A few words on the credit crisis

Even if the bailout had been passed, it would have been far from over. A few stats..

(1) Total credit market debt owed was $51,019.0bn, or 3½ times nominal GDP.
(2) Domestic nonfinancial sectors owed $32,397.1bn.
(3) The financial sectors owed $16,522.7bn and the “rest of the world” owed $2,099.1bn.
(4) The largest amounts of the total debt are in mortgages ($14,804.2bn), corporate and foreign bonds ($11,330.2bn), Agency- and GSE-backed securities ($7,889.0bn), and Treasury securities ($5,250.6bn).

Bahrains banking sell off

AHLI United Bank, which accounts for more than 50% of Bahrains index, has lost over 20% this year. Still, its better than its competitor, Arab Banking Corporation, which has fallen by more than 66%.

Yield on Nigerian 91-day T-bills falls to 9.23 pct

Yield on Nigerian 91-day T-bills drops to 9.23 pct. I guess you would call that a flight to quality in this market.

Finance Bank Zambia expands into DRC

More cross border expansion in the African banking sector. Finance Bank Zambia has applied for a licence to operate in the Democratic Republic of Congo. The bank has started negotiations with Central Bank of Congo and hopes to start operations in Q1 2009.

Ghana sets up a $300 million debt facility

Ghana has set up a $300 million debt facility with JPMorgan Chase & Co. and Renaissance Capital. At the same time, Ghana repurchased $228 million of debt issued by it former state-owned telecom operator, Ghana Telecom, recently sold to Vodafone Group Plc as debt-free.

TAA frontier market allocations total $19.9 billion

According to Bradley Durham, managing director at EPFR Global, total assets invested in frontier market strategies totaled $19.9 billion as of July 31, up from $11.6 billion at year-end 2007 and $2.9 billion at year-end 2005. Some of the money flowing to frontier markets has come from broader emerging market strategies. Allocations to these markets as part of global emerging markets strategies have increased to 2.6% in 2008 from 0.9% in 2004.

Among investors either considering or already investing in these equity markets are the $160.3 billion California State Teachers’ Retirement System, Sacramento, and the $15.5 billion Kentucky Retirement Systems, Frankfort.

The biggest managers putting money to work in them include T. Rowe Price Group Inc., Baltimore, with $878 million in frontier markets; Acadian Asset Management, Boston, $150 million; and Franklin Templeton Investments, San Mateo, Calif., $100 million.

African Banker Awards

Danfonds has been nominated for the award Investment Fund / Private Equity Fund of the Year for this year’s African Banker Awards. The winner will be announced on the 10th October. Danfonds Frontier funds SPC will be represented at the award ceremony in Washington by Investment Director, Brice Beumo. Danfonds is amongst 4 companies nominated for the award. All excellent funds. The others are in alphabetical order:

· AfricaInvest
· Currency Exchange Fund
· ECP Africa Fund II

The African Banker Awards are designed to recognise the reforms, rapid modernization, consolidation, integration and expansion of the African Banking sector. These awards will help to establish the corporate identity of leading banks and bankers from Africa who are increasingly playing crucial roles in the world banking system.

Lebanese real estate

Lebanese growth is being propped up by its real estate boom. This is as fragile as other booms have proved to be. Consumer and investor sentiment remains very wary, observing the real estate bust in the US. At the same time, politics don't look good. Sporadic acts of violence and the presence of 10,000 Syrian troops continue to deter investors.

A market to wait for opportunity?

Trading volumes in Tanzania

Talk about uncorrelated. In fact, some countries are totally being overlooked in current market conditions. Tanzania is one of them. Today, the market recorded activity in only five names. TWIGA, TCC, and Swissport led the pathetic volume. DCB traded only 174,538 shares of which 75.37% where on the Foreign Board.

Standard & Poor’s assigns AA+ rating for SAR 1 billion 5 year-floating rate notes

Another good rating for a large liquid bond in the GCC. Standard & Poor’s has assigned an AA+ rating for a SAR 1 billion 5 year-floating rate note issued by BNP Paribas Riyadh branch. This rating is the first of its kind in Saudi Arabia.

The rating agency highlighted the Saudi operations of BNP Paribas s being strong and highly diversified with a sound financial position, characterized by contained risk, satisfactory profitability, adequate capitalization, and high financial flexibility.

EMPEA Webcast

EMPEA Webcast
Risk Management in Emerging Markets Private Equity
An EMPEA event with PricewaterhouseCoopers

Emerging market investing involves a unique set of risks outside of those typically encountered in developed markets. Investors and managers must therefore anticipate and mitigate risks endemic to emerging markets to diminish the likelihood of incurring undesirable outcomes and costs and increase the probability of seizing potential opportunities.

