Friday, Sep 3 1999

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Following talks with Key Donors, the Government is expected to soon trim its cabinet to between 16 to 20 ministries.  This will be done by merging some ministries and abolishing others altogether.  The proposed changes are expected to stipulate that every ministry will have one Assistant Minister.

Debt relief seminar held in Nairobi.

Seventeen African nations this week held a debt relief seminar in Nairobi ahead of scheduled negotiations between themselves and the Bretton Woods institutions.  The purpose of the seminar was to discuss the waiving off external debt.

KPLC to transfer assets to Ken-Gen.

The Kenya Power & Lighting Company (KPLC) will by December 31^st 1999 have transferred all assets and liabilities associated with power generation to KenGen, a company that was formed to take over power generation due to the entrance of independent power products.  We understand that a full statement will be issued by KPLC next week.

Diamond Trust Bank announces appointment of new Managing Director.

Diamond Trust Bank has announced the appointment of Allan P. Beauregard as the new Managing Director.  He brings with him more than thirty years of experience gained in Europe, North America, the Middle East, the Far East and the Indian Subcontinent.

Kenya Commercial Bank announces reshuffle and reconfirms intention to find strategic partner by December.

Kenya Commercial Bank has announced a reshuffle in its senior management in the ongoing rationalisation of its operations.  The rationalisation involves the merging of some divisions.  KCB has already retrenched 500 workers.  Additionally, KCB reconfirmed its intentions of finding a strategic partner to take a portion of the Government’s 35% shareholding of the bank.  The Bank said that a foreign bank would provide the necessary technical expertise and was hoping that the deal would be completed by December 1999.

Government will not sell Mombasa Port when privatisation of Kenya Ports Authority is completed

The Government will not be selling the Mombasa port when the privatisation of the Kenya Ports Authority is completed.  The Government will instead find a suitable corporate partner to commercialise some of its services.  Currently the Authority is using natural wastage in its retrenchment program, as other methods are considered too expensive

Housing Finance Company of Kenya announces very disappointing interim results

Housing Finance Company of Kenya (H.F.C.K) announced their interim results for the 6 months ending 30^th June 1999.

• Results were very disappointing.

• Income fell by 18.8% in the 1H99 to Ksh 1.1 million compared to Ksh 1.4 million in 1H98.

• Operating profit fell by 43% to Ksh 171.9 million from Ksh 301.7 million over the same period.

• Profit after tax fell 52.2% to Ksh 81.7 million in 1H99 compared to Ksh 170.9 million in 1H98.

• The Company declared an interim dividend per share of Ksh 0.25 compared to Ksh 0.50 in 1H98.

• Operating profit fell by 43.0% suggesting one or a combination of the following:

1.      An increase in their cost of funds. We believe that this is unlikely given the rates quoted by H.F.C.K on deposit rates over the period.

2.      An increase in expenses. This could include various IT costs.

3.      A loss on houses sold. Kenya Building Society (KBS) a fully owned subsidiary of H.F.C.K. made a loss in 1998 of Ksh 11.7 million due to the difficulty in selling houses because of the poor economic environment. A further loss in 1H99 given the economic environment is likely.

• With few signs of economic conditions changing we are revising our forecast from Buy to Hold.

• We are in the process of arranging a meeting with management to get further clarification on the above.

  Recommendation: Hold

  P/E

  6.3x

  Div. Yield

  11.6%

  Price/Nav

  0.9x

The 91-day Treasury bill Rate rose by 23 basis points to 15.166%.  CBK accepted Ksh 9.45 billion.  CBK had invited tenders for Ksh 9.8 billion and received tenders for Ksh 9.52 billion.  The Bond Market dealt bonds worth Ksh 135.9 million during the week compared to Ksh 602.2 million in the previous week.  The yields on these listed bonds are shown below.

The coupons on most of these bonds are based on the 91-day T-Bill twelve-week moving average.  A premium of 0.25% and 0.50% is paid on the one-year and two-year floating rate Treasury bonds respectively.

These bonds look increasingly attractive compared to the short term Treasury Bills. The coupons on most of these bonds are based on the 91-day T-Bill twelve-week moving average, which is above the 91 day T-Bill. A premium of 0.25% and 0.50% is paid on the one-year and two-year floating rate Treasury bonds respectively.