CPR/2014/144664 Kenya Calsberg beer

distribution 3. Centum Business

Solutions Limited 100% CPR/2013/92108 Kenya Service Company

4. Genesis Kenya

Investment Managent

Limited

73.35% C.67440 Kenya Fund Management

5. Vipingo Development

Limited 100% CPR/2015/179224 Kenya Agribusiness

17.8.1.4 Dormant subsidiaries


%

Registration


1. Centum Investment (BVI)

Limited 100% 1552404 British Virgin

Islands Dormant

2. Crested Heights Limited 100% 128409 Ugandan Dormant

3. Uhuru Heights Limited 100% CPR/2009/9851 Kenya Dormant

17.8.2 Issuer’s indirect subsidiaries

Centum Investment Company Limited owns 58.33% of Two Rivers Development Limited (“TRDL”). Subsidiaries

of TRDL include:


%

Registration


1. Two Rivers Lifestyle

Centre Limited (with

registered kenyan

Branch)

100% 109668 Mauritius Property Holding

Company 2. Two Rivers Power

Company Limited

100% CPR/2015/173376 Kenya Power utility company

3. Two Rivers Water &

Sanitation Company

Limited

100% CPR/2015/173495 Kenya Water and sanitation

utility company 4. Two Rivers ICT

Company Limited

100% CPR/2014/172514 Kenya ICT utility company

5. Two Rivers Luxury

Apartments Limited

100% CPR/2015/179483 Kenya Real estate development

6. Two Rivers Property

Owners Company

Limited

100% CPR/2014/130020 Kenya Management company

Centum Investment Company Limited owns 100% of Investpool Holdings Limited (“Invetpool”)

Subsidiaries of Investpool:


%

Registration


1. Mvuke Power Limited 100% 109607 Mauritius Investment Holding

Company 2. Kilele Holdings Limited 79% 109609 Mauritius Investment Holding

Company

Centum Investment Company Limited owns100% of Investpool Holdings Limited which in turns owns 100% of

Mvuke power Limited (“Mvuke”)

Subsidiaries of Mvuke:

Page 162 of 194


%

Registration

Number Jurisdiction

Business Activity

Akiira Geothermal Limited 37.5% 122565 Mauritius Project Company for

exploration of geothermal

energy.

Centum Investment Company Limited owns100% of Bakki Holdco Limited (“Bakki”)

Subsidiaries of Bakki:


%

Registration

Number Jurisdiction

Business Activity

K-Rep Bank Limited20 65.87%

C.77202

Kenya Financial services

Centum Investment Company Limited owns 100% of Investpool Limited which in turn owns 79% Kilele Holdings

Limited (“Kilele”)

Subsidiaries of Kilele:


%

Registration

Number Jurisdiction

Business Activity

Platcorp Holdings Limited 45% Mauritius Investment Holding company

and parent company of

Platinum Credit Limited

(Kenya, Uganda and

Tanzania)

Centum Investment Company Limited owns 100% of Centum Development Limited (“CDL”)

Subsidiaries of CDL:

Subsidiaries Shareholding %

Registration

Number Jurisdiction

Business Activity

Pearl Marina Estates

Limited

51%

(The remainder

49% is held under

Centum).

118623 Uganda Real Estate Development

company.

Centum Investment Company Limited owns100% Centum Exotics Limited (“CEL”)

Subsidiaries of CEL:


%

Registration


Oleibon Investments Limited 100% 86609 Tanzania Investment holding

company for QPE

portfolio - Holds shares of

Tanzania Breweries

Limited.

17.8.3 Other companies that Issuer has shareholding in:

Portfolio Companies % Holding

1. Nairobi Bottlers Limited 27.6%

2. KWA Holdings E.A. Limited 26.7%

3. Aon Minet Insurance Brokers Limited 21.5%

20An additional 1.67% interest is held directly by the Issuer.

Page 163 of 194

4. General Motors East Africa Limited 17.8%

5. Longhorn Publishers Limited 31.4%

6. NAS Air Services and SIA Holdings 15%

7. Broll Kenya Limited 30%

17.9 Material Agreements (other than agreements made in the ordinary course of business)

The Issuer has not entered into any material agreements (being an agreement entered into outside the ordinary

course of business) as at the date of this Information Memorandum.

17.10 Onerous Covenants and Default

The Issuer has not entered into any agreements with third parties that contain onerous covenants as at the date of this

Information Memorandum.

The Issuer has issued several debentures in favour of Cooperative Bank as detailed in 17.12.2 below. The Issuer is

not in default of any terms of the debentures.

17.11 Related Party Agreements (loan agreements with subsidiaries, etc with details on amounts,

purpose, interest rates, etc)

The Issuer has in place a transfer pricing policy created under the requirements of the Income Tax (Transfer Pricing)

Rules 2006.

The schedule below shows the amounts owed to and owing from the Issuer’s subsidiaries and associate Companies.

