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Recent Topicals

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Sub-Saharan Africa (SSA) Eurobonds: 2018 Performance and Effects on Debt Sustainability

Jan 20, 2019

Africa has increased its appetite for foreign debt in recent times with the latest issues being by the Republic of Nigeria, which issued three debt instruments in November 2018. The increased affinity for foreign currency-denominated debt by African nations is driven by: Reduced financial aid to African countries by Western donor nations, The need to finance heavy infrastructure projects, Covering for budget deficits, and Financing of maturing debt obligations. This note analyses SSA’s Eurobond performance in the year 2018 with the aim of painting a picture of the investor confidence and risk tolerance, and an outlook on yield performance for the year 2019. The analysis will be broken down as follows: Background of Eurobonds in Sub Saharan Africa, Eurobond Performance in Sub-Saharan Africa, Debt Sustainability in Africa: Case Study of Mozambique Debt Crisis,...

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Real Estate Outlook

Jan 13, 2019

In 2018, the real estate sector recorded continued investment across all themes driven by; Political stability following the conclusion of the electioneering period in Q4’2017, hence increased activity across the sector, The continued positioning of Nairobi as a regional hub that has led to increased entry of multinationals creating demand for residential units, retail space, commercial offices and hospitality spaces, Kicking off of the affordable housing initiative as part of the Kenyan Government’s Big 4 Agenda, which has gained momentum with the launching of projects such as the Pangani Estate in Nairobi, and, An improving macroeconomic environment, with the country’s GDP growing by 6.0% in Q3’2018, higher than the 4.7% recorded in Q3’2017. In terms of performance, however, the sector recorded an average total return of 11.2% in 2018, 2.9% points declin...

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Private Equity Outlook

Jan 13, 2019

Summary of 2018 Private Equity Activity The year 2018 saw a slight slowdown in private equity (PE) activity across Sub-Saharan Africa, with the total value of reported African private equity deals in H1’2018 being USD 0.9 bn, a 10.0% drop from USD 1.0 bn reported in H1’2017. In regards to fund raising, the total value of African PE fundraising in H1’2018 was USD 2.1 bn. This is an improvement compared to the total value fundraising in H1’2017, which was reported at USD 2.0 bn. The slowdown was attributed to macroeconomic headwinds that hit two of Africa’s most developed PE markets, South Africa and Nigeria, coupled with a slump in oil prices, which negatively affected private investments. The table below highlights fundraising activity by sector in Africa;   2018 Private Equity Fundraising Activity by Secto...

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Equities Outlook

Jan 13, 2019

In 2018, the Kenyan equities market was on a downward trend, with NASI, NSE 25 and NSE 20 declining by 18.0%, 17.1% and 23.7%, respectively. Since the peak in February 2015, NASI and NSE 20 are down 20.9% and 48.4%, respectively. The only large cap gainer during the year was Barclays Bank, which gained 14.1%, while the largest losers were East Africa Breweries (EABL), Bamburi Cement, Diamond Trust Bank (DTB), NIC Group and Safaricom, which lost 26.6%, 26.4%, 18.5%, 17.6% and 17.0%, respectively. Following the sustained price declines, the market valuation declined to below its historical average with NASI P/E currently at 11.6x compared to the historical average of 13.4x. Equity turnover during the year rose by 2.3% to USD 1,723.8 mn from USD 1,684.4 mn in FY’2017. Foreign investors remained net sellers with a net outflow of USD 288.8 mn, a 146.6% increase compared to net outflows of USD 113.7 mn recorded in FY’2017. The foreign investor outflows during the year...

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Fixed Income Outlook

Jan 13, 2019

The government is currently 35.9% behind its domestic borrowing target, currently having borrowed Kshs 107.2 bn domestically, against the pro-rated target of Kshs 167.2 bn, going by the revised government domestic borrowing target of Kshs 299.8 bn as per the Budget Review and Outlook Paper (BROP) 2019. The result of this is expected average monthly borrowing of Kshs 129.8 bn in the 2nd half of the current fiscal year. We however do not expect this to lead to upward pressure on interest rates, with the increased demand on government securities, driven by improved liquidity, provided the government does not accumulate too much short term debt during the year, which would worsen the government’s debt maturity profile. Below is a summary of treasury bills and bonds maturities and the expected borrowings over the same period. The government will need to borrow Kshs 129.8 bn on average each month for the rest of the fiscal year in order to meet the revised domestic borrowing...

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