LINK

https://empea.webex.com/mw0304l/mywebex/default.do?siteurl=empea

A word on our currency hedging

Our currency hedging strategy in this market is focused on the premise that banking crises are almost always bad news for currencies. In addition, banking crises in emerging market countries tend to be associated with currency capitulation. So its long the 'boring frontier markets' and short the currencies bouyed by FDI with poor budgetary outlooks.

Recent stock market movements

Frontier markets did not enjoy the same bounce as the rest of the world on Friday. The MSCI Emerging Markets Index 5.6 percent rise was hard to match. That said, it is always instructive to look at which frontier markets stocks rose most in such fast markets.

Mumias Sugar surged around 8%, Kengen was +8.75%, Bank of Baroda up 8.28%, and KPLC closed up 10% and traded 50,700 shares worth 8.365m. Now we know where the hot international money is going...

Crisis - What crisis?

The Botswana stock exchange has proved to be totally uncorrelated with this weeks unfolding credit crisis in developed markets and associated volatility.

CNBC Interview: Are There Opportunities in the Frontier Markets?

As the world's developed markets tumble on the financial crisis in the US, how are the frontier markets, or the less-developed emerging markets, faring? Daniel Broby, CEO of Danfonds, sees opportunities in these markets in the long term.

http://www.cnbc.com/id/15840232?video=859620073

Nigeria acts to ease monetary conditions

In a bid to stop the selling in its markets, Nigeria has just cut rates by 50bp to 9.75% and injeted 150bn Naira into the banking system. At the same time it has halved bank reserve requirements to 2% and lowered liquidity ratios for banks to 30% from 40%!

Pakistan American relations

On Tuesday, the Pakistan's military ordered its forces along the Afghan border to repulse all future American military incursions into Pakistan. American forces have recently been violating Pakistani sovereignty. Clearly.. an unwelcome a potentially dangerous turn in events.

Latin American Frontier spreads.

Another interesting credit crisis metric. Sovereign spreads across Central America are remarkably tight. The spreads on Costa Rican and Guatemalan sovereign bonds are 286 bps. Panamanian sovereign risk trades 245 bps over Treasuries, and El Salvador is at 325. Hmm...

Frontier markets best performers in the last month

Movement for the Emancipation of the Niger Delta

Movement for the Emancipation of the Niger Delta have announced an escallation in hostilities. They say, "Following a previous warning that any attack on our positions will be tantamount to a declaration of an oil war, the Movement for the Emancipation of the Niger Delta has declared an oil war in response to the unprovoked aerial and marine attacks on a MEND position in Rivers State of Nigeria on September 13, 2008 by the armed forces of Nigeria."

Just how an oil war is going to be any different from the criminal attacks that have been a regular feature of this group remains to be seen.

Qatar's Doha Securities Market falls 13% in two days

Looks like the fast money is finally coming out of Qatar's Doha Securities Market. In fact, it looks like it has gone into freefall. On Sunday the DSM fell 6.2%, and today it dropped a further 7.1% to close at 8,216.

Middle Eastern equities continue to be hit by falling oil price

Middle Eastern equities fell further over the weekend and this Monday despite having strong Sovereign fundamentals. The falling oil price, (sharply down again today), the global economic slowdown, and the turmoil caused by the collapse of Lehman Brothers (not to mention losses at AIG and takover of Merrills) are all contributing to reducing the regions risk appetite.

Romanian Credit Default Swaps

One CDS we are watching closely. The outlook for the Romanian 5-Year credit default swap has deteriorated dramatically. The spread has widened from key support at 250bps on September 10, widened to 256bps today. Going forward, it could still widen, possible as high a 330bps.

Romania's Economy and Finance Minister, Varujan Vosganian, recently estimated economic growth rate at around 8.5 and 9.1 percent. Romania could end this year with an economic advance of 8 percent.

Sonatel sell off

Senegal based Sonatel has been collapsing since the sentencing on September 3 of former managing director of US-based ITXC on charges of bribery relating to seven western African telcos between 2001 and 2003. Of these, Sonatel is the listed company affected by the judgement's revelations of problems of governance and corruption.

The decline has dragged down the 38-company west African regional bourse, BRVM. This has sold off considerably in recent days, having broken through support.

BioEnergy Africa Limited

Mozambiques BioEnergy Africa Limited has just raised £8.6 million through a placing of 68,825,600 Shares at 12.5 pence per share. The Company has a market capitalisation of approximately £41.5 million.

