KMRC Debut Bond
Phase I of the bond seeks to raise KES 1.4B
๐ Welcome to the Baobab 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 the KMRC corporate bond and the Uganda oil deal.
Our newsletter this week is brought to you by:
Mwango Capital. Mwango Capital provides A+ quality analysis and research on the East African capital markets. Follow us on Twitter, join us on Telegram, check out our website. To sponsor our weekly newsletter, memes, or Twitter Spaces, reach us at hello@mwangocapital.com.
First off, our weekly business news in memes brought to you by Share Hub:
๐ฐKMRC Issues Debut Corporate Bond
Another one! The Kenya Mortgage Refinance Company (KMRC) is set to issue the first tranche of its KES 10.5B, medium-term (7yrs) corporate bond. The amount on offer in Phase I of the bond is KES 1.4B. Phase II and III will be offered in 2023 and 2024, targeting KES 2.6B and KES 6.5B, respectively.ย
Four points: We asked NTV business journalist Julians Amboko to share with us what stands out for him on the issuance, and these are the 4 things he noted:
Trade-offs: This issuance will be an interesting case study of how the market trades-off lack of a track record with the de-risking element, whether perceived or actual, that state shareholding backed by bucketloads of multilateral financing offers investors. The government holds a 25% stake in KMRC and both the World Bank and AfDB have extended credit to KMRC. For KMRC, going to market is effectively part and parcel of the track record building given the nature of its mandate.
Timing is everything: The issuance of the first tranche coincides with the government floating a 19-year infrastructure bond seeking to raise KES 75B, which introduces an interesting dynamic. Granted, the market has in the recent past shown just how awash with the liquidity it is, but competing with the dual sweet spot of a tax-free and risk-free issuance cannot be trifled with.
Amortization: ย KMRC will undertake principal repayment every year starting March 2023 through February 2029 and is therefore opting to amortize the principal over time as opposed to a bullet payment upon maturity. This seems like an attempt at providing a liquidity sweetener to investors. The big question is whether 12.5% in yield and the liquidity benefit will trump the allure of a tax-free and risk-free parallel 19-year instrument being floated by the government.
More issuances: Happy to see yet another issuer come to market, devoid of a guarantee. I hope the subscription is another vote of confidence and shrugs off any lingering hangover of the rough patch navigated not too far back.
For more on this issuance, read the information memorandum and the pricing supplement.ย Julians also did an interview with the KMRC CEO which can be accessed here.
๐ข๏ธ Ugandan Oil Deal
Striking oil:ย This week, TotalEnergies and its partners Cnooc and Uganda National Oil Company reached a final investment decision worth over USD 10B to produce Ugandaโs oil discoveries. They plan to bring crude from fields near Lake Albert to a Tanzanian seaport.
The project will cover the development of oil fields, processing facilities and a pipeline network in Uganda, plus an export pipeline through Tanzania to carry landlocked Uganda's crude to a port on the Indian Ocean. The viability of the project was established in 2006 by Tullow Oil who later sold its stake in the fields. Issues to do with taxation and the path of the pipeline are some of the key causes of the delay.
Uganda looking to Tanzania: Bloomberg reported that In a bid to diversify fuel supply routes, Uganda is looking at instituting tax rebates for imports of fuel through Tanzania. Most of its fuel imports are hauled through Kenya. Uganda has been facing a fuel crisis which has been partly blamed on overreliance on road transport and the key route via the Kenyan border. Protests by Kenyan long-distance truck drivers against Uganda border restrictions related to COVID-19 have also contributed to fuel woes in UG [Bloomberg Tax].
๐ข๏ธ Kenyan Supplementary Budget
More borrowing: The Treasury this week released the 2021/22 supplementary budget with an increase in gross total estimates by around KES 126.3B.
The supplementary budget is underpinned by the following key assumptions:
Notably:
Kenya Airways will receive KES 20B to support its operations. [This week, we also learnt that KQ has selected Kenya Seabury Consulting as an advisor to help evaluate options to restructure its debt load of ~KES 92.5B as of December 2020].
Higher learning institutions including the University of Nairobi, Kenyatta, and Moi Universities will also get an additional KES 8.5B to streamline operations as they face liquidity challenges.
What Else Happened This Week?
๐ Eveready Not Ready: In a notice to shareholders, NSE listed firm Eveready said it wants more time to publish audited financial statements for the period ended 30th Sep 2021. The company, whose financial year ends in 30th September, was due to report by 31st January. The notice was issued on 1st February, a day after the end of this period.
