Rising Yields!
The yields on Kenyan bonds hit new highs
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 Kenya's debt financing headache, the rising bond yields, and Telkom's network expanson.Our newsletter this week is brought to you by DTB Kenya.
First off, enjoy our weekly business news in memes brought to you by EABX Group:
Debt Financing Headache
Kenya seeks IMF Waivers: Ahead of a review on the disbursement of a KES 28B ($244M) credit facility from the IMF under the $2.34B loan program approved in April 2021, Kenya was seen seeking waivers after failing to meet set conditions including a central payroll system, reform of State-Owned Enterprises, and changes to procurement processes.
โThe third review of Kenyaโs EFF/ECF arrangements is progressing well and a meeting of the IMF board to complete the review is expected in mid-July.โ
A lifeline: The Bretton Woods Institutions have become the key funding lifelines for Kenya as commercial loans get unattractive due to high borrowing costs in international debt markets. After the failed Eurobond issuance, Kenya is pursuing a syndicated loan to help finance its FY 2022/23 budget. The shift from commercial lending to IMF and World Bank financing brings to focus the ongoing review of the KES 28B IMF funding line.
โPossibly, there is a need to revisit our prior model in terms of looking for concessional loans from multilateral partners as it has happened before. Of course, it comes with significantly more engagement with these partners in terms of economic policy.โ
ICEA Lion CEO, Einstein Kihanda
To the moon! Meanwhile, the yields on Kenyan bonds are hitting new highs. IC Asset Managers Economist, Churchill Ogutu had a few notes to share on this:ย
Kenya Eurobonds (KENINTs) declined an average of 8.6% over the course of last week. The front end, KENINT 2024, declined by 5.8% week-on-week whereas KENINT 2034 declined by 11.4% week-on-week. The performance of the 2024 bonds has been overplayed for the better part of the week, as the yield crossed past the 20.0% mark, closing the week at 21.36%. For every dollar of investment, it will cost you 78 cents to buy KENINT 2024. As a rule of thumb, if the bond's yield (21.36%) is greater than the coupon (6.875%), it follows that the bond price is at a discount.
Looking at comparable 10-year (2032 maturities) for select African names, a number struggled in the week. Whereas Kenya's 2032 fell 9.2% week-on-week, Ghana's and Egypt's fell by 13.0% and 11.2%, respectively. Nigeria's 2032 performed relatively better, sliding by 7.9%. This is not to console, but the current global environment is masking the Emerging Market names that have, hitherto, been swimming naked.
T-bills: In the short-term debt market, the average accepted interest rates for 91-day, 182-day, and 364-day gilts came in at 8.248%, 9.305%, and 9.986% respectively. While the 364-day instrument had the highest yield, most investors piled in the 91-day issue which recorded a performance rate of 329.78%.
Take-away:
The inflation print for June 2022 came in at 7.9% while the interest rate regime is at 7.5%. Market participants are anticipating a rate hike in the next CBK MPC meeting which is putting upward pressure on short-term interest rates.
If there is a hike in the benchmark interest rate, there will be adjustments to the cost of borrowing for the government and the private sector. To lock in higher inflation-adjusted returns, banks would be willing to lend to the government more to the chagrin of the private sector.
Ghana Budget Awaits IMF Review: After ditching the Eurobond markets and a syndicated financing plan on tightening financing conditions in the market, Ghana has postponed the tabling of its mid-year budget until initial meetings with the IMF are completed. The West African nation of 31M people is seeking at least $1.5B from the IMF to shore up its finances.
Telkom Expands Network
Lipa Na Mpesa Interoperability: In a step further in deepening Kenyaโs mobile money landscape, Airtel and Telkom users can now make payments to merchants using Safaricomโs Paybill and Buy Goods Till Number. The next phase will see M-Pesa users make payments directly to Till and Paybill Numbers of Airtel Money and T-Kash.
"Today's launch of Pay Bill interoperability between M-PESA, Airtel Money, and T-Kash, follows that of 'Send Money' and Till interoperability. This innovation extends even more convenience to customers and businesses, transforming M-PESA into a one-stop solution to send and receive money and payments from any financial service locally, and our global partners."
Safaricom CEO, Peter Ndegwa
Network Expansion: Last week, the telco completed the Coast and Lower Eastern phase of its countrywide Mobile 4G/LTE Network expansion covering 9 counties. Telkom plans to add 2,000 4G sites to its 4G/LTE Network by 2023 at an estimated cost of $1M.
