Centum Sells Sidian Stake
Centum and Access Bank reach agreement on Sidian stake
๐ Welcome to The Mwango Weekly by Mwango Capital, a newsletter that brings you a succinct summary of key capital markets and business news items from East Africa.This week, we cover Centumโs Sidian Bank sale, the dollar shortage, and Kenyaโs debt situation.First off, enjoy our weekly business news in memes brought to you by DTB Kenya:
Access to Acquire Stake
83.4% Stake: Centum has entered into a binding agreement with Access Bank to sell its entire 83.4% stake in Sidian Bank for a consideration of KES 4.3B.
โThe proceeds from the sale will enable Centum to continue investing across strategic sectors in Kenya and the East African region. We are particularly pleased to be exiting Sidian at a price which represents a 59% premium to the book value and confirms the deep discount embedded in the valuation of the assets in our book.โ
Centum CEO, Dr. James Mworia
Merger: Access Bank plans to merge Sidian Bank with its Kenyan subsidiary. Here is how the numbers stack up for the two banks according to the latest disclosures.
The combined firm will create a potent Tier 2 bank in Kenya with a combined asset base of KES 57.4B:
โThe proposed combination with Access Bank Kenya would undoubtedly catapult us to a strong Tier 2 bank contender in the Kenyan market with enhanced capacity to play a more impactful role in the growth of the Kenyan economy and deliver increased profitability to our shareholders.โ
Access Bank CEO, Roosevelt Ogbonna
The Journey: Centum's entry was through an acquisition of a 1.66% minority stake in 2004 in the then K-rep Microfinance Bank. Centum has over time built the stake through additional acquisitions, reaching 74% ownership in the run-up to the 2016 rebranding to Sidian Bank. At the time of the transaction announcement, Centum's stake was 83.4%. Centum is exiting the investment at KES 4.3B against a KES 4.7B entry. The transaction is expected to close within the next 90-120 days pending regulatory approvals.
Dollar Shortage Bites
Impact: Pwani Oil temporarily shut down production this week due to a dollar shortage that has barred the firm from importing raw materials. With coverage from its bankers standing at half of its foreign exchange requirements, the firm is now turning to its local customers seeking dollar payments. Later in the week, Kapa Oil also cited dollar shortages and supply challenges in the crude palm oil market occasioned by restrictions in the trade of the commodity by major producer Indonesia as factors behind the recent downscaling of its operations.
"At the moment, based on the inflows from banks, we are only able to source between $500,000 and $1 million a day against a requirement of $2 million to $2.5 million a day. So we are only getting half of what we need, sometimes even less than half. [...]. We are not even running the plant right now because of a lack of raw materials. What is in the market is what we had produced months earlier."
Pโโwani Oil Director for Commercial Development, Rajul Malde
CBKโs Position: In the midst of calls for the regulator to intervene in the situation, CBK has reiterated that the market is well-supplied with dollars and that available provisions meet market demand. This does not augur with the position of market players regarding dollar supply.
"There is a bifurcation in the market. The quoted rate is different from what manufacturers are getting dollars at. As long as that tension remains, the problem will continue."
CGTN Africa Business Journalist, Ramah Nyang
Treasury Weighs In: In a meeting with manufacturers this week, Treasury PS pointed out that the dollar shortage had been artificially created by manufacturers stockpiling hard currency operating on the premise that there will be a looming FX shortage. The Treasury has also defended CBK's position that there is an adequate dollar supply in the market.
โSometimes it's just sentiment that causes a problem and thatโs what I told manufacturers yesterday. If they work on the premise that there's a shortage of dollars and start accumulating hard currency more than they require, that creates an artificial shortage which doesnโt reflect the reality on the ground.โ
National Treasury PS, Dr. Julius Muia
KEPSA - CBK Meeting: Earlier last week, KEPSA noted that the dollar shortage was crippling the operations of some of its members. The Kenya Association of Travel Agents also said it was having problems getting dollars for ticket payments. In a meeting that brought the Governor of CBK and KEPSA CEO on Friday last week, the regulator committed to meeting banks to ensure market players have equal access to forex.
Take-Away: The dollar crunch will inevitably lead to high consumer and producer prices. Inflation is already at multi-year highs and the production dislocations occasioned by the crunch could exacerbate the problem.
Rising Yields and Debt
Spooked Market: Earlier last week, Presidential hopeful Raila Odinga said he would restructure Kenya's debt if he won the August 8 elections which sent the yields of Kenyan bonds sky high.
โYields on KENINT 2024 rose the most last week, by + 353bps, to close at a jaw-dropping 14.255%. A potential restructuring that involves haircuts (either on the principal, interest, or both) will have a dire impact on this particular paper. One, it is the closest Kenya Eurobond to mature, in about 2 yearsโ time, and secondly, tops the amount outstanding on Kenya Eurobond papers ($2Bn). That said, the price for KENINT 2048 tumbled the most in the week, shedding 10.5%. This is a clear fixed income rule of thumb at play here: duration (the longer the bond maturity, the higher the bond price sensitivity to changes in the yield). The 2024 paper now trades at 69 cents to the dollar (101.687 cents to the dollar at the start of the year).
