Rich firms in Kenya

Kenyan companies are sitting on a growing pile of cash that analysts see as a mixed sign of current financial health and a show of intentions to enter the big ticket takeover deals market.

Research by the Business Daily shows that the non-bank listed companies held more than Sh76 billion in cash as at end of last year up from Sh58.6 billion the previous year – a 29 per cent increase.
The amount is sufficient to finance the current year’s national security budget, making it the largest amount of money ever that corporate Kenya has kept in the banks.

Most of the companies whose cash holdings grew steadily in the past three years have cited a lack of acquisition opportunities as part of the reason that has also seen them pay out billions to shareholders.

While some analysts see the build-up of cash as a sign of diminishing investment opportunities in the market place, others maintain that it is a healthy sign that they are on the lookout for big investment or buyout deals that investors should be positive about.

“The only sensible reason for companies to hold cash is they are looking to be acquisitive,” said Aly-Khan Satchu, an independent analyst, adding that companies that do not have a good reason to hold cash should come under pressure from shareholders to return it.

Last year, the Kenyan market witnessed a number of big ticket acquisitions that are expected to continue this year, driven by cash rich corporations buying smaller businesses to grow their bottom-line.

READ: Big ticket deals earn Kenyan lawyers global recognition

Kenya’s private equity managers have cited competition from the big corporations as their greatest challenges in the deal market.

“Most corporations acquire small and medium-sized businesses in areas that support their operations because that helps them to reduce financial and operational costs,” a principal investment officer at a Kenya-based private equity firm says in a recent report.

Telecommunications giant Safaricom, national carrier Kenya Airways, cement maker Bamburi, insurer Jubilee and reinsurer Kenya-Re top the list of the cash-rich companies listed at the Nairobi bourse.

Safaricom early this week reported that it closed its financial year in March with a cash pile of Sh17.3 billion, which analysts said is a clear pointer to the seriousness of its recent bid to buy assets of the exiting rival Essar Limited, which operates Yu Mobile.

The deal has, however, been dampened by Communications Authority of Kenya, the industry regulator, which has set tough conditions for the acquisition.

“They may be waiting for opportunities to invest. Safaricom had set Sh4 billion aside for 4G rollout if they get the frequency, but they have so far been unable to launch even though they have cash,” said Standard Investment Bank’s Eric Musau.

Companies generally rely on internal innovation to grow their product lines, but are often forced to acquire smaller but nimble rivals to speed up the pace.

In the global arena, American technology giants Facebook and Apple, which have in the past been accused of sitting on large cash piles, have gone into an acquisition drive targeting known, but smaller technology operators such as WhatsApp and Dr Dre’s Beats Electronics respectively.