[2008-08-25]  Olympia gets it right down south
LISTED on the main board of the Nairobi Stock Exchange (NSE) is a little talked about company called Olympia Capital Holdings (OCH), which unknown to many is building an empire in Southern Africa. Its initial foray into Botswana in 2001 is turning out to be a corporate success story that has spawned at least three other subsidiary companies and investors leery of the penny stock have started to take notice.

Fast rewind to 1996 when local investors acquired Dunlop Kenya Limited, a public company that was 60% owned by the British multinational BTR Plc. What followed was a four-year lull until 2001 when the holding company announced that it was buying a tile-manufacturing factory in Botswana. The news did not excite the market with information filtering through that the company in question was a struggling outfit anyway and Olympia remained the nondescript outfit that it had been before the announcement.

But late last year, Olympia announced an impending acquisition of a South African company and investors rushed in for the company's shares. The excitement that followed pushed the share price from a low of Sh15 in August to a high of Sh40 in December, before easing back to stabilize at the current Sh20 range.

"It took a mad man from Kenya to buy a struggling company in Botswana but that has turned out to be OCH's turning point," says the Group chief executive Mr Michael Matu in an interview with FS last week.

When Matu got wind of the deal, he did not have the funds and the Botswana company's fortunes were shrinking by the day, but it did not take him a second to decide that he was going to enter into the deal.

"It took me a second to decide that I was going to buy the company but the negotiations took one year because I did not have the money and the company was struggling and no Batswana (Botswana citizen) was willing to buy it," reveals Matu, who is a son of the current Chairman of New KCC and a former member of parliament for Mathira Constituency Mr Matu Wamae.

After protracted negotiations, the Norwegian owners agreed to sell the company through a special arrangement called vendor financing in which the seller provided the loan that financed the transaction. The company was valued at $702,000 (about Sh49 million then) but OCH paid a cheque of Sh14 million only ($200,000), with the vendors providing a loan for the balance, which OCH was to repay in dollars at an interest rate of 5%.
Raising the Sh14 million was not easy though and it came at a cost to Mr Matu who had to sell OCH's stake at Mountain Lodges Limited and also borrow in Kenya.

Having secured a majority stake in the company, Matu set out to effect management changes that involved recruiting two Kenyans, one who was already based in Botswana. The changes brought almost instantaneous results that involved significant cost cutting and boosted productivity and in three years they had repaid the loan in full. Matu gleefully thanks his lucky stars for what he considers to have been a genius deal that would have cost him over Sh100 million had he decided to set up a company from scratch but which ended up costing less than half of that.

In 2005, just four years after the acquisition, Olympia Capital Corporation Botswana (the holding company for Kalahari Floor Tiles) offered 734,000 ordinary shares of Pula 0.01 each (Botswana currency equivalent to about Sh13 per pula) at an issue price of Pula 0.80 per share by way of an initial public offer at the Botswana Stock Exchange. The IPO that resulted in sale to the public of about 5.4% of the subsidiary's shares achieved a subscription of 173.28%.

Meanwhile, the Group chief executive who says that he just loves buying companies sniffed out another deal in South Africa in the name of Plush Properties Ltd, a producer of building finishing products. It was again a question of where to source the funds to buy the company but this time the subsidiary's reputation had grown and it was able to piece together a financing arrangement that resulted in an acquisition of 74 per cent of the South African outfit for an estimated sum of Sh190 million.

The company obtained a Sh70 million loan from Nedbank of South Africa, the minority shareholders chipped in about Sh30 million while the rest was raised through bridge financing by way of short-term loans.

With the market having shown its appetite for the Olympia Capital Botswana shares and with new opportunities emerging, the subsidiary floated some more shares in March this year by way of a rights issue. The short-term loans were converted into equity through the rights issue but OCH was unable to take up its rights and this resulted in a dilution of its shareholding in Olympia Botswana to a minority of 27%.

"Although the rights issue resulted in a dilution of shareholding for the Kenyan company, the value per share went up by 35% and therefore the Kenyan shareholders still benefited from the deal," says the Chief Executive.

Company chairman Dr Chris Obura informed Kenyan shareholders in his address at the company's annual meeting this year that a warehousing arrangement for their shares was made to enable them regain control of the Botswana company. This will be done through a rights issue which the shareholders have already approved and is only waiting Capital Markets Authority approval.

An estimated 30 million extra shares are to be floated to add to the 10 million shares that are already trading at the bourse. Going by Friday's share price of Sh21.75 per share, the company can potentially raise Sh652 million from the rights issue.

"We not only want to regain control of the Botswana subsidiary but we also want to make new investments in Kenya," says Matu.

Matu Wamae, Dr Chris Obura and Cooper Ltd who hold 37.99% of OCHL's shares through Dunlop Properties limited are the company's principal shareholders. Other notable shareholders are identified as Croxley Properties who hold 8.12%, Karen Enterprises holding 6.92% and the Rakesh Gadani family who own 4.24%. Big individual shareholders include Matu Wamae 1.79%, Subodh Gadani 1.78%, Jagden Kristians 1.65% and Prakash K Gadani 1.5%. The company has about 1,200 shareholders in its register.

Though the recent rapid expansion has been marked by some deft albeit lucky moves that many Kenyan chief executives would wish to emulate, Matu says that the world down south remains largely unexplored with more deals than available funds.

Among OCHL's subsidiaries and associates include Dunlop Industries Ltd, a manufacturer of vinylex floor tiles and adhesives, Avon Rubber Company Kenya Limited, a property company, Olympia Capital Corporation of Botswana, an investment holding company and Kalahari Floor Tiles Ltd Botswana. Others include Gaborone Enterprises Botswana, an investment company and the newest acquisition, Plush Products (pty) Ltd of South Africa.

The Group has a market capitalization of Sh350 million, which Matu vows is bound to multiply to over Sh2 billion in three years' time. The Group realized a consolidated turnover of Sh396.7 million last year and this is projected to rise to over Sh1 billion this year according to Dr Obura.

Profit before tax dropped to Sh26 million last year after factoring in the acquisition costs, down from Sh27 million realized in 2005. Matu is proud of his achievements so far and predicts that the future of the business is firmly hinged on the huge South African market. He is full of praise for the Batswana whom he describes as welcoming to foreigners.

The Botswana Government is fabulously rich from the numerous diamonds and coal deposits and spends much of the money in infrastructure and creating an enabling environment for business. With a small population estimated at only 1.2 million people and a stable economic environment, the country is fully self-reliant and is known to lend money to multinational organizations such as the World Bank, IMF and the European Union.

Matu challenges more Kenyans to venture down south where others are already established businessmen in their own rights and expatriates offering various technical services.
His success there has even earned him a visit from Kenyan High Commissioner to South Africa Ms Tabitha Seii whom he says was delighted that a Kenyan was buying a company there, quite contrary to what is the norm.



Source: Copyright©2008 Olympia Capital Holdings Limited