IC Group Economist, Churchill Ogutu
Syndicated Loan: In light of tightening conditions in the global capital markets, the National Treasury has opted for a syndicated bank loan over Eurobond financing. Finance costs have been rising internationally as Central Banks hike rates to tame rising inflation occasioned by supply shocks and geopolitical upheaval. This has raised borrowing costs across the board.
"In our funding for this financial year, we factored in borrowing from the international market, the Eurobond. But we realized as a result of challenges in Russia and Ukraine, the cost of borrowing has gone really high. Last year we borrowed at 6%, right now it stands over 12% and this is no longer feasible. That is why we are still exploring options to look at a number of banks that can advance us the money at a cheaper rate, a figure more or less than a figure of last year, an average of 6%."
โโNational Treasury CS, Ukur Yatani
Debt Ceiling Raised: Parliament approved an increase to the debt ceiling by 11% to KES 10T, up from KES 9T. The ceiling is to allow for more borrowing to plug a budget deficit of KES 846B in the 2022/23 financial year. In Oct 2019, lawmakers raised the ceiling to KES 9T from KES 6T. Total public debt has grown by over KES 2.3T over that period according to CBK numbers. With the current public fiscal situation, it remains to be seen how long the KES 10T limit holds.
Kenya Debt Markets: Out of KES 76.3BB in received bids for the KES 75B IFB1/2022/018 Infrastructure Bond auction, CBK accepted KES 73.7B at an average interest rate of 13.742%. The subscription performance stood at 101%. In the T-bills market, interest rates for the 91-day, 182-day, and 364-day instruments came in at 7.866%, 9.037%, and 9.952%.
Banking Roundup
KCB - English-Point Marina Take Over: A judge has issued an injunction against KCBโs recent seizure of the real estate firm over a KES 5B debt pending determination of ongoing proceedings. The owners also face a KES 1B liability each over their personal guarantees in the acquisition of the KES 4.8B loan.
KRA vs KCB: A High Court has dismissed opposition by KCB to a KES 305M tax claim regarding premiums used to secure risks associated with unsecured loans. The judge ruled that the lender was not eligible for an exemption given its status as a non-insurance company - well outside the exemptionโs ambit.
HF Group Capital Breaches: Housing Finance was in breach of various yardsticks in loan covenants with three institutions: Shelter Afrique, East African Development Bank, and the Arab Bank for Economic Development in Africa. Further, at 40%, HF exceeded the extent to which it can lend its core capital to a single borrower, which is 25%.
What Else Happened This Week
๐ฆ Britamโs Provisions: According to disclosures in the insurerโs 2021 annual report, the firm provisioned KES 2B to absorb potential losses on its subsidiary Britam Wealth Management Fund LLP. This brings the total provisioning in the unit to KES 7.2B after a KES 5.2B provision in 2020. [Mwango Capital]
โฝ Running Out of Gas?: In the coming fiscal year, the Kenyan fuel subsidy has been allocated KES 5B compared to KES 31.7B expended in the current financial year. With rising oil prices, estimates show the subsidy could run out by the first quarter of 2022/23. [Business Daily]
๐ค๏ธ Kisumu Logistics Revamped: National carrier Kenya Airways is in plans to launch additional cargo flights to Kisumu. Kenya Railways has also restructured its KSM - NBO offering from day travel to night travel at a cost of KES 2,000/=. [Mwango Capital]
๐ PMI Falls in May: Stanbic's Purchasing Managers' Index for May came in at 48.2 compared to 49.5 in April as customer demand remained subdued while operating costs increased on inflationary pressures. [Mwango Capital]
๐ Ethiopiaโs Inflation: Inflation reached 37.2% in May. This, coupled with a hard currency shortage, has led to an increase in the use of cryptocurrencies. The Birr has plunged 26% from the onset of May against the Dollar. The National Bank of Ethiopia last week said it does not recognize Bitcoin as a transactional method. [Bloomberg]
๐ข๏ธ Tzโs Natural Oil Dreams: Tanzania is getting closer to realizing its aim of establishing a $40 billion liquefied natural gas project after the first agreements were signed by the government and firms such as Equinor ASA and Shell Plc. [Bloomberg]
Interest Rates Watch
Tanzania: Monetary authorities in Tanzania have held the basic interest rate constant on continued satisfactory outcomes of the implementation of the prevailing monetary policy. The National Bank of Tanzania also instituted new regulations that will allow bilateral investment in government securities between Tanzania, EAC, and SADC.
Chart of the Week
