Another Loan for Kenya!

Kenya gets $2.34B loan that comes with strict conditions

Welcome to the Baobab Weekly where we bring you a succinct summary of key business news from East Africa. This week is all about the IMF loan that has made Kenyans awaken to the fact that their country is in deep debt.

Another One!

The International Monetary Fund(IMF) has approved a $2.34billion loan to Kenya. The debt facility will be disbursed in tranches; $308million immediately, $724million disbursed in June and the balance to be disbursed subject to reviews.

However, the IMF has set some tough conditions for Kenya in this loan agreement among them a commitment to reforming some state-owned enterprises. Kenya Airways, Kenya Railways Corporation, Kenya Power, Kenya Ports Authority, KenGen, and Kenya Airports Authority have all been targeted for structural reforms owing to their fiscal risks. Kenya’s National Treasury has been tasked with preparing financial evaluation for the top SOEs representing the largest fiscal risks and also prepare strategies for addressing financial pressures in the SOE sector.

Kenya’s public debt stood at Kshs. 7.3billion as of January 2021:

Even More Debt for Kenya

The International Monetary disclosed that Kenya plans to borrow $12.4billion from foreign sources by June 2022 as follows:

• $7.3B Eurobonds 

• $4.8B in concessionary borrowing

• $282M semi-concessional loans

Kenya’s Treasury Cabinet Secretary Ukur Yatani has also indicated Kenya is preparing for a $750million loan from the World Bank. Kenya’s debt has grown in leaps and bounds since the President took power in 2013, multiplying 4 times since:

Source: Nation Media Group

Shrinking Private Sector Activity

The private sector activity in Kenya fell to a 9-month low in March as the Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) fell to 50.6 from 50.9 in February. The 50.0 mark is what separates growth from contraction. The report from Stanbic showed that businesses were experiencing cash flow problems linked to the COVID-19 pandemic as households limited spending to essential items only. We see this persisting for the coming few months given the slow progress of the vaccine.

Source: Stanbic Kenya

Securities Chief Pushes for New Listings

Appearing in the latest episode of Business Redefined, the Nairobi Securities Exchange CEO Geoffrey Odundo said they are pushing for fresh listings in a bid to cut reliance on expensive debt to plug Kenya’s budget deficit. He has proposed the following to Kenya’s parliament:

Sales

• -10% of Safaricom at Ksh. 150B

• -10% of Kenya Commercial Bank at Ksh. 15B

• -40% of KenGen at Ksh. 12B

IPOs:

• -40% of Kenya Airports Authority at Ksh. 400B

• -Kenya Ports Authority at Ksh. 33.9B

• -Kenya Pipeline Company at Ksh. 43B

Notably, there is an overlap between this list and the list the IMF highlighted of companies in need of reform.

“Listing of companies and selling more stake is a clear intervention to  internally raise money and reduce the debt, you can even use some of the money to offset the expensive debt”

NSE CEO Geoffrey Odundo

Strong Appetite for Infrastructure Bond

Kenya’s Treasury has cashed in on its 18-Year Infrastructure Bond Issue dated 12th April 2021 getting a 47.6% oversubscription. This gives an indication of the high level of liquidity in the market.

• Amount Offered: Ksh. 60billion

• Bids Received: Ksh. 88.6billion (147.63% performance)

• Kenya Government Uptake: 81.9billion

• Coupon Rate: 12.67% (tax free)

“The IFB was oversubscribed as predicted due to its tax free status and capital flight by risk averse investors from the Nairobi Securities Exchange (NSE), with the Central Bank of Kenya (CBK) accepting more than issued to bridge its growing fiscal deficit amid declining revenues,”

• Sterling Capital Investment Bank

The 91, 182 & 364 days Treasury Bills issue dated 12 April 2021 were however undersubscribed. 

Other noteworthy items:

• The UK suspends flights to Kenya. This comes after Kenya was added to the country’s travel red-list. The US also issues travel advisory against Kenya citing Covid-19 infections.

• Kenya is projected by the IMF to grow at 7.1% in 2021.

  

• Kenya’s Capital Markets Authority has extended Kenya Airways shares’ suspension from trading for another nine months. The airline awaits a proposed nationalization plan.

• The Kenyan Capital Markets Tribunal is yet to start hearing the case in which a minority shareholder has petitioned to stop the buyout of BOC Kenya by Carbacid Investments. The deal was to have closed on April 6th.

• Airtel Kenya launches 5G following the footsteps of Safaricom who became the first company in the region to launch the network.

• Kenya’s electricity producer, KenGen revealed that it earned Ksh. 440 million from the ongoing geothermal drilling project in Ethiopia. The company won a 5.2billion contract to drill geothermal wells in Ethiopia. 

• The new president of Tanzania is making the country more investor-friendly asking for resolution of disputes with its neighbors and with investors.

• Across the borders, Naspers, a South African company, revealed plans to sell 2% of its stake in Tencent at a valuation of around $14.7 billion. Naspers bought 45.6% of Tencent in 2001, paying $32 million in the process.