Government Faces Sh960 Billion Domestic Debt Maturities Challenge
The Kenyan government is gearing up to tackle a significant financial challenge in the form of domestic debt maturities totaling Sh960 billion in the remaining months of the current fiscal year. This looming financial hurdle has put pressure on the government's efforts to ease its local borrowing demands and control rising interest rates.
Typically, the government manages maturing debt by issuing new Treasury bills and bonds, effectively offsetting the impact on its budget. However, when faced with substantial maturities, investors tend to demand a premium to reinvest their funds, adding to the government's financial burden.
Analysis conducted by NCBA Capital has revealed that, on average, the government will need to roll over approximately Sh96 billion per month between September 2023 and June 2024. Additionally, the Treasury will need to secure an average of Sh34.6 billion in new borrowing each month to meet its net borrowing target of Sh415.3 billion for the fiscal year.
In September, the government faces maturities of T-bills and bonds amounting to Sh119 billion, slightly decreasing to Sh118 billion in October. Notably, the Treasury recently revised its domestic borrowing target downwards from the initial Sh586.5 billion set in the June budget to the current Sh415.3 billion, as outlined in the draft 2023 Budget Review and Outlook Paper published just last week. Earlier suggestions from the Central Bank of Kenya had proposed an even more substantial reduction in borrowing, down to Sh386 billion. However, an upward revision of the recurrent budget has necessitated a modification of this reduction plan, adding complexity to the government's debt management efforts
BANKING
Banks Cut Lending as Defaults Increase to Sh586 Billion
In a significant development for Kenya's banking sector, commercial banks have reported a contraction in their loan book for the first time in 20 months. This contraction is a direct consequence of a surge in loan defaults, which soared to a staggering Sh586.2 billion by the end of July. According to data from the Central Bank of Kenya (CBK), the gross loan book decreased from Sh3.98 trillion in June to Sh3.975 trillion in July, marking the first month-on-month decline since December 2021.
One of the key factors contributing to this decline in lending activity is the ongoing rise in default rates, which has put significant pressure on the country's banking institutions. The situation has led to a scenario where repayments are surpassing the issuance of new loans. This trend has raised concerns within the banking sector, which is now focusing more on government securities, such as T-bonds and T-bills, due to the attractive yields they offer.
Private sector credit growth has also witnessed a decline for the third consecutive month, dropping to 10.3 percent in July. This represents the slowest growth rate in 17 months, with the last comparable figure being 9.2 percent in February 2022. The slowdown in private sector credit growth suggests that businesses and individuals are facing tighter credit conditions, potentially impacting economic activity.
CAPITAL MARKETS
1. ElevateHR Africa Seeks Sh40 Million in Crowdfunding for Expansion
Cloud-based human resource management company, ElevateHR Africa, is making waves in the Kenyan tech scene as it embarks on a crowdfunding campaign to raise up to Sh40 million in a bid to accelerate its growth. This move comes after the firm successfully secured $100,000 (Sh14.8 million in current exchange rates) in funding from local venture capital firm Here Ventures in July of last year.
Crowdfunding, an unconventional financing method in Kenya, involves raising capital from a multitude of small-scale investors who contribute relatively modest amounts. While this practice is still emerging in Kenya, it is widely adopted in advanced economies like the United States and various European nations.
ElevateHR Africa's statement revealed that local investors will have the opportunity to invest a minimum of Sh200,000, offering a lucrative 14 percent annual interest rate compounded on the principal amount. Mark Karake, the firm's Chairman and Founder, outlined their objectives for the funds, stating, "We aim to bolster our customer base, recruit key personnel, and intensify our sales and marketing efforts as we strive for triple-digit customer growth."
This move by ElevateHR Africa signifies a remarkable shift in the Kenyan startup ecosystem, as more companies explore alternative funding models to accelerate their expansion and innovation efforts in the tech-driven market.