Table 9: Related Party Agreements

March 15

Kes’000

March 2014

Kes’000

DUE FROM

Centum Investment (BVI) Limited NIL 97

Pearl Marina Properties Limited NIL NIL

Two Rivers Development Limited 1,717,806 2,509,749

e-Tranzact Limited NIL 7,025

Centum Exotics Limited 1,231,375 2,009,557

Centum Development Limited 2,279,153 1,881,838

Nabo Capital Limited 355,797 363,504

Centum Shared Services NIL 29,278

Mvuke Limited 248,261 51,944

Genesis Kenya Investment Management Limited NIL 47,000

Two Rivers Lifestyle centre NIL 43

King Beverage Limited 33,909 136

Uhuru Heights Limited 5 NIL

Kilele Holdings Limited 829,310 768,402

Investpool Limited 139 NIL

Total

DUE TO NIL NIL

Athena Properties Limited NIL 117,538

Page 164 of 194

March 15

Kes’000

March 2014

Kes’000

Centum Development Limited NIL NIL

Rasimu Limited 6,473 1,764

Uhuru Heights Limited NIL 2,544

Total

17.12 Loan/Finance Agreements

17.12.1 Senior Unsecured Fixed Rate Notes and Senior Equity Linked Notes

Centum issued notes on the basis of an information memorandum dated 23rd August 2012 and a subsequent

information memorandum dated 7 December 2012 raising an aggregate amount of Kenya Shillings four billion, one

hundred and sixty seven million, nine hundred thousand (Kes.4,167,900,000) by way of a placement and listing of

unsecured fixed rate notes and unsecured equity linked notes. The notes are currently in issue and listed on the NSE.

The Issuer has sought and obtained approval of the holders of the existing notes and the Authority for this Note

Issue.

17.12.2 Facilities from Co-operative Bank of Kenya Limited

(a) Centum has a term loan and overdraft facility with Co-operative of Kenya Bank Limited. The details

of these credit facilities are detailed below:

Facility Amount Security

Facility letter dated 29

May 2013

Inter Bank

available limit of

Kes 1 billion

Guarantee of US$

5,000,000

Interest - 15.5%

per annum

All the securities provided have the benefit of several

security instruments issued by Centum some of which

overlap and act as security for other facilities. A

comprehensive list of the securities is below:

i. Debenture securing the sum of Kes 1.2 billion

dated 26 January 2010;

ii. Further debenture securing the sum of

Kes.500 million dated 12 October 2010;

iii. 2nd further debenture securing the sum of

Kes.500 million dated 16 December 2011;

iv. 3rd further debenture securing the sum of Kes.

500 million dated 14 October 2014;

v. Corporate guarantee issued by Centum Exotics

Limited and Rasimu Limited dated 20 June

2013 guaranteeing the sum of Kes.1 billion;

vi. Corporate guarantee issued by Centum Exotics

Limited and Rasimu Limited dated 24 June

2013 guaranteeing the sum of Kes. 1 billion;

vii. Corporate guarantee issued by Rasimu Limited

dated 28 November 2013 guaranteeing the

sum of Kes. 2 billion;

viii. Corporate Guarantee issued by Centum

Exotics Limited dated 28 November 2013

guaranteeing the sum of Kes 2 billion


October 2013

Kes 1 billion

Interest- 14.5%

per annum


August 2014

Kes 700 million

Page 165 of 194

17.12.3 Facility from FirstRand Bank Limited

The Issuer has a facility with FirstRand Bank Limited (the “Facility”) (acting through its Rand Merchant Bank

Division acting as Agent) (the “Bank”) for the sum USD 35,000,000.

Facility Key Terms

Parties (a) The Issuer (“Borrower”)

(b) Centum Exotics Limited; Rasimu Limited; Oleibon Investments

Limited; Investpool Holdings Limited (“Original Guarantors”)

(c) Rand Merchant Bank (“Arranger”)

(d) Rand Merchant Bank (“Original Lender”)

(e) Rand Merchant Bank (“Agent”)

(f) Rand Merchant Bank (“Security Agent”)

Principal amount US$ 35,000,000

Purpose Making investments and general corporate purposes

Interest Rate Margin at 5.75% plus US LIBOR (as defined) per annum.

Default interest rate 2% per annum above the applicable rate.

Security Security include:

a) Charge over shares held by the Obligors in the Charged Portfolio

Companies (details of the Charge are set out below);

b) Charge over the Custodial Accounts and Proceeds Accounts

maintained by Centum Exotics Limited and Oleibon Investment

Limited with the Custodian (CfC Stanbic Bank Limited);

c) Assignment of any loans made to the Charged Portfolio Companies

or other non-Obligor;

d) Custodian Agreement and Acknowledgement between the

Custodian, Centum Exotics Limited and Oleibon Investment

Limited in respect of the holding of Listed Investments by the

Custodian for Centum Exotics Limited and Oleibon Investment

Limited and the acknowledgement by the Custodian in favour of the

Agent.

“Charged Portfolio Companies” means the Portfolio Company whose

shares are subject to security provided (and as at the date of the

Agreement include Almasi Beverages Limited and Nairobi Bottlers

Limited).

Page 166 of 194

Guarantees and indemnity Centum Exotics Limited; Rasimu Limited; Oleibon Investments Limited;

Investpool Holdings Limited have guaranteed the obligations of the

Borrower’s obligations in relation to the facility.

Repayment or duration The Facility is to be repaid in full on the earlier of (a) the Maturity Date

(12 months after the first utilization date, subject to an extension of six

months at the discretion of the Lenders), or (b) the date on which an

Event of Default is triggered.

Charge over Shares Charge over shares in favour of the Security Agent as trustee for the

Secured Parties.

