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The East African : Oct 20th 2014
52 OCTOBER 18-24,2014 BUSINESS, MARKETS AND FINANCIAL ANALYSIS THE MARKET WHISPERER EQUITY MARKETS (WEEKLY CHANGE IN BENCHMARK INDEX) NSE 20 Share Index Kenya 5,279.88 -0.01% (CUMULATIVE MOVEMENT) DSE All Share Index Tanzania 2,701.82 0.77% USE All Share Index Uganda 1,832.00 0.44% RSE All Share Index Rwanda 138.48 -2.15% JSE All Share Index South Africa 47,746.76 0.80% NGSE All Share Index Nigeria 38,375.08 -5.12% KenGen tu≥ns to sha≥eholde≥s to ≥aise $350m K enGen will turn to its shareholders for Ksh30 billion ($350 million) early next year after backing out of a proposed bond issue for now. The money, to be raised through the sale of new shares to existing owners — in a rights issue — in the first quarter of 2015 will finance generation of another 600 Megawatts of new geothermal power that is expected to come onstream from 2016. “We have not advanced on the plan to issue an asset-backed bond because we want to streamline our balance sheet first through a rights issue,” said KenGen managing director Albert Mugo. He said the bond would be issued in the medium term as the company actualises plans to double its power generating capacity to 3,000MW in the next four years. “We are talking with the government because as the majority shareholder, we want to know how it wants to take up its rights. We expect to have an announcement by November. The rights issue will be in the for speeding generation capacity because it is cheaper and sustainable. It only costs 7US cents per kilowatt hour compared with diesel generation that costs 22US cents,” said Mr Mugo. KenGen, the anchor pow- The 140MW Olkaria 4 geothermal power plant in Kenya. Kengen wants to finance the generation of 600MW of geothermal power in 2016. Picture: Suleiman Mbatiah first quarter of 2015,” Mr Mugo added. The Kenya government owns 70 per cent of KenGen; the rest is owned by the public through the Nairobi Securities Exchange. On Friday, KenGen com- missioned a 140MW geothermal power plant at Ol Karia and another unit of similar capacity is sched- uled for launch in December. The two are part of government plans to add 5,000MW — about three times the existing national capacity — to the national grid by 2018. It is projected that this will reduce power costs to less than a half of the current $0.18 per kilowatt hour. “Geothermal is our choice er generator for the government, is preparing to enter into partnership with the private sector to accelerate the generation. The partners will be picked through open international bidding in the hope of avoiding integrity issues raised over previous geothermal contracts. “We have already sent out bids for a transaction adviser on public private partnerships. We shall set up a special purpose vehicle to be involved in the PPPs. We shall be starting with the Olkaria VI project,” said Mr Mugo. KenGen could still end up being the first company in Kenya to issue an asset-backed bond with the budget for capacity expansion projected to be $5 billion. The initial plans were that the 20-year bond would be repaid using cash generated from the geothermal plants being constructed. The steam already drilled was to be used as collateral for the offer. Asset Backed Securities Regulations 2007 allow companies to transfer an asset that has clear cash flows to a separate institution, in which case this separate entity then issues a bond. The initial plans were that the 20year bond would be repaid using cash generated from the geothermal plants being constructed In addition to geother- mal, the money raised through the rights issue would be used to develop 60-70MW in Karura area between Kindaruma and Kiambere, the heart of the county’s hydro-generation in Embu County. KenGen has put on hold planned investments in solar energy but is expected to add an additional 20MW of wind from the Ngong Wind Project by December this year. T≥easu≥y seeks small save≥s to end bank domination THE KENYA Treasury is courting ordinary savers to help it bring down the interest rate it pays on government securities. An ongoing campaign on se- lected radio stations is sensitising the public to the benefits of investing in risk-free papers such as the 12-year infrastructure bond, which is offering an interest rate of 11 per cent. Although the main goal is to raise money for social and physical amenities, it has the underly- ing aim of easing the stranglehold commercial banks usually have in determining the interest rates paid on Treasury bills and bonds. It has always been suspected but never proven that commercial banks collude when bidding for public debt, keeping the borrowing costs high. More retail investors taking up the debt would help the Central Bank, which manages the auction on behalf of the government, to accept only the less costly bids. This would in turn support the government’s highly ambitious goal of bringing effective lending rates into single digits. This is because the Treasury bill rate became a component of determining the base lending rate — the Kenya Bank Reference Rate — in July. When the decision was made to place KBRR at 9.13 per cent, the T-bill rate was slightly above 11 per cent; pulling up the rate at which CBR lends to banks — 8.5 per cent. Falling T-bill rates would help pull KBRR down, bringing overall lending rates closer to the political target. This, however, is not being helped by intense competition for deposits with some banks and Saccos announcing in the past week competitive interest rates of between 9 and 11 per cent. Still, broadening competition for government debt could deny banks a traditional source of income, pushing them to lend more to the private sector. Published at Nation Centre, Kimathi Street, and Printed at Mombasa Road, Nairobi by Nation Media Group, Box 49010, GPO Nairobi, 00100. Registered at the GPO as a newspaper. Nairobi Office, Tel: 3288000, 211448, 337710, Fax 214531, 213936. Dar es Salaam Office. Tel: 2119657/8. Kampala Office, Tel: 232771, 232772. Fax 232781 Download free QR Readers from the web and scan this QR (Quick Response) code with your smart phone for pictures, videos and more stories AfDB app≥oves $40m loan fo≥ integ≥ation THE AFRICAN Development Bank (AfDB) has approved a $40 million loan for projects that foster integration in the East African Community. Manufacturing, tourism, ag- riculture, transport, education and health are the target sectors but member countries are allowed to pick projects in other areas. Credit administration The line of credit will be ad- ministered through the East African Development Bank (EADB). “EADB is now in the third ‘growth’ phase of its strategic plan, which aims to increase support to projects in East Africa requiring external funding resources,” said EADB directorgeneral Vivienne Yeda. The line of credit has a 10- year tenure, helping governments address the dearth of long term project finance in the region.
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