2. AA Kenya Granted Regulatory Approval for Sh229 Million Restricted Capital Raise
The Automobile Association of Kenya (AA Kenya) has secured the green light from the Capital Markets Authority (CMA) to embark on a restricted offer aimed at raising a substantial Sh229 million in new capital. This strategic move, approved by the regulatory body, signifies that the fundraising initiative will exclusively target existing shareholders and employees, thereby excluding the wider public from participation.
Insiders within AA Kenya have characterized this capital raise as a pivotal trial run, intended to pave the way for more extensive public fundraising endeavors in the future. The recent approval marks the second instance of a restricted offer being sanctioned by the CMA in less than a week. Notably, last week, the CMA endorsed the issuance of Kenya's inaugural Sukuk by Linzi Finco Trust, which is set to raise a noteworthy Sh3 billion.
AA Kenya, renowned for its comprehensive offerings encompassing roadside assistance, vehicle-related guidance, and advisory services, received the CMA's regulatory nod on Wednesday afternoon, with an official announcement subsequently communicated to shareholders on Thursday morning. Among the array of services provided by AA Kenya are motor vehicle valuation, negotiation of insurance premiums, and the establishment of petrol depots.
African Development Bank Bans Joycot General Contractors Over Sh3.64 Billion Sewer Project Fraud
The African Development Bank (AfDB) has taken decisive action against Joycot General Contractors, a local construction firm, by imposing a 15-month ban due to fraudulent activities related to the Sh3.64 billion upgrade of a crucial sewer line in Nairobi. This development has cast a spotlight on Kenyan entities ensnared in the ongoing anti-corruption efforts of the AfDB.
In an official statement released on September 25, 2023, the AfDB announced the 15-month debarment of Joycot General Contractors Ltd, effective from September 8, 2023. The bank revealed that the local firm had engaged in fraudulent practices during the tendering process for the construction of reticulation sewers in Kahawa West and Kahawa Sukari, integral components of the Nairobi Rivers Basin Rehabilitation and Restoration project.
The ambitious project, which commenced in November 2018, aimed to enhance access to wastewater services and ensure their sustainability for the residents of Nairobi. It involved the construction of a vast network of 440 kilometers of underground pipes, intended to provide sewer services to approximately one million city residents. However, concerns have arisen about potential delays in project completion due to slow progress.
Furthermore, the ban imposed by the AfDB has significant ramifications for Joycot General Contractors, as it qualifies for cross-debarment by other development banks under the Agreement for Mutual Enforcement of Debarment Decisions. This underscores the severe financial consequences faced by the construction firm as a result of its fraudulent activities in the high-profile sewer project.
COMMODITIES
Record Bonus Payout of Sh44.15 Billion Awaited by Kenyan Smallholder Tea Farmers
In a much-awaited development for Kenya's smallholder tea farmers, a record-breaking final payout of Sh44.15 billion is on the horizon. This payout, commonly referred to as a bonus, is slated to be disbursed by the Kenya Tea Development Agency (Holdings) Limited (KTDA) to an estimated 600,000 farmers affiliated with its 54 factories. The release of these funds is scheduled to commence next week and will span over two weeks, starting on Monday. Notably, this bonus payout will accompany payments for the green leaf supplied by the farmers this month.
The imminent bonus payout represents a significant financial boost for these smallholder tea farmers, propelling their total earnings for the year to an unprecedented high of Sh67.7 billion. This figure marks a 7.6 percent increase from the previous year's earnings, which stood at Sh62.89 billion during the same period. A key factor contributing to this remarkable growth in farmers' earnings is the improved tea prices in the international market. The average selling price of tea surged to Sh341 per kilogram, up from the previous Sh311 per kilogram. As a result, tea farmers can anticipate earning an average of Sh59.02 for every kilogram of green leaf sold, showcasing a remarkable 17.6 percent surge in their average total earnings per kilogram compared to the previous year's figure of Sh50.18.
This windfall for Kenyan smallholder tea farmers is poised to provide substantial economic relief and underscores the resilience and potential of the nation's tea industry in the face of global market dynamics.