Parties a) Centum Investment Company Limited (“Chargor”); and

b) FirstRand Bank Limited acting through its Rand Merchant Bank

Division (“Security Agent”)

Principal amount US$ 35,000,000

Purpose Security for the facility from FirstRand Bank Limited

Charged Shares Shares registered in the name of the Chargor from time to time in the

capital of the Almasi Beverages Limited and Nairobi Bottlers Limited and

any entity in which any member of the Group acquires an investment

after the date of the Charge. As at the date of the Charge, the Charged

Shares were:

a) 365,036,394 shares of Almasi Beverages Limited

b) 981,971 shares in Nairobi Bottlers Limited.

General Comment The proceeds of the Notes Issue will partly be utilised to refinance the

above facility obtained from the Lenders and the Lenders have consented

to issue of the Notes Issue.

17.13 Relevant subsidiary loan/Finance agreements

The Issuer has provided a guarantee dated 18 December 2014 for Kes. 45,992,700 in favour of K-Rep Bank Limited

(the Issuer’s subsidiary) in connection with an asset financing facility availed by K-Rep Bank Limited to King

Beverage Limited (another Subsidiary of the Issuer).

17.14 Loans to directors and senior management

As at 31 March 2015, there were no outstanding loans to Directors or Senior Management.

Page 167 of 194

17.15 Licenses and Permits

17.15.1 The Issuer

The Issuer is incorporated under the Companies Act (Chapter 486 of the Laws of Kenya). The Issuer is subject to the

provisions of the Capital Markets Act (Chapter 485A of the Laws of Kenya) and the Capital Markets Authority Act,

(Chapter 84 Laws of Uganda) because it is a listed company in both jurisdictions.

Due to the nature of the Issuer’s business, the Issuer does not require specific licensing by any regulatory authority

in Kenya or Uganda.

The Issuer has a current single business permit issued by the City Council of Nairobi under activity code 630 –

Financial Services.

17.15.2 Subsidiaries

The following subsidiaries of Centum require specific licenses under the following regulatory regimes:

No. Subsidiary and activity Licence Licence No. Regulator

1. Nabo Capital Limited Fund Manager 029 CMA

2. Nabo Capital Limited REIT Manager 076 CMA

3. Nabo Capital Limited

Fund manager for

retirement benefit

schemes

RBA/SUP/213/031

RBA

4.

Genesis Kenya

Investment Management

Limited

Fund Manager 25/13 CMA

5.

Genesis Kenya

Investment Management

Limited

Fund manager for

retirement benefit

schemes

RBA/SUP/213/002

RBA

6. K-Rep Bank Limited Bank CBK/BSD/01/78/2015 CBK

17.16 Property and information on Vendors on materials assets acquired in the last three years

Other than disclosed in this information memorandum, the Issuer has not directly acquired the any material assets

over the last three years.

17.17 Provisions of the Articles with respect to directors

Number (Article 78) Not less than 2 and not more than 9

Quorum (Article 96) The quorum necessary for the transaction of business of

the Board may be fixed by the Board and, unless so

fixed at any other number, shall be two directors present

either personally or by alternate provided that one

person, whether a Director or not, although duly

appointed alternate for another Director or for any

number of Directors shall not constitute a Quorum.

Voting on interested matters (Article 84 (b) A Director who is in any way, whether directly or

indirectly, interested in a contract or arrangement or

Page 168 of 194

and (c) proposed contract or arrangement with the Company

shall declare the nature of his interest at the meeting if

the Board at which the question of entering into the

contract or arrangement is first taken into consideration,

if his interest then exits, or in any other case at the first

meeting of the Board after he becomes so interested, A

general notice to the Board, given by a Director to the

effect that he is a member of a specified company or

firm and is to be regarded as interested in all transactions

with such company or firm, shall be a sufficient

declaration of interest under this Article and, after such

general notice, it shall not be necessary to give any

special notice relating to any subsequent transaction with

such company or firm, provided that either the notice is

given at a meeting of the Board or the Director giving

the same takes reasonable steps to secure that it is

brought up and read at the next board meeting after it is

given.

A Director who shall have declared his interest as

aforesaid may attend, be counted in the quorum of and

vote at any meeting of the Board which may consider or

pass any resolution in respect of any contract or

arrangement in which he is interested.

Remuneration (Article 81) Directors are entitled to such remuneration as shall form

time to time be determined by the Company in a general

meeting and such remuneration shall be divided among

the Directors as the Board may by resolution determine

or failing such determination, equally except in such

event, any Director holding office for less than a year

shall only rank in such division in proportion to the

period during which he has held office during such year.

The Directors (including alternate Directors) shall also

be entitled to be paid their reasonable travelling, hotel

and incidental expenses incurred while engaged on the

business of the Company.

Rotation/Retirement (Article 87) The Directors to retire in every year shall be those who

have been longest in office since their last election but as

between persons who became Directors on the same day,

those to retire shall, unless otherwise agreed among

themselves, be determined by lot.

Page 169 of 194

17.18 Material Litigation

There are no legal or arbitration proceedings (including any such proceedings which are pending or threatened of

which the issuer is aware) which may have had or had in the past twelve (12) months preceding the date of this

Information Memorandum a significant adverse effect on the financial position or the operations of the Group.

17.19 Other Disclosures

1. The Board of Directors has passed all necessary resolutions and taken all necessary corporate actions

to approve and authorise the Issuer to issue the Notes.

