S&P Global Market Intelligence is worried about the high exposure of Kenyan banks in the local property market. “The exposure to real estate has led lenders to demand more collateral from customers amid worries of a property sector slump,” writes S&P analyst Matt Smith in a new report. Between them, a dozen Kenyan banks hold real estate collateral worth USD 37.1 million. Banks have asked borrowers to provide more collateral should the value of the collateral they hold depreciate.
Incidentally, a report from international real estate broker Knight Frank states that in the Kenyan capital of Nairobi, the average prime office rental rate declined in the first half of 2021 to KES 120 per square foot from a high of KES 150 in 2016. Knight Frank attributes the decline to “continued oversupply in major commercial nodes.” The residential sector has also slumped recently. Prime residential rents dropped 6% between June 2020 and June 2021.
But back to the S&P report. S&P says the asset quality - as measured by the ratio of non-performing loans to total loans – has worsened particularly in the case of the NCBA Group (ISIN: KE0000000406). In response, many investors are turning their back on the bank. Since the beginning of September, NCBA’s share price has lost more than 10% to KES 25.10 (EUR 0.1173). Meanwhile, Equity Group (ISIN: KE0000000554) and KCB Group (ISIN: KE0000000315) have improved their asset quality slightly. Indeed, the KCB share has lost 7.4% since September 2021, Equity just 4%. Overall, the aggregate return on equity for Kenyan banks declined to 10.7% in 2020 from 24.7% in 2012.
NCBA’s shareholders include several prominent Kenyan business people. They are: Zarin Merali, widow of the late Kenyan businessman Naushad Merali who founded the telecommunications group Airtel; the investment banker Andrew S.M. Ndegwa, and his brother James Ndegwa; as well as Desterio Oyatsi, a lawyer to Kenyan President Uhuru Kenyatta. The Kenyatta family, through their investment holding company Enke Investments, also owns 13.2% of NCBA.
African tech start-ups have seen a major breakthrough in terms of funding. For the first time ever, ten of these companies raised USD 100 million or more in a single funding round. This information comes to us from Weyinmi Popo at the London law firm Akin Gump Strauss Hauser & Feld. To put the event in perspective, Popo says there were not any USD 100 million funding rounds in 2020 and only two prior to that. Most of the funding has also come from international investors, some of whom have never previously invested in Africa.
Our readers know that we see the international interest in Africa as a double-edged sword. On the one hand, we are pleased that African start-ups are getting more and more international recognition (and finance). On the other hand, we would like to see more start-ups in Africa funded by local investors. We are convinced that the capital for this is readily available, but is not yet allocated enough to benefit African start-ups and ignite economic growth on the continent.
In our newsletter published 18 October 2021, we wondered about the strange movements in the share price of Moroccan utility company Lydec (ISIN: MA0000011439). Now the reason has emerged: The company announced last week that it is getting a new majority shareholder.
Let's take a step back. Lydec was established in 1995 as a subsidiary of French utility company Lyonnaise des Eaux. It specialises in both the distribution of water and electricity and the collection of waste water in the Casablanca metropolitan area. In 1997, Lyonnaise des Eaux was absorbed by the French competitor Suez (ISIN: FR0010613471). In April 2021, Suez announced that it would acquire its rival Veolia (ISIN: FR0000124141). Eight months later, the European Commission approved the merger of the French utilities under certain conditions.
This merger has consequences for Lydec. Suez will transfer its 51% majority stake in the Moroccan company to Veolia. “The settlement of Veolia's offer for Suez will result in the filing of a proposed takeover bid for Lydec within 3 days,” Lydec’s management said in a statement issued last Wednesday.
But the big question is: What does Veolia intend to do with Lydec? Does the new owner leave everything as is? Will Veolia reduce its stake or increase it? The Moroccan government investor Caisse de Dépôt et de Gestion has 16% of Lydec’s share capital and the Moroccan insurance company RMA another 16%. They will certainly have something to say about Lydec’s future. In the first two weeks of January 2022, Lydec’s share price rose 19% to MAD 280 (EUR 26.62). Since 14 January, however, the share has been suspended from trading. So the stock market’s verdict on the new majority shareholder is still pending.
South African asset manager Denker Capital is cautious about the performance of the Johannesburg Stock Exchange (JSE) this year. According to Denker, investors need to moderate their expectations for South African equities overall. In 2022, there would be no “easy money” for investors, it said.
Nonetheless, Denker believes that stocks listed on the JSE could achieve an aggregate return of above 10%. Last year, those stocks performed surprisingly well, with the JSE All Share Index rising 24%. Stand-outs included the commodities firms Royal Bafokeng Platinum (ISIN: ZAE000149936), which gained 139%; Anglo American Platinum (ISIN: ZAE000013181), which was up by 26%; and Switzerland-based Glencore (ISIN: JE00B4T3BW64), which rose 73%. 2021 was also a good year for second-tier South African stocks, with the JSE Small Cap index gaining 52%.