Debt Sustainability: Kenyan equities market on a downward trend

The government has once again postponed the launch of the much awaited 5-year mobile-phone based bond, named M-Akiba bond. The product aims to encourage individuals to purchase government securities for as little as Kshs 3,000 up to a maximum of Kshs 140,000 daily through the system.

The government has cited high transaction charges that will range between 2.0% and 3.0% as the major challenge, which could significantly erode investors’ expected earnings. The government had already postponed the launch in October 2015, citing volatile interest rates. If implemented it will be a cheaper way for the government to fund its budget as highlighted by Cytonn Weekly.

The Central Bank Weekly report revealed that the interbank rate remained stable at 6.1% similar to the rate registered the previous week, on account of improved liquidity conditions in the money market attributable to increased government payments. As highlighted in Cytonn Weekly Report #28 the interbank rate is often determined by the liquidity distributions within the banking sector as opposed to the net liquidity position in the interbank market.

The Kenyan Shilling remained relatively stable against the dollar, closing the week at Kshs 102.0, from Kshs 101.9 the previous week on account of increased demand from oil importers. On a YTD basis, the shilling has appreciated by 0.3% against the dollar. In recent weeks, we have seen the months of import cover decline to below the 1-year average of 4.9 months, and is currently at 4.8 months, similar to the previous week.

Sustainability summary

Fixed Income: During the week, T-bills were oversubscribed with overall subscription remaining relatively the same at 106.4% compared to 105.5% recorded the previous week. The yields on the 91 and the 182 day T-bills were unchanged at 8.4% and 10.5%, while the 364 day increased to 11.1% from 10.9% the previous week. The National Treasury is set to reduce its capital expenditure budget by 25.8% for the fiscal year 2016/2017;

Equities: During the week, the Kenyan equities market was on a downward trend with NASI, NSE 20 and NSE 25 losing by 3.1%, 2.7% and 2.8%, respectively. The Central Bank of Kenya (CBK), issued a circular to all commercial banks requiring them to hold capital that is consistent with their risk profile and business strategy;

Private Equity: Financial services and technology sectors continue to witness increased private equity activity in Kenya as Equator Capital Partners converted their debt of Kshs 600.0 mn in Jamii Bora Bank for a 15.0% equity stake at a valuation of 1.3x price to book, which is cheaper than the recent acquisition of Fidelity Bank by SBM Holdings, which was at 1.6x price to book, while Toyota Tusho acquired a 9.5% equity stake in Seven Seas Technology for Kshs 300.0m;

Real Estate: The opening of a mixed-use development in Rwanda, Kigali Heights, highlights the investment opportunity in Sub-Saharan Africa; Players in the hospitality industry remain bullish on performance through opening of hotels and serviced apartments in various parts of the country.



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