Executive Summary

• The Central Bank targets to raise Kshs 25 billion in two bond issues a 2year and 10 year
  
• Kenya?s real estate sector gets new housing price index that will be released on a quarterly basis
  
• Kenya continues to lead its East African peers in charming Private Equity investors 
  
• CMC holdings officially delisted from the NSE following acquisition by United Arab Emirates conglomerate, the Al Futtaim Group
  
• Equity bank becomes the third Kenyan company to list at the Rwanda Stock Exchange

Fixed Income Update

Interest rates were relatively stable in the week with all the treasury bills being oversubscribed but with minimal changes in the yields. 

Kenya?s Central bank is set to auction a new 2-year and re-opened 10-year Treasury Bonds worth up to Kshs 25 billion valued dated 23rd February 2015. This auction follows a successful issue of a five-year re-open and a new 20-year bonds last month which amounted to Kshs 20 billion. Most of this borrowing will be directed towards the rollover of the maturities coming in this month.

The Shilling gained marginally last week compared to the previous week as the Central bank actively managed the liquidity in the banking sector by mopping up about Kshs 31 billion in excess liquidity from the money market. 

Equity Market Update

The Kenyan equities market ended the week on a positive note with the NASI having closed at a record high of 171.94. This reflects an impressive weekly gain of 2.2% compared to last week?s 1.4%. Counters in the cement industry were on an upward trend amidst news of impending mega infrastructure projects in the country. East African Portland Cement led with a weekly gain of 10% closing at a high of Kshs 70 on Friday. The NSE officially delisted CMC Holdings from its bourse effective from 11th of this month following the company?s 91% acquisition by United Arab Emirates conglomerate, the Al Futtaim Group mid last year. CMC had earlier on been stopped from trading at the Kenyan bourse following claims of fraud and bad governance amidst a boardroom battle. Kenya re benefited from the government reinstatement of compulsory cession of all local insurance companies reinsurance to it and also that was increased from 18% to 20%.

In other news, Equity Bank made entry into the Rwandan stock market after it this week cross listed at the Rwandan Stock Exchange, joining KCB and Nation Media Group which are also listed at the Exchange. This is partly seen as a strategy to increase its awareness in the region, as well as an avenue for the bank to raise additional capital.

Globally, major U.S. and European equity indices rallied to multiyear record highs amid optimism of a possible bailout for Ukraine and Greece as well as a possible ceasefire in the fighting between Ukrainian government forces and pro - Russian rebels. The MSCI Asia Pacific Index gained 0.6% to close at 142.16.The Stoxx Europe 600 Index closed at 374.83, its highest since December 2007, while the Nasdaq Composite Index climbed to a 15-year high of 4,857.61. The S&P 500 went up 1.60% from its closing 2055.48 last week. Further changes are expected as investors continue to react to the happenings in Ukraine and Greece, as well as Sweden, where the Riksbank cut its repo rate to -0.1% in a move aimed at countering the current too low inflation.

Real Estate Update

According to media reports phase one of the KES 23 billion mixed-use project Garden City has now been completed and is expected to open in May. Garden city is East and Central Africa?s second largest development, after Centum?s Two Rivers, with Nakumatt supermarket and South-African based Game as its anchor tenants. The developer is liaising with the Nairobi County Government to improve the road access other than the Kasarani Underpass that is already crowded by the Thika Road Mall customers.

London is currently facing a severe real estate crisis with the population at an all-time high of 8.6 million people. According to Office of National Statistics, house prices are increasing by almost 20% annually making London?s property market to about the same as Brazil?s annual Economic Output. On the flip side mortgage rates are at an all- time low as a mortgage-lending war rages between the banks. Mortgage costs for a typical house have gone down by £1,700 in just one month and borrowers can now lock into a 2.89% rate for ten years.

Private Equity Update

Kenya is spearheading its East African peers in attracting Private Equity funding according to a Deloitte report. Out of every 26 deals recorded in the East African region, Kenya attracts 12, many of which are in SME?s, agribusiness, financial sector and healthcare.

US based Apollo Global Management LLC?s fourth-quarter profits fell a whopping 79% spearheaded by dropping oil prices devastating its holdings and reducing exits. Apollo has stakes worth of $5 billion in energy debt and equity including a 46% stake in EP energy that saw its stock tumble by 40% in the quarter.

Silvio Berlusconi?s family holding, Fininvest has made a placement of its 7.8% stake in Mediaset, a private broadcaster. The motive behind the placement is to fund diversification of assets. The shares are going for Euro 4.06 to 4.262 and closed at Euros 4.262.

According to a Reuters report, activity in Canada?s Private equity and Venture capital spiked up in 2014 with private equity three times more than 2013 and venture capital funding up by 21%. The deals were largely in a booming tech start-up sector and huge investments in oil and gas companies. US fast food chain Burger King?s $12.64 billion takeover of Tim Horton had a large role to play in boosting Private Equity investment growth.

Key Focus of the Week

Kenya?s housing and real estate sector got a huge boost with the launch of the Housing Price Index (HPI) by the Kenya Bankers Association. This positive news comes at a time when the sector is grappling with scanty data and statistics despite the fact that it has witnessed significant growth over the years and is bound to grow even more with the devolved system of government being implemented. 

The HPI will provide market players and policy makers with an improved analytical tool that will facilitate tracking of the housing sector based on locational, qualitative and quantitative characteristics that influence pricing. The HPI will be computed using the hedonic pricing model that estimates the price of a house from the imputed prices of the house characteristics. This means the value of houses are estimated by looking at the main features such as number of rooms and floors, age of house, location, presence or absence of garage, swimming pools, fire place and backyard. The HPI will cover houses put on sale in the market across the country but with more weighting on houses in Nairobi and its environs.

We feel that the HPI, which will be released on a quarterly basis, is destined to be a vital tool in the housing and real estate sector. Given the computation of the index, firms like Cytonn will be able to identify the different supply and demand trends in the real estate sector. In addition, the complexity and ambiguity in valuing real estate is bound to diminish given that reference will be a scientifically generated index. The HPI will also facilitate better market research by reducing the information asymmetry that currently exists in the sector, as data will be obtained from numerous sources across the country. Furthermore, demographic changes in the population and shifts in tastes and preferences will be easy to monitor by analyzing the index. The individual homebuyer will also benefit from the index as they can easily track housing price inflation for comparability purposes. 

In all, the HPI brings some reprieve to real estate developers and potential home buyers by providing a central point of information, putting into focus the holistic features of the real estate sector for accurate and reasonable pricing. Clearly, this is bound to boost investor confidence in the real estate and housing sector, which has been marred by pricing confusion.