2. As at the date of this Information Memorandum and for a period of at least two (2) years prior to the

date of this Information Memorandum, no director of the Issuer has-

a. had any petition under bankruptcy or insolvency in any jurisdiction pending or threatened

against the director (for individuals), or any winding-up petition pending or threatened

against it (for corporate bodies);

b. had any criminal proceedings in which the director was convicted of fraud or any criminal

offence, or be named subject of pending criminal proceeding, or any other offence or action

either within or outside Kenya; or

c. been the subject of any ruling of a court of competent jurisdiction or any governmental body,

that permanently or temporarily prohibits such director from acting as an investment adviser

or as a director or employee of a stockbroker, dealer or any financial institution or engaging

in any type or business practice or activity.

3. At least one third of the Issuer’s board of directors are non-executive directors.

4. There was no change in Directors’ interests between the end of the Issuer’s financial year and the date

of publication of this Information Memorandum.

5. As at the date of this Information Memorandum, there are no contractual arrangements with a

controlling shareholder that would render the Issuer incapable at all times of carrying on its business

independently of any controlling shareholder.

6. There has been no significant change in the Issuer’s major shareholders during the past three financial

years.

7. As at the date of this Information Memorandum, none of the Issuer’s senior management employees

have committed any serious offence that may be considered inappropriate for the management of a

listed company.

8. A copy of this Information Memorandum has been delivered to the Registrar of Companies.

9. The Issuer is a publicly listed company and its shares are freely transferable.

10. As at the date of this Information Memorandum, there are no arrangements, known to the Issuer the

operation of which may at a subsequent date result in a change in control of the Issuer.

Page 170 of 194

18. GENERAL INFORMATION

18.1 Expenses of the Offer

The expenses of the Note Issue which will be borne by the Issuer. These are estimated at Kes. 79,266,000.

Details of these expenses are as hereunder:

Table 10: Expenses of the offer

Professional fees and other related costs Kes

Joint Transaction Advisers fees 54,000,000

Reporting Accountants fees 5,500,000

Legal fees 5,000,000

Receiving Banks fees 2,320,000

Note Trustee fees 348,000

Registrar fees 348,000

CMA Approval fees 6,000,000

NSE listing fees 750,000

Miscellaneous expenses 5,000,000

Total 79,266,000

Total issue costs as a % of Total Issue 1.3%

18.2 Documents Available for Inspection

As long as any Note remains outstanding, copies of the following documents will, when published, be available for

inspection at the Specified Offices of the Issuer in Nairobi, Kenya:

1. the certificate of incorporation of the Issuer;

2. the Memorandum and Articles of Association of Issuer;

3. the following financial accounts of the Issuer:

3.1. the limited review of the nine month accounts as at 31 December, 2014; and

3.2. the audited financial statements of Issuer in respect of the 3 years financial years ended 31

March 2012, 2013 and 2014;

4. the board resolution approving the Issue;

5. a copy of this Information Memorandum;

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6. the following documents issued by the relevant experts which are included or referred to in this Information

Memorandum;

6.1. the Reporting Accountants’ report as reproduced in this Information Memorandum and their

written consent to the issue of this Information Memorandum with their report included herein

in the form and context in which it is so included;

6.2. the legal opinion of the Legal Adviser as reproduced in this Information Memorandum and

their written consent to the issue of this Information Memorandum with their opinion included

herein in the form and context in which it is so included; and

6.3. the credit rating report issued by Global Credit Rating;

7. a copy of the Agency Agreement;

8. a copy of the Trust Deed;

9. certified copies of the appraisals or valuations relative to the properties owned by the Issuer;

10. a copy of the approval of the Capital Markets Authority in respect of this issue;

11. a copy of the approval of the Nairobi Securities Exchange for the listing of the Notes; and

12. the Issuer’s audited financial statements for the year ended 31 March 2015 will be finalised on or about 12

June 2015, the Issuer will make these available for inspection once published.

18.3 Minimum Subscription Level

The directors of the Issuer have resolved that the minimum aggregate amount to be raised by the issue of the Notes

is fifty per cent (50%) of the offer amount of the Notes.

18.4 Application Procedure

Application forms for issues of Notes may be obtained from the Placing Agents. Applications must be submitted

directly to the Fiscal Agent. Successful applicants will be notified either by the Fiscal Agent on behalf of the Issuer,

or by the Placing Agents on behalf of the Issuer, of the amount of Notes allotted to them immediately after the date

of allotment.

18.5 Trading of the Notes

Fiscal Agents, acting as principal or agent of the Issuer, may facilitate market trading of the Notes through purchases

and/or sales of such Notes on a best effort basis.

The transfer of a Note from a seller to a purchaser will be carried out in accordance with the transfer regulations set

out in the Agency Agreement and subject to the Conditions.

18.6 Changes in Senior Management

There are no planned or expected changes in the Issuer’s senior management during the twenty four months

following this Issue.

18.7 Interruptions in Group’s Business

There have been no interruptions in the Issuer’s business, which may have or have had during the recent past

(covering at least the previous four months prior to the issuance of this Information Memorandum) a significant

effect on the Issuer’s financial position.

Page 172 of 194

18.8 Material Changes

Save as disclosed in this Information Memorandum, there has been no material change in the business of the Issuer

in the five years up to 31 March 2015.

18.9 Directors statement as to liquidity requirement

To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is

the case) the working capital available to the Issuer is sufficient for the Issuer's present requirements.

