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Markets tense as Rotich drops IMF backup loan

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Treasury Secretary Henry Rotich. FILE PHOTO | NMG 

Financial markets were tense Thursday after it emerged that the National Treasury had failed to renew the Sh100 billion ($989.8 million) standby facility with the International Monetary Fund (IMF), injecting a huge measure of uncertainty in the economy.

The tension, which came one day ahead of today’s deadline, saw the shilling open the day weaker and the Nairobi Securities Exchange’s (NSE) #ticker:NSE main index lose 30 points.

Treasury secretary Henry Rotich said Kenya would not seek an extension of the precautionary loan from the Fund, arguing that the country had kept its macroeconomic fundamentals such as inflation and currency stable over the period without drawing down on the facility.

“IMF programmes, especially standby (facilities), are short-term, with a maximum of two years. After that you are supposed to graduate and get out of it. But we can still engage and get back to it if we feel it’s necessary,” Mr Rotich said.

Market analysts, however, argued that the worst-case scenario would be a recall of the sovereign bond issues that would mean a default on existing foreign credit facilities due to the uncertainty arising from the virtual loss of IMF support.

“Expiry of the Standby Arrangement facility would have an impact on the issued sovereign debt in international markets as investors view the precautionary facility as a safety net. In the event that Kenya is not eligible, this will be deemed as a default trigger on the Eurobond,” said investment bank Genghis Capital in its update on the fixed-income markets. The original standby facility was $1.5 billion, but $500 million expired in March.

Central Bank of Kenya (CBK) data Thursday showed that the shilling had lost 0.17 per cent against the dollar, 0.30 per cent against the sterling pound and 0.33 per cent versus the euro compared to the previous day. The NSE 20-share index closed the day 30 points lower, breaching the 3000 points psychological barrier to stand at 2990.02 points.

Early morning trading data from Reuters showed the shilling breached the 101 units to the dollar mark. But the CBK immediately intervened stopping the slide. It was not possible to find out the extent of the CBK’s intervention, but this is likely to be seen in the change of the weekly record of the official foreign exchange reserves.

“Kenya’s central bank pumped in dollars into the market late in Thursday’s trading session after the shilling weakened due to the expiry of a standby loan facility with the International Monetary Fund. The shilling rose to 100.85/101.05 per dollar after the intervention from 101.02/101.22 where it was trading before the intervention. It had closed Wednesday’s session at 100.75/95,” Reuters reported.

Raymond Kipchumba, a research analyst with ABC Capital, said Kenya’s failure to reach a deal with the IMF raised the prospect of foreign Eurobond lenders recalling their cash, a move that would severely strain state coffers.

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“The chance remains that with the expiry of the IMF precautionary facility without a new one being agreed on, the noteholders will recall the bonds, including the interest, which would only make things worse for the Treasury,” he said.

Mr Kipchumba referred to the IMF prospectus — for the 10- and 30-year Sh200 billion notes issued early this year — that provides that a severance of relations would be considered a default, triggering a recall of the credit if the noteholders hold at least 25 per cent of the value in total.

“Condition 10 (Events of Default) provides that holders of the 2028 Notes or the 2048 Notes, as the case may be, who hold at least 25 per cent in aggregate principal amount of the relevant Notes then outstanding may declare such Notes to be immediately due and payable at their principal amount together with accrued interest if, inter alia … the Issuer ceases to be a member of the IMF or ceases to be eligible to use the general resources of the IMF,” says the provision in the prospectus. But Mr Rotich appeared unfazed by the provisions insisting that Kenya has reached a point when it should be relying less on IMF support.


“Countries that have graduated and are beginning to strengthen their balance of payments enter into various types of arrangements (with the IMF) through article four of consultations only like in many medium and developed countries … So as a country that is entering into the medium and developed countries, we should be relying less and less on IMF facilities, especially if you have come of age in our macroeconomic management,” Mr Rotich said.

Genghis Capital also pointed out that there was a possibility of the expiry of the facility having no impact on markets on account of the existing huge foreign exchange reserves, but the intervention by the CBK showed that the initial fears were not baseless. Genghis Capital said that the Treasury could be forced to raise money at high rates in the event that it wanted to tap the international markets to meet the redemption needs of the five-year Eurobond issued in 2014 and expiring in June next year. “This would also dent Treasury’s prospect of tapping the international markets to refinance the Eurobond that is maturing at the tail end of the fiscal year,” said Genghis Capital.

The analysts noted that the yields have risen 105 basis points (bps) to-date on both the 10-year and 30-year Eurobonds issued in the year. “For Eurobond I, yields have risen 144 bps and 177 bps on a year-to-date basis on the five-year and 10-year tenors, respectively,” the analysts said.

Investment analyst Aly-Khan Satchu, who runs Rich Management, said the move was ill-advised, citing countries such as Turkey whose currency is on a free fall after enjoying a benign environment for years.

“I appreciate that we are sitting at a record high in regard to forex reserves. However, if you look around the world today, what was once a benign environment [for emerging and the frontier markets which were surfing a golden wave of practically free dollar liquidity] has become dark, turbulent and violent.

“You are throwing over an insurance policy just when you need it most. So I for one think that the macho talk is poorly advised. Therefore, we should be prudent and not cavalier at this juncture,” said Mr Satchu.



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Lami Technologies closes $1.8 million seed funding to accelerate growth of digital insurance in Africa

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NAIROBI, Kenya May 5 – Lami Technologies, a Kenyan insurance technology (insurtech) company that aims to democratize insurance products and services for low-income Kenyans, announced today it has raised $1.8 million in seed funding.

