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The East African : June 23rd 2014
MONEY AND EQUITY MARKETS JUNE 21-27,2014 RISK OUTLOOK DAMPENED Kenya’s $2 billion Eurobond oversubscribed, insecurity hits shilling T≥easu≥y expected yields on the I≥eland-listed bond to ave≥age 7.5 to 8 pe≥ cent By PETERSON THIONG’O The EastAfrican last week following a terrorist attack in the coastal town of Mpeketoni in Lamu county, despite news that the country’s debut Eurobond was oversubscribed. The Kenyan shilling was trad- T ing at 87.7 against the dollar last week, from 87.4 two weeks ago, even as the country’s bond arrangers revealed that the $2 billion bond had attracted bids worth $8 billion — four times the targeted amount. Analysts said the Mpeketoni at- tack, in which 60 people were confirmed dead, overtook the news that the country had achieved full subscription at rates that were substantially lower than the government target. Treasury and analysts expected yields on the Ireland-listed bond to average about 7.5 to 8 per cent, but the bond, which came in two tranches of a five-year $500 million bond and a 10-year $1.5billion bond, attracted yields of 5.875 and 6.875 per cent respectively. Though Kenya scored better than expected, analysts say the country’s risk premium could be weakened in coming months by growing insecurity and worsening macroeconomic indicators. “We believe the country’s risk outlook will be dampened in the short-term based on the spate of terror attacks. Travel advisory statements issued by the UK, the US and Australia are an indication that Kenya could get the cold shoulder from international investors in the short term,” said an analyst at research firm Stralink International. Research firms said investors are taking a more forward-looking approach to the economy, discounting the current challenges. “Investors continue to look for yield, but are also able to look through the headlines to focus on the positive underlying credit stories of potential African issuers,” John Wright, an emerging-markets banker at Barclays, told the The National Treasury building in Nairobi. Picture: File Wall Street Journal last week. Reuters added its voice, say- ing, “Fund managers say Kenya has a positive growth and monetary policy outlook, making it an attractive investment proposition, despite the attacks that are hitting tourism.” There is optimism that the country’s wide choice of travel destinations, away from the Coast, could offer reprieve to the tourism industry. “This positive outlook reflects a more diversified Kenyan tourism industry, in which safari-oriented tour companies, like Safari Consultants, remain largely unaffected by the terror campaign,” said Patrick Malone , an analyst at Damina Advisors. The insecurity is expected to put more pressure on the country’s projected growth level; BUDGET SUPPORT Kenya’s $2 billion Eurobond, with five-year and 10-year tranches, will be used for budget support and repayment of a $600 million syndicated loan, the Cabinet Secretary for the Treasury Henry Rotich has said. The five-year tranche worth $500 million will have a 5.875 per cent interest rate, and the $1.5 billion 10-year tranche will have an interest rate of 6.875 per cent. The $2 billion will have a weighted average interest rate of 6.6 per cent. The offers is expected to close on June 24, Mr Rotich said. consulting firm Deloitte warned that a drop in tourism spending coupled with the unstable prices of tea, the country’s second largest earner, whose prices are hovering at seven-year lows, could put pressure on growth. “Two key $1 billion pillars of the economy, tourism and tea, are adding significant downside risks to the economy in 2014. The new post-Westgate security normal is an elevated one and further crimping GDP,” said Deloitte in their latest update on the Kenyan economy. Tea export earnings fell to Ksh94.6 billion ($1.1 billion) last year, from Ksh112 billion ($1.3 billion) and Ksh109.4 billion ($1.27 billion) in 2012 and 2011 respectively. The bond could also prove important in stimulating economic growth. The government will spend at least $1.5 billion of the monies to fund infrastructure projects (the rest will go towards retiring a $600 million commercial loan) in the road and energy sector, with this expenditure expected to raise demand for goods and services. Inadequate infrastructure is one of the challenges facing Kenya; it has denied the country maximum value from its primary products such as tea, coffee and horticulture as farmers cannot access markets due to bad roads and manufacturers cannot compete against imports due to expensive inputs such as power. “The presence of large produc- tivity gaps between the manufacturing and service sectors on the one hand and the agricultural sector on the other indicates that there is significant potential for growth. “However, fulfilling this po- tential requires increased diversification and a move from the production of primary products to value added products as outlined in the budget,” said consulting firm PwC. Most importantly, the Eu- robond is expected to lower government borrowing in the local debt market. he Kenyan shilling hit a twoweek low against the dollar Business watch East African Cables to set up new production factory Electrical and telecommunications wire manufacturer East African Cables will build a new factory on two acres for production of medium-voltage cables, as it seeks to compete favourably for a share of the East African market currently dominated by Asian manufacturers. The land, in Nairobi, was acquired recently for Ksh250 million ($2.8 million). Production is expected to start by 2016. The cables company is banking on the rising demand by regional power companies to expand operations to other parts of the region. Kenya, Rwanda, Burundi, Tanzania and Uganda have embarked on rural electrification projects. Diamond Trust allowed to raise $4 million in rights issue Diamond Trust Bank (DTB) Kenya has been given the nod by the Capital Markets Authority and Nairobi Securities Exchange to raise Ksh3.63 billion ($4.1 million) through a rights issue. The Bank’s shareholders had approved the issue at an extraordinary general meeting held in March. DTB plans to offer 22 million additional shares at a rights price of Ksh165 ($1.9) per share, a discounted price compared with Thursday’s trading price of Ksh264 ($3) per share. 57 Diamond Trust Bank chief executive officer Nasim Devji. Picture: File EY report says FDI into East Africa increased in 2013 Foreign direct investment into East African countries rose last year. According to a new report by EY titled Attractiveness Survey Africa 2014, Kenya led with a 40.1 per cent increase followed by Tanzania at 22.8 per cent. Rwanda and Uganda saw a 6.3 per cent and 20.1 per cent increase respectively. Tanzania private sector credit growth slows down The growth of credit to Tanzania’s private sector fell to 16.4 per cent in April, from 20.1 per cent registered in the same month last year, the latest Monthly Review Report from Bank of Tanzania shows. The slump is blamed on a narrowing lending base from commercial banks to the private sector and a slowdown in the growth of net foreign assets. The banks borrowed from abroad to finance the corporate sector and small and medium enterprises.
June 16th 2014
June 30th 2014