18.10 Directors’ declaration

The Directors of the Issuer whose names appear on page 24 of this Information Memorandum accept responsibility

for the information contained in this document. To the best of the knowledge and belief of the Directors (who have

taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance

with facts and does not omit anything likely to affect the import of such information.

Page 173 of 194

19. FREQUENTLY ASKED QUESTIONS ON EQUITY LINKED NOTES


an investment in the Senior Unsecured Equity Linked Note, and the appropriate amount, if any, of an investment of

this nature.


an investment in the Senior Unsecured Equity Linked Note, and the appropriate amount, if any, of an investment of

this nature.

(1) What is an “Equity Linked Note”?

An “Equity Linked Note” is an investment product that consists of three components: (1) an undertaking based on

the credit of the Issuer, that the Noteholder will receive on maturity not less than 100% of the principal amount

invested; (2) coupon payment; and (3) an investment opportunity that offers the Noteholder potential returns based

on the performance of an underlying investment that is often linked to the performance of an equity, equity index,

commodity index, currency, mutual fund or hedge fund or any other metric that can reflect the performance of the

Issuer.

The Senior Unsecured Equity Linked Note is linked to the performance of the NAV of Centum on a fair value basis.

Centum’s unconsolidated or company statement of financial position NAV is presented on a fair value basis.

(2) What are the investment objectives of the ELN?

The primary objectives of the ELN are to provide the Noteholder with principal protection (based on the

creditworthiness of Centum, as the ELN are unsecured) and coupon payment and, if held to maturity, provide a

potential return that is linked to the volatility of Centum’s equity. The level of the equity is monitored from the

Commencement Date up to and including the Final Net Asset Value Date.

(3) Who should invest in an ELN?

You may be suited to become a Noteholder if, among other benefits, you: (1) are looking for safety of principal if

held to maturity; (2) want the safety of a definite coupon payment while at the same time want the potential to earn a

return that may be greater than what is available from a traditional fixed term deposit but with similar risks to your

principal investment; and (3) want exposure to an investment that is linked to the performance of an equity.

(4) How is the return (if any) under the ELN linked to the performance of the Equity?

The ELN has three repayment components: principal, coupon and a variable return. The variable return will be

calculated and realized based on the performance on Centum’s NAV. The variable return will be detachable from

the ELN and may be transferred in whole or in part and title to the variable return shall pass upon registration of

book-entry transfers thereof in accordance with the CD Act.

Centum’s NAV change will be calculated as follows: (Final Net Asset Value – Initial Net Asset Value)/ Initial Net

Asset Value. The Initial Net Asset Value as per the Centum’s reviewed financial statements as of 31st December

2014 is Kes 26,950,614,000 while the Final Net Asset Value will be from (i) the Issuer’s audited financial

statements as at 31 March 2020 or, (ii) in case of early redemption of the ELN, the Issuer’s latest publicly issued

financial statements, being either half year accounts or full year accounts as the case may be.

(5) How will Final Redemption of the Equity Linked Note be computed?

Final Redemption will be computed as Par Value + [Par Value *(min [max [25%*Centum’s company Net Asset

Value Change, 0], 10%].

In the event Centum’s NAV appreciates by more than 25.0%, this will imply [100 + 100 * 10%], giving a

Redemption Price of Kes 110 (Redemption Price will be Kes 110).

Page 174 of 194

To note is that the Redemption Price will be capped at 110% such that even if Centum’s Net Asset Value

appreciates by more than 25%, the investors will not receive a Redemption Price greater than 110% of Par Value.

On the other hand, should Centum’s Net Asset Value slide to below its Initial Net Asset Value, the investors will get

a Redemption Price equal to Par Value. In essence, despite its rather involving pricing mechanism, the ELN is a

principal protected instrument, that is backed by the creditworthiness of Centum (although the Equity Linked Note is

unsecured).

(6) How will the Variable Return be detachable from the ELN?

The variable return will be issued and traded as units. It will be issued in the ratio of 1:1 with respect to the Equity

Linked Notes. For example, if KSH 1 million of Equity Linked Notes are issued, there will be 1 million units of

Variable Return issued.

These units can be detached and will be freely tradeable on the NSE.

(7) Will the variable return have its own register separate from the ELN register?

Yes. The variable return will have its own register with a separate ISIN and Code

(8) Will the variable return holders have the same rights as the ELN noteholders?

Yes, save for the right to attend and vote at Noteholder’s meetings.

(9) How has the Centum’s Net Asset Value performed over the past five years?

The Centum’s Net Asset Value has increased from Kes 5.96Bn in 2009 to Kes 26.95Bn as at 31 December 2015.

Using Centum’s Net Asset Value change calculated as: (Final Net Asset Value – Initial Net Asset Value)/ Initial Net

Asset Value, it translates to a return of 352% over the 6 year period.

Please refer to Section 0 (10.5.Track Record of Consistent Growth) Centum’s NAV performance highlights.

(10) What is the implied per annum pre-tax Yield for the ELN?

The Implied per annum pre-tax yield gives an indication of the “annual return” that the investor will be enjoying

based on the various points highlighted above. For the purposes of our running illustration, should Centum’s Net

Asset Value appreciate by 25%, the implied pre-tax IRR would be 13.95%. It is worth noting that this return is

above the 5-year Treasury yield of 11.76% (as at 13th March 2015) by 219BPS. On the other hand, if Centum’s

company Net Asset Value either slips below Initial Net Asset Value or does not change from Net Asset Value, the

implied p.a. pre-tax yield will be equal to 12.50%, the coupon payment.