โ๏ธ Mining Updates: Base Resources, which does mining in Kwale via its subsidiary Base Titanium, provided a quarterly operational, development, and corporate update for the quarter ended 31st December 2021 as seen below. Significantly, Base Titanium made USD 18.8M in royalty payments to the Kenyan government โcomprising the necessary catch-up payments to the June 2021 quarter and payment of the September quarter royalty at the agreed increased rateโ.
โ๏ธ Going Green: Cement manufacture, Bamburi Cement, signed a Power Purchase Agreement with MOMNAI Energy to set up two solar plants adjacent to the companyโs Mombasa Plant and Nairobi Grinding Plant that will provide 40% of the total Bamburi power supply (14.5MW in Mombasa and 5MW in Nairobi). For Bamburi, this will cut its energy bills by 10% or KES 600M annually. The move is part of a broader shift to solar energy among companies in Kenya,ย away fromย Kenya Power.
๐๏ธ Inflation Update: The CBK reported that inflation in January moderated to 5.4% compared to December 2021โs 5.7%.
Elsewhere, Crown Paints to increase its product prices by 8% starting April as costs incurred in the shipment of raw materials rise.
โWe are increasing the cost of our products due to the sharp rise in shipping and production costs although you cannot pass the entire increase in costs to consumers. In Kenya, this was supposed to be a rise of eight percent from January but we will do it in Aprilโย - CEO Rakesh Rao
๐ฆ Strong earnings performance: A Central Bank survey showed that bank profit before tax hit a record KES 178.8B in eleven months to November 2021, setting them up for record profits for the year. Note that banks in Kenya report earnings from early next month.
๐ค๐พ Unga Group Plc has received regulatory approval to set up two animal feed Joint Ventures in East Africa with Dutch MNC Nutreco International - one in Kenya (Unga FARM Care[EA] Limited) and the other in Uganda (Unga Millers [U] Limited).ย Both ventures will be named Tunga Nutrition.
โUnga Group possesses great expertise in the East African region, and we are delighted to join forces as we look to meet the growing demand for high-quality protein thereโ - Pieter Bastiaanssen, Managing Director Middle East & Africa at Nutreco.
๐ฑ Airtel Africa and Vodacom Tanzania report: Airtel Africa posted a strong Q3 2022 performance for the period ended 31st December 2021. More details here and here.
In Tanzania, Vodacom Tanzaniaโs M-Pesa transaction values in quarter ended 31st Dec 2021 declined by a whooping 24.8% as the new levies took effect. The Tanzanian government had last year implemented a new levy on all mobile money transactions which increased fees by between USD 0.0043 and USD 4 depending on the amount sent and withdrawn.
๐ M&A: I&M Bank is set to complete the buyout of the Uganda Bank at amounts north of KES 4B, giving the Kenyan lender access to KES 18.2B deposits, 14 branches, 22 ATMs, 70K customers, and additional loans worth KES 7.7B. Orientโs share of the market is 2.5%.
African Markets
In East Africa:
Equity Markets: The sentiments were fairly positive on East African Markets with the Nairobi securities exchange all share index registering a 3.7% increase, ALSI The Ugandan all share index registered a 9.6% increase, while DSEI the Tanzanian all share index registered a -5.96% decrease in the week ended 4th February. Top performers on the NSE East Africaโs largest market by listing and market cap were as follows:
Bonds:
Kenya raised KES 25.8B (USD 228.4M) in its weekly T-Bill auction having received KES 27.8B (USD 245.6M). Switching gears, the secondary market recorded a 15.7% Week-on-Week dip in activity to KES 10.6Bn (USD 93.0M). Most of the activity was on the โ41 (FXD1/2021/20) that was re-opened a fortnight ago, which accounted for 38% of the weekโs traded bond value and IFBs, which accounted for 37% of the activity. The weekโs announcement of IFB24 (IFB1/2022/19) saw investors posturing ahead of the upcoming auction.
Tanzania recorded TZS 54.0B (USD 23.4M) in the weekโs secondary market activity; representing a 25.7% Week-on-Week dip. Most of the activity centered on the front end, that is โ24s (451/7) that accounted for 65% of the activity.
Uganda rebounded in the week, with trades through Thursday jumping by 58% to UGX 721.1B (USD 206.0Mn). The T-Bond to T-Bill split of the traded value was 89:11, respectively.
Across African Equities:
Zimbabwe Stock Exchange had the highest return 15.8%, on a YTD basis. The bourse also had the most gains on a MoM basis as per the NSE Monthly Bulletin - Jan 2022.
Charts of the Week:
๐ฑ Facebook lost more than $200B in market value in a single day this week, making it one of the biggest one-day drops in market history.
๐ต Currency: Uganda shilling doing well vs the dollar:
If you enjoyed our newsletter, share it with friends: