Centum Investments has incorporated two subsidiaries in Mauritius to be used as vehicles for penetrating new regions as the company powers on its geographical diversification strategy.
The listed investment firm will be asking shareholders to ratify the incorporation of Centum Development and Centum Exotics, both based in Mauritius, in the forthcoming annual general meeting.
Centum is diversifying its Sh14.5 billion portfolio both by exiting mature equity investments and spreading its funds in the region, with a target of having at least 50 per cent of its investment outside the country.
“When investing in other parts of Africa you need a good vehicle and Mauritius is a good domicile due to its numerous tax agreements with other countries,” said James Mworia, chief executive of Centum Investments.
Mr Mworia said 18 per cent of Centum’s current portfolio is held outside Kenya. The 300-acre land purchase in Uganda’s Garuga region, is the most notable. The company intends to develop real estate projects on the land.
Mauritius is increasingly becoming a preferred country of registry by investors seeking to do regional business on the continent owing to its numerous double tax treaties with other African countries— which reduces their tax burden.
The country has signed agreements with over 30 African countries.
Apart from the tax treaties, Mauritius corporate tax rate of 15 per cent is half that of Kenya and lower than most African countries’.
“The tax treaties make sure that investments are not taxed twice on the same income in both countries which is proper tax planning as it minimises tax exposure,” said Nikhail Hira a tax partner at Deloitte.
“A lot of multinationals tend to register subsidiaries in Mauritius to invest in African countries,” he added.
Centum Investment has been implementing its investment diversification by also introducing real estate and infrastructure in the portfolio following years of relying on equities of private and listed companies.
As per the company’s 2010 annual report, private equity business constituted 59 per cent of its portfolio while quoted equity assets were 41 per cent of its Sh9.3 billion portfolio.
Following the diversification strategy the private equity now accounts for 52 per cent of its portfolio, quoted equity represents 25 per cent and the real estate business has grown to 23 per cent of its asset value.
“The diversification is good as it spreads their risks and widens their scope of opportunity but it will depend on how they manage political and currency risk,” said George Bodo, an analyst with ApexAfrica Capital.
Rwanda, Ghana and Uganda are some of the countries identified as good investment destinations in Africa especially at such a time when most of them are involved in infrastructure development- an arm that Centum is seeking to grow.
Shareholders have agreed to forego dividend payments to year 2014 so as to have the amounts used for refinancing leading to capital gains expected as a result of the diversification.
Centum has exited two companies; Rift Valley Railways which was a private equity and Carbacid, a listed company and intends to further exit two more companies in the coming months.
Mr Mworia ruled out exit from UAP in an interview last week. Other investments include AON Insurance Brokers, KWAL Holdings, Longhorn Publishers, General Motors East Africa, Regional bottling franchise companies of Coca-Cola limited and equities of several blue-chip quoted companies.
The registration of subsidiary companies such as Runda Closeburn Limited and Pearl Marina Estate Limited is seen as creation of channels to attract project financiers.
“It is a balance sheet repair as you don’t want to transfer the risk wholly to the mother company and you don’t want to leverage wholly on the shareholders funds,” said Mr Bodo.
The company’s effort to enter the infrastructure market by bidding for construction of medium speed diesel plants in Athi River and Thika were not successful but the management said it was looking for new openings.
“They are looking at specific niches and are seeking to meet needs of those specific classes which do not have many players, if any,” said Eric Musau, an analyst with Standard Investment Bank.