The tables below shows by way of illustration the development in the percentage pay out in respect of the ELN

dependent on the performance of Centum’s company NAV:

Table 11: Development in Percentage Pay Out

Centum NAV Change %

Final Redemption Price

(Cap 10%) Total Returns Yield p.a

0.00% 100 163 12.50%

2.50% 101 164 12.65%

5.00% 102 165 12.80%

7.50% 103 166 12.95%

10.00% 104 167 13.09%

12.50% 105 168 13.24%

Page 175 of 194

15.00% 106 169 13.38%

17.50% 107 170 13.52%

20.00% 108 171 13.67%

22.50% 109 172 13.81%

25.00% 110 173 13.95%

27.50% 110 173 13.95%

30.00% 110 173 13.95%

32.50% 110 173 13.95%

35.00% 110 173 13.95%

37.50% 110 173 13.95%

40.00% 110 173 13.95%

(11) If I decide to sell my ELN, could I get less than Par Value per Note?

Yes. Prior to maturity, the ELN could trade below or above Par Value per Note in the secondary market. The price

of the ELN in any secondary market will be set by such market. See “General Information –Trading of Notes”.

(12) What factors may affect the trading value of my Senior Unsecured Notes in any secondary market?

The value of the ELN in a secondary market, if any, will be affected by a number of complex and inter-related

factors. The effect of any one factor may be offset or magnified by the effect of another factor. The following list,

although not exhaustive, describes some of the factors that may impact the trading value of the ELN:

how much the level of the Net Asset Value has risen or fallen since the Commencement Date;

what the outlook on Centum and its sector is;

the volatility of the Net Asset Value;

prevailing market conditions;

lack of liquidity or lack of market demand for the ELN; and

time remaining to Maturity Date of the ELN.

The relationship among these factors is complex and may also be influenced by various political, economic and

other factors that can affect the trading price of the ELN in any secondary market. For a more detailed description of

various risk factors affecting the ELN, see “Risk Factors”.

(13) Will I have any voting rights as a result of owning the ELN?

No. The ELN will not entitle a Noteholder to any equity interest in Centum and a Noteholder will not be entitled to

the rights and benefits of a shareholder, including the right to receive dividends and vote at or attend meetings of

shareholders.

The Noteholder will have voting rights in a meeting convened for other Noteholders.

(14) What about tax?

A Prospective Investor should consult with its, his or her own tax adviser with respect to his or her individual tax

position. This Information Memorandum is not intended to provide, nor should it be relied upon as, tax advice to

any particular Prospective Investor.

(15) How will I receive notice of significant events affecting the ELN?

Page 176 of 194

If notice is required to be given to Noteholders, Centum and the Note Trustee will take reasonable steps to effect

such notice to the Noteholders in accordance with the Conditions.

Page 177 of 194

20. APPENDIX

20.1 Legal Opinion

Page 178 of 194

20.2 Reporting Accountants report on the nine (9) month management accounts

Page 179 of 194

20.3 Reporting Accountants Report

Page 180 of 194

20.4 Centum’s three (3) year financial statements

Page 181 of 194

20.5 Form of Letter of Undertaking for requested Allocation

The Directors


International Life House

Mama Ngina Street

P. O. Box 10518-00100

Nairobi

Kenya

Date:

Dear Sirs

UNDERTAKING IN RESPECT OF PAYMENT ON ALLOCATION OF NOTES TO [name of QII]

WHEREAS[name of investor] (“the Investor”) has applied for Notes (Fixed Rate (delete as appropriate) and/or

Equity Linked Note (Fixed Rate) worth Kes [ ] in Centum Investment Company Limited (Centum) being offered by

you for subscription as set out in the Information Memorandum dated 14 May 2015 (Capitalised terms used in this

letter of undertaking shall have the meaning and interpretation given to such terms in the Information

Memorandum).

NOW at the request of the Investor and in consideration of Centum allotting to the Investor on the conditions set

forth in Condition 5 (Allocation Policy) of the Information Memorandum as well as in AND in consideration of

Centum allotting to the Investor Notes worth Kesxxx that we have applied for or such lesser amount as you shall in

your absolute discretion determine, we hereby undertake to pay you without delay or argument and without the

need to prove, forthwith upon your first written notice specifying how much has been provisionally allotted to the

Investor, such sum requested not exceeding Kesxxx.

Should such payment not be made within two Business Days following the deemed service of such notice then

Centum shall be entitled without further notice to either: treat the Investor’s application as having been repudiated

and cancel the provisional allotment to it and re-allocate the provisionally allotted Notes on such terms and

conditions as it shall think fit without prejudice to any rights to damages for such repudiation or; to allow us further

time for payment on such terms and conditions as it shall think fit in which event we shall pay late payment interest

on all sums outstanding at the Late Payment Rate calculated on daily balances and compounded monthly.

Any notice to be served on us shall be in writing and shall be deemed to have been properly served on us if delivered

by hand or sent by fax or e-mail to us at the address specified in the Note Application Form.

Any notice shall be deemed to have been received, if delivered by hand, at the time of delivery or, if sent by fax, on

the completion of transmission or if by email receipt of a confirmed delivery notice.

