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Daily Market Report – 13th May 2020


Faida Research - May 14, 2020 - 0 comments

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Market Commentary:

  • The All share index declined by 1.5% to 137.37. This was due to continued selling pressure (mostly from foreign investors) on several large cap counters, notably Equity, Safaricom and KCB. Kenya Airways (KQ) maintained its upward price momentum on the back of higher speculative activity.
  • NCBA recorded the highest price decline (-10.7%) reflecting the book closure (12/5/20) for the 1:10 bonus issue. We expect continued selling pressure for the rest of the week but reiterate that investors with a long-term outlook and with no liquidity constraints can take advantage of such price declines

 

News Highlights:

IMF Approves Disbursement Of USD 739 Million For COVID-19 Response

The International Monetary Fund (IMF) has approved a disbursement of USD 739.0 million to be drawn under the Rapid Credit Facility (RCF) to assist Kenya in tackling the economic impact of COVID-19.

 The funds are to be used to boost international reserves (stood at USD 7.8 billion/4.7 months of import cover as at 8th May from USD 8.8 billion/5.4 months of import cover as at January 2020) as well as help meet budget financing needs to respond to the COVID-19 pandemic.

 IMF also reclassified Kenya’s debt distress from moderate to high due to the impact of COVID-19, worsened by a high debt to GDP ratio (debt of KES 6.2 trillion representing 61.0% of GDP) with a budget deficit of KES 823.0 billion.

 Although the IMF supported the government’s fiscal measures to tackle the economic impact of the pandemic, IMF intimated that such measures should be temporary and that the government should continue its fiscal consolidation (raise revenues and reduce expenditures) once the pandemic abates.

Commentary

 Although the president mentioned that the tax cuts are expected to ‘outlive the pandemic’, such advice from the IMF could see reversal of the tax cuts. The government notes (in the letter of intent) that once economic activity picks up ‘sufficiently’ it could review its tax measures to meet its fiscal consolidation targets, given the limitations the tax cuts have on KRA collection (government anticipates revenue collection to drop by KES 43.0 billion in 3 months following the implementation of the tax measures).

 We remain concerned about the existing vulnerabilities due to the country’s high debt. The existing Eurobond of USD 6.1 billion comprises 60.0% of the country’s foreign commercial debt. In 2019, Kenya took a USD 250.0 million 10-year syndicated loan, followed by a USD 1.25 billion 9-year syndicated loan for refinancing. Overall current debt obligations this year stand at KES 253.2 billion. We could see the government tap the international markets for refinancing once the economic situation stabilizes (rates will likely be relatively low so government could benefit from this).

 

Recommendations:

Long Term Buy- KCB, Equity, Absa, Stanbic, NCBA

Hold- Safaricom

Sell- Stanchart, Bamburi, KQ

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