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Mauritius firms splurge Sh5bn on Kenyan companies in one year

Fidelity Bank along Nairobi's Kaunda Street. FILE PHOTO | SAMMY KIMATU
Fidelity Bank along Nairobi's Kaunda Street. FILE PHOTO | SAMMY KIMATU  

Mauritian firms have injected more than Sh5 billion into the economy through acquisitions and investments in Kenyan companies, indicating tightening economic links between Nairobi and the Indian Ocean Island country. 

The rush to Kenya by Mauritian firms is partly spurred by a double-taxation agreement signed two years ago.

Financial services group SBM Holdings’ intended acquisition of Fidelity Bank for an estimated at Sh2.7 billion is so far the single-biggest publicly announced deal.

Mauritian fund manager Axys acquired Kenyan stockbroker ApexAfrica Capital for Sh470 million last year, making it the highest priced takeover of a market intermediary in East Africa. Xterra Capital Advisors, a fund management firm domiciled in Mauritius, is in the process of raising cash to construct a high-end, mixed-use real estate in Nairobi at a cost of Sh1.4 billion.

Mauritius’ largest sugar miller Alteo Limited, through its subsidiary firm, Sucriere Des Mascareignes Limited (SML) acquired a 51 per cent stake in Kenya’s Transmara Sugar Company in a multi-million shilling deal that was, however, not made public.

Investment analysts say Mauritius firms are driven by the need for geographic diversification and the desire to tap into Kenya’s economic growth.

Diversify risks

“Mauritian companies are trying to diversify their risks and capture the growth in our economy plus there is a tax benefit given the double taxation treaty that is in place,” says financial analyst Vimal Parmar.
Axis took over ApexAfrica through its locally registered unit Mauritius Kenya Investment Holding.

The acquisition gave the Mauritian group an entry into the Kenyan stockbrokerage and fund management industry.

Mr Parmar believes the Mauritians are also keen to speed up growth of their companies by tapping the Kenyan firms as opposed to seeking organic growth in their more competitive economy.

Alteo became the second Mauritian company to invest in the Kenyan sugar industry following the purchase of a 25 per cent stake in Kwale International Sugar Company by Omnicane.

The sugar industry in Mauritius is highly efficient owing to competition-driven modern production technology whereas the Kenyan one is beleaguered by mismanagement.

Alteo Limited reported a profit of Sh273 million (96,411 million rupees) for the three months to September, noting that it expected better results in the second quarter following increased production capacity.

“Transmara Sugar Company Ltd (TSCL) in Kenya showed very encouraging performance as it was positively impacted by its recently enhanced production capacity and improved sugar prices. Results for the first quarter last year are not comparable as TSCL was consolidated as from 1st August 2015,” says Alteo in its latest financial statements. 

Xterra Capital Advisors was reported to have entered into a partnership with real-estate developer AMS Properties and property marketing firm Hass Consult to develop properties worth Sh9.7 billion in the East Africa region.

The partnership is also set to open the door for the development firms to be given preference shares in the fund management company.

“Mauritius has positioned itself as a gateway into Africa -they have executed the most double taxation treaties with African countries - and in particular for the Indian subcontinent.  What we are seeing is surely correlated to destination East Africa which is now top of investors’ radar,” said Aly-Khan Satchu the chief executive of Rich Management.

Tax benefits

For a Mauritian company to enjoy the tax benefit signed between the two countries it has to acquire more than 50 per cent of a Kenyan firm, so as to account for it as a subsidiary.

A subsidiary statement has to be consolidated in the group accounts where the benefit kicks in.

Waguthu Holdings (K) Limited — the company associated with the multi-billion shilling real estate project, Tatu City, is also owned by a parent company incorporated in Mauritius as MCIH.

Some of the Mauritius firms that have invested in the country have already started harvesting their investments.

Abland Diversified Holdings last year sold its 45.5 per cent stake in Buffalo Mall to South Africa’s JSE-listed property fund Delta Africa Property Holdings for Sh418 million.

Mauritius recently sold its 23.3 per cent holding in listed financial service company Britam. The Mauritian government had seized the stake from its disgraced tycoon citizen Dawood Rawat after accusing him of running a Ponzi scheme.

The stake was acquired by Plum Holdings, a company associated with Equity Bank chairman Peter Munga at an estimated Sh6.3 billion.

Essar Energy Overseas Ltd — which owned a 50 per cent share of Kenya Petroleum Refineries Ltd — was incorporated in Mauritius. The company sold its stake, which it held for six years, to the Kenyan government.

Kenyan investors have also registered firms in Mauritius in an effort to enjoy the tax benefits — in some cases eliciting calls for investigations of the double taxation agreements.

Tax Justice Network (TJN), a lobby group, has in the past argued that the agreements are robbing Kenya the ability to raise revenue domestically by expatriating profits.

Investment firm Centum incorporated Centum Development and Centum Exotics, both based in Mauritius, in what it said was a strategy to ease its penetration in more African markets.

The Flame Tree Group has trading subsidiaries in both the UAE and Mauritius that have friendly taxation rules on both profits and capital gains.
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