This undertaking shall be governed and construed in accordance with the laws of Kenya and we irrevocably submit

to the non exclusive jurisdiction of the Courts of Kenya. If we are not a Kenyan entity or citizen and in addition to

any other permitted means of service, we hereby irrevocably appoint the agent submitting our Application for the

offered Notes as our agent for the receipt of any legal process.

Page 182 of 194

IN WITNESS WHEREOF THIS LETTER OF UNDERTAKING HAS BEEN EXECUTED BY US THIS

________ DAY OF ______________ 2015.

Signed By:

1) Name __________________________________ Signature_____________________

Title __________________________________

2) Name __________________________________ Signature_____________________

Title __________________________________

Note: The Letter of Undertaking shall be executed by the Investor and delivered to the Joint Lead Arrangers

simultaneously with the duly completed Note Application Form.

Page 183 of 194

20.6 Form of the Note Application Form

For the purposes of authentication only


Incorporated in Kenya under the Companies Act (Cap 486, Laws of Kenya) Reg. No C. 8/67

NOTE APPLICATION FORM

In respect of the up to Kenya Shillings six billion (Kes.6,000,000,000) 13% Senior Unsecured Fixed Rate Notes and

12.5% Senior Unsecured Equity Linked Notes

Offer opens at 9.00 am on the [●] April 2015 and

Closes at 5.00 pm on the [●] May 2015

Please refer to the Information Memorandum and the instructions in the Application Form before

completing this form.

The Board of Directors shall reject any application in whole or in apart if the instructions as set out in the

Information Memorandum and the Application Form are not complied with.

APPLICANT’S STATEMENT

By signing the Application Form overleaf, I /We the applicant(s) herein state that:-

I/We hereby apply to purchase

UNSECURED FIXED RATE NOTES UNSECURED EQUITY LINKED NOTES

Please tick the appropriate box for the type of Note being applied for

of the Notes (the “Notes”) to be issued by Centum (“the Issuer’) and for the amounts specified in Section C of

this application form upon the terms and conditions set out in this application form and Trust Deed (the ‘Trust

Deed”) dated [●] 2015 between Ropat Trust Company (the ‘Note Trustee’) and the Issuer. I/We authorize

Custody & Registrars Services Limited (the “Registrar”) to enter my/our name on the Register of Noteholders of

the Notes that may be allotted to me/us and to register my/our address as given in Section H of this application

form.

By signing this application form I/We represent and warrant that I/we have the necessary authority and power to

purchase and hold the Notes in accordance with this application form and have taken all necessary corporate

actions to approve such purchase and to authorize the person signing this application form to bind me/us in

accordance to the terms thereof.

Page 184 of 194

Serial No:

Centum Investment Company Limited Application Form

A: (i) APPLICANT POOL: (Tick as applicable)

Applicant type: Retail Qualified Institutional Investor21 Corporate Other

Residence: Resident Non Resident Citizenship: Kenyan East African

Foreigner

B: (i) PRIMARY APPLICANT DETAILS: (Name as per National ID / Passport)

Surname (Last Name)

First Name and Other Names

Passport Number/ID Number/Alien ID Number Country of Issue

(ii) JOINT APPLICANT 1 DETAILS: (Names as per National ID / Passport)

Surname (Last Name)



(iii) JOINT APPLICANT 2 DETAILS: (Names as per National ID / Passport)

Surname (Last Name)



(iv) QUALIFIED INSTITUTIONAL INVESTOR/CORPORATE:

(Name as per Certificate of Registration / Incorporation)

Name

Registration/Incorporation No. Country of Registration/Incorporation

21 Qualified Institutional Investors are Fund Managers, Authorized Depositories and Investment Banks licensed under the Capital Markets Act

and Insurance Companies who manage life funds and licensed by the Insurance Regulatory Authority.

Page 185 of 194

For Nominee Applicants Only:

Account Name/Number

C: VALUE OF NOTES APPLIED FOR:

MinimumAmountofKes.1,000,000; Additional Amount in Multiples of Kes.100,000

SENIOR UNSECURED FIXED RATE NOTES AMOUNT IN WORDS (SENIOR UNSECURED

FIXED RATE NOTES)

SENIOR UNSECURED EQUITY LINKED NOTES

AMOUNT IN WORDS (SENIOR UNSECURED

EQUITY LINKED NOTES)

D: Please credit my/our CDSC Account as detailed below to the extent of the Notes are allotted:

PARTICIPANT

’S

CDSC

ACCOUNT

NO:

Serial No:

Centum Investment Company Limited Application Form

E: PAYMENT DETAILS:

Name of Bank Name of Branch (e.g. MOI AVENUE)

Bank code Cheque No/ Funds Transfer Reference Number

Amount of Payment

GPS (Please tick

If applicable)

F: WHERE PURCHASE IS FINANCED/GUARANTEED (Optional) – Attach financing/ guarantee letter

from bank

Tick if applicable

Bank Code

Name of Bank Name of Branch (e.g. MOI AVENUE)

Page 186 of 194

Account Number Name of branch

H: FULL MAILING ADDRESS AND CONTACT DETAILS FOR ALLAPPLICANTS:

P.O. Box Postal Code Street Address (If Applicable)

Telephone Number Mobile Number

City/town/country Email address

I: SIGNATURES:

Signature 1 Signature 2 Company

Seal

Date (DD / MM / YYYY)

J: FOR OFFICIAL USE ONLY:

Authorized Placement Agent Stamp Name of Agent representative

Signature

GENERAL INSTRUCTIONS ON COMPLETING THE APPLICATION FORM

This complete form should be forwarded to the Issuer’s Receiving Agent, via Authorized Placement Agents to

this Notes offer.

