The world’s largest asset manager BlackRock has announced the closure of iShares Frontier, a Ksh51.2 billion Exchange-traded fund (ETF) that invests in select emerging markets equities including Safaricom and KCB.
In a memo dated June 7, the asset manager noted that the move was informed by a tough macroeconomic environment that forced it to downsize.
Additionally, the company said that the weakening of local currencies like the naira and foreign investors fleeing from local bourses made the business unsustainable.
“The Board of Directors of the Company approved a proposal to liquidate the fund. In light of persistent liquidity challenges in certain frontier markets, including among other things, delays or limits on repatriation of local currency
“The board determined that it is in the best interest of the fund and its shareholder for the fund to liquidate,” iShares said in a statement.
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Next Move After Liquidation Announcement
Following the announcement, the fund will enter an extended liquidation period during which iShares will sell its assets in all markets and hold the proceeds in cash and cash equivalents.
“During the extended liquidation period, the Fund will not be managed in accordance with its investment objective and policies, as the Fund will sell down its assets, as determined by BlackRock Fund Advisors, where possible and hold the proceeds of such sales in cash and cash equivalents.
“It is expected that the Fund will hold a substantial majority of its assets in cash and cash equivalents during the extended liquidation period,” added the statement.
Moreover, after market close no earlier than August 12, 2024, but on a date as soon as practicable, the fund will cease trading and the creation and redemption of creation units.
Further, the statement noted that the extended liquidation process may detract from the Fund’s performance.
Trading in the Fund will be halted prior to market open on the day after the Last Trading Date which is expected to be March 31, 2025.
“The Company cannot assure that there will be a trading market for Fund shares between market close on the Last Trading Date and the Liquidation Date because Fund shares will not be traded on the primary listing exchange for the Fund, the NYSE Arca Inc. during that period,” warned the Fund.
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Shares in Safaricom and KCB
The Fund has been investing in frontier and select emerging markets, including Bahrain, Bangladesh, Colombia, Egypt, Estonia, Jordan, Kazakhstan, Kenya, Lithuania, Morocco, Nigeria, Oman, Pakistan, Peru, the Philippines, Romania, Sri Lanka, and Vietnam.
BlackRock’s iShares has already liquidated its holdings in companies listed on the Nairobi Securities Exchange (NSE). The fund had a Ksh665.6 million ($5.2 million) investment in Kenya.
The investments included Ksh358.4 million ($2.8 million) Safaricom, Ksh192 million ($1.5 million) investment in Equity Group and Ksh113.28 million ($885,000) in KCB Group.
Earlier in the year, Central Bank of Kenya (CBK) Governor Kamau Thugge announced that he had met representatives from the American multinational with $9.1 trillion assets under management after they picked Kenya among 10 economies, they had selected to invest in.
Additionally, he noted that the investment led to an upward trajectory in the NSE.
“The other day I met BlackRock Asset Managers. They came to my office and wanted to know how the economy was doing and said they had kept away from Africa for the last four years but now they had identified 10 countries globally where they think they can start investing,”
“Blackrock actually made an investment into the equities and if you are keen and have been looking at what’s happening in the stock market, you can actually start to see it has been going up,” he said.
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