Capital Markets

NSE 20 Share Index sinks to five-year low as rate cap bites

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Rich Management chief executive Aly-Khan Satchu. PHOTO | SALATON NJAU

Summary

  • The NSE 20 Share Index sank to 3123.54 points, the lowest since December 20, 2011 when it stood at 3106.72 points.
  • The current share price decline is sparked by a return to control of lending rates.

The loss of investor wealth on the Nairobi Securities Exchange (NSE) has extended from the banking stocks to other shares as the main share index sank to a five-year low.

The NSE 20 Share Index sank to 3123.54 points, the lowest since December 20, 2011 when it stood at 3106.72 points.

Unlike the current share price decline sparked by a return to control of lending rates, the 2011 haemorrhage at the bourse took place against a combination of negative macroeconomic factors including high inflation, the fall of the Kenya shilling to a historic low and a sharp spike in interest rates.

“We don’t know how far this will go, but it is clear that for banks the fall in share prices is overdone.

“The shares are worth more than they are selling. And it is beginning to have a spillover effect on other sectors,” said Nairobi-based financial analyst and head of advisory and data firm Rich Management Aly-Khan Satchu.

On Monday, a number of shares, some of which have links to the banking sector such as Safaricom, Centum and Britam, saw their prices fall.

Safaricom has contractual arrangements with many banks whose products are dependent on access to mobile phone services. By Monday, the telco’s shares were trading at an average of Sh20, slightly up from last Friday’s price of Sh19.65, but still below Sh21.25 struck on Wednesday before the new law controlling interest rates was signed.

READ: Top bank owners lose Sh5bn paper wealth after loan caps

In effect, Safaricom had lost about 5.9 per cent of its price relative to the time just before the Bill was signed into law.

In terms of offers to buy in the morning Monday, data from Rich Management showed investors were offering Sh13 to buy 291 million of the telco’s shares (that is, for Sh3.8 billion) but there was no supply at that price.

The telco lost about 7.5 per cent of its value in the two days immediately after the signing of the law but had begun to recover by Monday.

Britam, which is linked to both Equity Bank and Housing Finance Group, had lost 10.83 per cent as at the close of trading Monday relative to last Wednesday’s price.

Britam has slightly above nine per cent shareholding at Equity Bank — which enabled it to earn Sh680 million in dividend for the financial year 2015.

On Monday, Equity Bank traded at an average price of Sh26.75, down 9.32 per cent from the Sh29.50 average price of last Friday.

At Housing Finance Group, Britam has nearly 50 per cent shareholding equivalent to about Sh2 billion in market capitalisation. The group also contributes about 2.2 per cent to Britam’s total assets.

Centum Investments was also affected since it has the absolute majority shareholding at Sidian (formerly, K-Rep) bank, also affected by the new law. Centum has seen its share price lose 11.8 per cent since last Thursday.

Share prices of other banks also continued to fall Monday to the allowed maximum of 10 per cent.

Cumulatively, the top three banks – Equity, KCB and Coop – have each undergone nearly 30 per cent price dip since last Thursday.