Part A Tick the appropriate investor pool whether Retail, Qualified Institutional Investor (QII), Corporate or

Other.Tick appropriate residence and citizenship status.

Part B Fill in the names as per the National ID/Passport Number. Trusts that have not been incorporated, a

partnership or a deceased’s estate cannot be used. Trustees of unincorporated trusts, individual partners or

executors may apply for Notes in their own name(s).

Part C Fill in the value of Notes being applied for.

Part D Please indicate your CDSC Account number to which the Notes allocated and fully paid for will be

credited.

G: REFUND / INTEREST PAYMENT AND PRINCIPAL REDEMPTION:

Electronic Fund Transfer Only

Name of Bank Bank Code

Page 187 of 194

Part E Please provide the details of the method of payment as requested. Banker’s cheques payments should

accompany this Application Form. Personal cheques will not be accepted. Kindly indicate the full bank

code as requested. The bank code is the 5 digit number found on the top right hand corner of your cheque,

just under the date field, and above the amount field.

Part F Where the purchase is financed, applicants must attach financing letter from the bank indicating the

financing bank and the Authorised Placement Agent; and the original attached to this Application Form.

For guaranteed applications, please attach letter of guarantee from the bank to the Application Form.

Part G For refunds (if any), interest payment and principal redemptions fill in your bank details i.e. name of bank,

branch, bank code and correct account number. Refunds will be payable only via Electronic Funds Transfer

(EFT). Any rejected EFTs will be defaulted to cheques and sent to Authorised Placement Agents for your

collection.

Part H Fill in your current mailing address, telephone number, mobile telephone number and e-mail address.

Part I QII applications must be signed by Authorised Signatories and the company seal appended in the space

provided. Applicants signing by thumbprint must have the thumbprint witnessed next to it, and the witness

should provide his/her full names and identification number in the space provided.

Part J This section is reserved for the official use of the Authorised Placement Agent and the Receiving Agent.

Part K This section is to be torn off and safely retained by the applicant after the Authorised Placement Agent has

date-stamped in the space provided.

Please note that Application Forms received by the Authorized Placement Agent after the Closing Date will

be rejected.

This completed form should be forwarded by fax, email or by hand to the Arrangers or Placing Agents at the

following address:


6th Floor, Equity Centre

Hospital Road

Upperhill.

P.O. Box 75104-00200

Nairobi, Kenya

Tel:+254 719 056 501

Attention: IrunguNyakera

E-mail:[email protected]

OR

Dyer & Blair Investment Bank Limited

10th Floor, Pension Towers

Loita Street

P.O. Box 45396-00100

Nairobi, Kenya

Tel:+254 20 3240104

Fax: +254 0 20 3240114

Attention: Paul M Nyaga

E-mail: [email protected]

Application lists will close at 5:00 pm on [5 June 2015]

All alterations on this form must be authenticated by full signature. All applications must be made without

any conditions stated by applicants.

Under no circumstances whatsoever may the name of the applicant be changed and it this is done then the

application form will be invalid.

Applications are made subject to the provisions of the Information Memorandum with which this form is

attached

Applications are irrevocable and may not be withdrawn or amended without the written consent of the

Issuer.

Individual applicants must be 18 years of age or older.



Page 188 of 194

1. Allotment procedure

The base of allotment will be determined by the Issuer and the Arranger and will be communicated by the

Issuer to the Capital Markets Authority.

The right is reserved to accept or reject any application in whole or in part.

2. Settlement , Payment of the purchase price for the notes may be made:

By bank transfer/remittance of the funds for credit of the Issuer’s account below: such application and

original transfer confirmation slip to reach the Authorized Placement Agent not later than 5:00 pm on 5

June 2015 for Retail Investors

By bank transfer/remittance of the funds for credit of the Issuer’s account below: not later than 3:00 pm on

15 June 2015 for Institutional Investors

Account Name Centum Investment Bond 2015

Bank Co-operative Bank Kenya Ltd

Branch Hilton

Account Number KES A/c 01150579192000

USD A/c 02150579192000

or

Account Name CENTUM INVESTMENT COMPANY

LIMITED BOND ACCOUNT

Bank K-Rep Bank Limited

Branch Kenyatta Avenue Branch

Account Number KES-01003020034472

USD-01003020034482

3. Title to the Notes

Title to the Notes will be evidenced by means of a book-entry in the CDSC Account of a Noteholder in

accordance with the CD Act.

4. General

Any acceptance of an application for the Notes shall be governed and constructed in accordance with the

Kenyan Law

APA Stamp & Date

This Acknowledgement Receipt is evidence of an application released to the selected Authorized Placement Agent. It should be kept secure and must be produced when making an enquiry regarding the application refunds via EFT. This receipt is NOT evidence of an application received by the Receiving Agent. Thank you for investing

in the Centum Investment Company Limited Notes Offer

Serial No.

(This is a perforated section that can be torn off) Part K – Application Acknowledgement Receipt – for applicant to retain