The round was led by Accion Venture Lab’s seed-stage investment initiative that provides capital and extensive support to innovative fintech startups that are improving the reach, quality, and affordability of financial services for the underserved.

Founded by Jihan Abass in 2018, Lami is a digital insurance platform that enables partner businesses – including banks, tech companies, and other entities to easily and seamlessly offer digital insurance products to their users via its API. Lami can also be used by partner businesses to manage their own insurance needs.

Lami connects partner organizations, such as e-commerce platform Jumia, with underwriters and allows them to offer a superior customer journey. Through its API, users can get a quotation for motor, medical, or other tailored insurance products in seconds, then customize the benefits and adjust the premium to suit their needs, get their policy documents instantly, and claims are paid in record time.

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Lami’s services are enabled by its flexible insurance rating engine and direct integration with several parties and insurance companies. Lami co-designs innovative products with its underwriting partners to enable businesses to offer unique insurance products to their underlying customer base, with flexible options that meet their needs and cash flows, such as monthly medical policies for startup employees.

Jihan Abass, CEO, Lami, said: “This funding will allow us to invest in hiring more people, improving our technology, and growing our presence across Africa as we can continue to address the persistent insurance gap. At Lami, our vision is to help improve the financial resilience of millions by making insurance products more accessible and affordable for underserved populations. By enabling our business partners to offer customized insurance solutions, we are helping them provide more value to their customers, while enabling large volumes of users to access insurance, often for the first time.”

Africa’s insurance market currently stands at a 3 percent penetration rate, expect for South Africa, and is facing modernization and innovation challenges. Most insurance providers on the continent fail to offer flexible, affordable and tailored insurance coverage that can provide a safety net for the African consumer. Low insurance uptake is partly due to the traditional distribution and administration of policies, which mainly still relies on brick-and-mortar channels where policies are sold and processed.

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safaricom share price declines lowering NSE activity

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Safaricom Plc, the most capitalized at the Nairobi Securities Exchange(NSE), had its share price dip by 0.16%, bring down turnover at the bourse by 50% to KSh 249.4 Million.

Figures from the bourse indicate that Safaricom was the top mover at the bourse with a volume of 4.58 Million shares, followed by KCB( 838,100), Kenya Re(461,300), Centum (255,300) and NSE( 227,700).
Eveready E. A was the top gainer with a 9% gain to KSh 1.09, followed by Sasini, which was up 7.37% to KSh 18.95, Carbacid Plc which gained 5.50% to KSh 11.50, Home Afrika, which gained 5.26% to KSh 0.40 and Housing Finance which appreciated 4.72% to KSh 3.90.

The worst performing counters were led by Centum, followed by I&M, Longhorn, Safaricom and Absa Bank.

Eveready E. A Plc was the top price gainer at the lacklustre Nairobi Securities Exchange(NSE), its share price rising 9% and closing at KSh 1.09.

The listed firm began the year with a share price of KSh 1.20 but has since lost 9.17% off that price valuation, ranking it 50th on the NSE in terms of year-to-date performance.

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Turnover at the NSE dropped to KSh 249.4 Million with a total of 7,540,900 shares in 955 deals traded.

Eveready was followed by Sasini Plc (7.37%), Carbacid Plc(5.5%)and Home Afrika Plc(5.26%).

Compared with the Tuesday, May 4th 2021 trading day, today’s data shows a 47% decline in volume, a 50% decline in turnover, and a 3% decline in deals.

Centum Investment Plc was the worst performer, its share price falling 3.22% to KSh 15.05 per share. Others were I&M Holdings Plc which declined (0.7%), Longhorn Publishers Plc(0.66%) and Safaricom Plc (0.61%).

The benchmark NSE All-Share Index [NASI] declined 0.38 points to close at 169.69. The NSE 20 Share Index gained 16.68 points to close at 1862.07. The NSE 25 Share Index fell 0.23 points to close at 3685.10

The derivatives market had 32 single stock futures contracts valued at KSh 1.58 Million concluded, compared to the 70 SSF contracts valued at KSh 2.76 Million ended during the previous session.

The secondary bond market had bonds worth KSh 2.97 Billion transacted in 61 deals than the KSh 5.42 billion worth of bonds achieved in 137 deals in the preceding session.

ALSO READ: Safaricom’s Bid for Ethiopian Telecom license excites Investors

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Kenya’s Private Sector Activity Drops to Lowest Level in 11 Months

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Kenya’s private sector activity during the month of April dropped to its weakest level in 11 months mainly due to the movement restrictions and extended curfew hours introduced in five counties at the end of March.

The Stanbic Bank Kenya Purchasing Managers Index, which measures the level of private sector activity, plunged to 41.5 from 50.6 in March 2021. The 41.5 reading, the lowest since May 2020, signified a sharp deterioration in the business environment.

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According to the Stanbic report, the government restrictions had a huge impact on the movement of goods and services as well as demand for products. In addition, companies suffered the high cost of operation due to the rise in the price of fuel and supply shortages

The level of output from Kenyan companies fell sharply in April. Additionally, business expressed pessimism about the future. “Outlook for future activity weakened to the lowest level seen since the survey began in 2014,” read the Stanbic Report.

In order to stay afloat, businesses cut employment numbers, reduced their input purchases and others offered discounts to buyers in an effort to improve sales.

Also read: Kenya Business Activity Slows Sharply in March

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