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Morning brief: 17-October-2017

Hot off the press

  • Relief for KQ as Equity now accepts rescue plan
  • Foreign investors recoil from NSE on political temperature


Relief for KQ as Equity now accepts rescue plan
National carrier Kenya Airways’ climb out of the debt hole is expected to get a big boost this week when Equity Bank signs the deal to convert its KES 5B loan into shares. Equity Bank had initially opposed to the shares deal as other banks such as KCB, NBK and Co-op Bank had fairly balanced debt portfolios in form of letters of credit while Equity Bank didn’t and therefore argued that the arrangement would see it exit the transaction in a worse off deal than the other banks.  Read more (Source: Business Daily)
 
Our Take
Equity Bank has now agreed to accept the plan as the new deal states that the lenders that do not have the fully guaranteed letter of credits will be allowed to issue them on a prorated basis within KES 7.7B limit (total amount of letters of credit). The bank like all the other lenders has a choice to eventually sell the shares of the carrier on the stock exchange. There may be a lockout period in which the banks will have to hold on to the shares before disposing them, which will lengthen the time to recover funds.

Foreign investors recoil from NSE on political temperature
The participation of foreign investors in the Nairobi Securities Exchange (NSE) has remained stuck below the 60% since June thanks to growing jitters. The CMA put the level of participation at the NSE by the foreigners at 57.94% in June, 49.14% in July, 57.05% in August and 55.69% in September. Read more (Source: Business Daily)

Our Take
The low foreign participation in the third quarter is mainly attributed to the prolonged electioneering period. The top foreign net outflow list has been dominated by banking stocks led by Equity Group which has fallen from levels of KES 43.00 to KES 36.00 in 3Q17. Foreign outflow has suppressed the shares prices of banks due to high supply and low demand. Foreign equity outflow stood at KES 11.1B in 3Q17, which could also be as a result of foreigners booking profits. Going forward, we remain optimistic that foreign investments will rebound given that the repeat elections are held within the confines of the law.

Trading highlights

  • KCB moved 1.5M shares in an intraday range of KES 36.75 - 37.75 to lead banking sector volume. The lender closed trade at an unchanged price of KES 37.00.
  • Safaricom traded 951.3k shares in an intraday range of KES 24.50 - 25.25. The telco closed trade down 25 cents to KES 24.75.
  • Equity Group exchanged 943.1k shares in an intraday range of KES 35.75 - 37.00. The lender closed trade at an unmoved price of KES 36.00.

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