Wednesday, June 10, 2009

Pre-Budget thoughts

Key driver will be the huge and ballooning deficit. I think we are somewhere north of the Ksh109bn that GoK plans to raise in the market. And that may not factor in contingency funding for droughts, floods et al; one-off hits such as the planned Census in August and the katiba referendum. Therefore:

25%+ of NBK will be sold to Equity and others. One reason to put some cash into the share as addition of NBK would make Equity undervalued on forward P/E basis.
KPL was a shoe-in candidate a year ago. Not so sure given all the foregoing with KCB and the like.
In which case, KPA, KenGen 19% may have to come into play.
Outliers will be the likes of New KCC in 2010 and private sale of stake in KWL.

Flood of Bonds:
Well GoK has already said it wants to bring Ksh109bn into market. Cue good income for StanChart and other bond hounds. The downside is that the accompanying liquid sucking up will either have to be solved by higher interest rates or CBK reducing banks' reserve ratio. And of course, reduced lending which may be the exact shot in the arm the economy needs right now.

Sin Taxes:

Lip-service to reforms:
I dream will get a much needed financial services regulator; increase in banks capital requirement to Ksh2.5bn; a halved cabinet (politically easier to do this than to get MPs to pay taxes). But I think we'll get something small on NSE, the annual "reduction" in car spend.

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