โThis is a very exciting milestone for Telkom. We firmly believe that Mobile Data is a fundamental human right and it has now emerged as a daily necessity. We remain committed to better position our infrastructure asset base and services to drive digital transformation within our various Customer segments thus providing them with more value, as well as bridge the digital divide through the expansion of our Mobile Data Network.โ
Telkom Kenya CEO, Mugo Kibati
Safaricom to Increase Prices: Kenyaโs largest firm by market capitalization has announced a new price regime for its mobile phones and SIM Cards. The telco has revised the prices of the products upwards by at least KES 50 and 10% respectively in light of excise and import tax adjustments by Kenya and EAC authorities. Safaricom closed 12.5% higher week-on-week as the stock pares this yearโs losses at the Nairobi bourse.
Finance Roundup
NCBA Sues: Kenyaโs fourth largest bank by assets last week sued Hillcrest and Gems schools for defaulting on a KES 1.36B loan which has since accumulated to KES 1.65B. In court documents, the lender has said the proprietors of the international school have not been meeting the terms of the loan. The KES 1.65B outstanding is equivalent to 13.75% of its FY 21 net non-performing loans.
Limuru Tea Rejuvenates: Limuru Tea closed Friday trading 31.25% higher week-on-week basis at KES 420, up from KES 320 in the previous week. In tandem, its market capitalization was up by more than 30% to KES 1.01B. The stockโs appreciation is on the back of a takeover offer of minority shareholders by US private equity firm, CVC Capital Partners, after acquiring Unileverโs 52% interest in the tea firm.
KQ Reviews Leases: In a cost-cutting drive, the national carrier is set to ink a deal with 12 lessors to change the lease terms on its aircraft fleet to hourly rates from fixed rates. In the 2021 fiscal year, lease payments were up 69.3% to KES 14.8B. The airline has also cut its passenger capacity by 22% on flights to Schipol, Amsterdam, on staffing challenges in Europe amidst a busy summer season.
Centum FY 22 Results: The investment firm is set to release its 2022 full-year results on July 26. In FY 21, it returned a loss of KES 1.36B (FY 20 profit: KES 4.6B). Centum is currently at least 30% YTD at the NSE. Its real estate arm, Centum RE, earlier in the month issued a profit warning on the results of the year ended March 2021, expecting net earnings to be at least 25% lower than its KES 650M FY 21 earnings. Centum CEO, James Mworia, has said Centum REโs reduced profitability will not materially impact consolidated group earnings for the year ended March 31.
ICEAโs AAA Rating: Global Credit Rating, a South African rating firm, has upgraded ICEA Lion Life Assurance to AAA on the back of a solid financial profile of its parent ICEA Lion Holdings. The rating firm has cited strong capitalization and above-average earnings in the upgrade.
What Else Happened This Week
โฝ Steady Pump Prices: In the pump price review last week by the Energy and Petroleum Regulatory Authority, pump prices remained unchanged for Petrol, Diesel, and Kerosene at KES 159.12, KES 140, and KES 127.94 respectively. The additional subsidy for this cycle is KES 16.675B, bringing the gross subsidy to KES 101.852B.
โ๏ธ Solar Power PPAs?: In proposed legislation to ensure cost rationalization in power sales to KPLC, the Energy Ministry is pushing for entities producing more than 1MW of solar power to sign Purchasing Power Agreements with the utility. In 2021, the installed capacity of solar was up 228.57% to 172.5MW. In the 6 months to December 2021, KPLC registered KES 3.8B in net income compared to KES 138M a year earlier.
๐ฐ Nairobi Water Bills Up: In proposed changes to the Sewerage Tariff Structure for 2022/23 to 2024/2025, the Nairobi Water and Sewerage Company is planning to review the cost of water upwards. The move will add pressure to the Nairobi consumers who are already grappling with 7.9% inflation. Notably, the Housing, Water, Electricity, Gas, and Other Fuels Index component in the CPI is 6.8% up year-over-year.
๐ DRC Officially Joins EAC: Last week, the Central African country of 89M people was formally admitted to the East African Community after it deposited its instruments of ratification with the regional bodyโs Secretary General. The move brings together 300M people and KES 29T cumulative GDP.
Interest Rates Watch
๐ฟ๐ฆ South Africa: The Monetary Policy Committee of the Reserve Bank of South Africa is expected to hike its key interest rate in its sitting this week on rising inflation that has breached the central bankโs target. Inflation currently stands at 6.5% and the key interest rate is at 4.75%.ย
๐ธ๐ฟ Swaziland: Monetary authorities in Eswatini are set to review the implementation of monetary policy on July 22. Inflation in the Kingdom is at 4.0% and the key interest rate is 4.5%.ย
Charts of the Week