WHAT YOU MIGHT HAVE MISSED
Kenyan Government Seeks Local Production of Synthetic Fabrics to Reduce Imports
In a bid to lessen its dependency on imported synthetic fabrics and bolster its textile and apparel sector, the Kenyan government is actively exploring partnerships with private companies for domestic manufacturing. Currently, textile firms in the country rely heavily on imports, predominantly from East Asian nations, due to the absence of local textile mills capable of producing synthetic fabrics at the requisite quantity and quality levels, particularly for export markets. The Ministry of Investments, Trade, and Industry has initiated the process by inviting interested manufacturers to participate in the production of synthetic fabrics. Unlike organic fabrics, which are crafted from natural materials like cotton, wool, silk, and linen, synthetic fabrics are derived from petrochemicals. In a statement, the ministry acknowledged previous endeavors, both public and private, to boost cotton cultivation in the country.
The Confederation of African Football (CAF) revealed that Kenya, Uganda, and Tanzania have been granted the esteemed privilege of hosting the 2027 Africa Cup of Nations (Afcon)
The successful bid, dubbed "Pamoja" by East Africa, was declared the winner during a momentous gathering of the CAF Executive Committee in Cairo, Egypt. CAF President Patrice Motsepe, who presided over the momentous announcement, expressed his optimism for the future of African football, declaring, "The future of African football has never been brighter, and in the near future, one of our nations will win the World Cup."
In related developments, Morocco secured the hosting rights for the 2025 edition of the Africa Cup of Nations, following the withdrawal of bids by Nigeria and Algeria. While details of the winning bid for the 2027 Afcon are emerging, it has been reported that Kenya highlighted enhancements to the Moi International Sports Centre in Kasarani and Nyayo Stadium in Nairobi, with the Kipchoge Keino Stadium in Eldoret as a third option, situated just over 300 kilometers from the capital. Uganda, on the other hand, is said to have presented Namboole Stadium as a key component of their bid.
NCBA Group and ICEA Lion Group move to consolidate the ownership of their insurance and property businesses
The recent strategic moves made by the NCBA Group and ICEA Lion Group to consolidate their ownership in the insurance and property sectors have signaled a significant expansion phase for the Philip Ndegwa family's extensive business empire, valued in the billions of Kenyan shillings. NCBA Group, where the Ndegwa family already holds a substantial stake of 14.94 percent, unveiled its intentions last week to acquire an additional 66.67 percent ownership in AIG Kenya Insurance Company Limited, a subsidiary of an American multinational corporation.
Simultaneously, ICEA Lion Asset Management Limited, a company predominantly owned by the Ndegwa family, is in the process of purchasing shares from retail investors in the ILAM Fahari I-Reit property fund, marking a deal valued at Sh402.4 million. These strategic acquisitions represent the latest additions to the family's diversified portfolio, which spans across various industries, including manufacturing, real estate, logistics, insurance, and banking.
Kua Ventures to Infuse Sh295 Million ($2 Million) in Kenyan Entrepreneurship by June 2024
In a strategic move aimed at bolstering the growth of budding entrepreneurs in Kenya, business advisory and credit provider Kua Ventures has unveiled plans to inject a substantial sum of Sh295 million ($2 million) into its portfolio by June next year. This announcement comes on the heels of the firm's remarkable achievement of surpassing the Sh147 million ($1 million) milestone, which was amassed through four rounds of funding over the past three years.
Madalena Santos, the Operations Director at Kua Ventures, expressed the firm's unwavering commitment to nurturing Kenyan small businesses, with a vision to foster substantial social impact through job creation and poverty reduction. Santos affirmed, "With an already substantial Sh147 million invested in supporting Kenyan SMEs and an additional Sh295 million earmarked to nearly double our portfolio within the next ten months, Kua Ventures is poised to make a substantial and positive contribution to the country's burgeoning SME sector.