The funds raised will be used to develop its first project, the 30,000ha Massingir Fuel Ethanol Project in Mozambique. Sugar cane is considered the most efficient, commercially viable ethanol feedstock and southern Africa has the potential to be one of the most cost effective regions for sugar cane production.

Saudi Basic Industries Corp (SABIC AB)

Take a look at this. Earnings going north and price going south. Leaves the frontier markets largest market capitalisation company on a PE 0f 9.57.

Kenya facing famine

As if the riots and rising prices were not enough to contend with, we understand that many parts of Eastern Province are facing severe famine. Prolonged drought has led to massive crop failure.

Worst-hit areas are in the northern frontier districts of Chalbi, Moyale, Marsabit, Laisamis, Garbatulla and Isiolo. There are also problems in the Ukambani districts of Kitui, Mwingi, Machakos and Makueni.

The Ghana Commercial Bank,

What do you do if your business is being held back by virtue of the government being the biggest shareholder and also biggest lender from your bank. The Ghana Commercial Bank's solution is to ask for more capital and for more business from the government. Unfortunately for the Ghana Commercial Bank, the Government is not too pleased with its branch expansion program ouside of the country. It is also, quite rightly, not keen to expand this cosy relationship.

We visited the Ghana Commercial Bank last month. To us, the solution is for the government to dispose of its stake and to put the government's refinery loan on a commercial footing.

Zimbabwe dual listings.

The Old Mutual Group has been operating in Zimbabwe for more than 100 years and is by far the best known dual listing. Old Mutual is a diversified international financial services group listed on the stock exchange in London , South African, Malawi , Namibia and Zimbabwe. The disposal of Old Mutual shares in London and/or South Africa is the most common way to get funds out or into the country at a free market exchange rate. This is normally done with the approval of the Ministry of finance to raise foreign currency to redeem loans. Other dual listings include Cargill Zimbabwe, a local subsidiary of the United States agriculture giant, African Banking Corporation (ABC) chaired by top ZANU-PF businessman Oliver Chidawu and in which the World Bank affiliate International Finance Corporation has a 10% shareholding; and Vulya Investments.

Dubai International Financial Centre 2012 Sukuk

The Dubai International Financial Centre 2012 Sukuk is one of the benchmark bonds in the GCC. As the price of oil has fallen and the credit crisis worsened, the spread has widened against LIBOR to 307bps. Prior to last summer and the credit crisis, when oil was significantly higher, the spread was only 44pbs.

The Suruk is interesting as it is very liquid. The high level of international interest in the USD 1.2bn Sukuk means some 67% of its investors are from outside the region.

DIFC Investments' 5-year al-Mudarabah Sukuk has a rating of 'A1' from Moody's and 'A+' from Standard & Poor's.

Access bank launches mobile banking in Kenya

Access bank is going mobile. Kenya's Central Bank Governor Njuguna Ndung'u launched of the country's first formal mobile banking service. In Kenya, people already use mobile phone chips in an informal way. The prepaid chips are used as a from of money transfer. A very exciting develop, especially as more people have mobile phones than have bank accounts!

Linkage Assurance Plc

Regular readers will know we are not too keen on the Nigerian insurance market. Well, Linkage Assurance Plc has just announced an increase in turnover of 258.49 percent. A cynic might say this could have been at the expense of margin. Not right.. Profit before tax attained a new high of N304.8 million against N76.4increasing 298.95 percent.

Democratic Republic of Congo considers first IPO

The government of Democratic Republic of Congo is planning to privatise some of its mining assets. Victor Kasongo, deputy minister of mines, said the government wanted to transform state-owned mining companies into commercial entities. New management would be drafted in to turn round such assets and then would then be floated through an initial public offering. In short, the first mining flotation should happen in less than 12 months. Sounds interesting.

Frontier Market's roadshow

In order to raise awareness of Frontier Markets and Danfonds activities in new Emerging Markets, we are holding a number of one on one's and presentations over the comming months. Please contact us for further details on +45 44209881.

Stockholm 9th Sept
London (City) 17th, 18th Sept
Jersey 19th Sept
London (Docklands) 22nd Sept
New York 24th, 25th, 26th and 27th Sept
London (West end) 29th Sept
London All day conference
Geneva 3rd Oct

A stock to die for...

FSG Limited, the biggest funeral services provider in Botswana, plans to raise 36 million pula through an initial public offering to finance the construction of cemeteries and expand into Zambia.

FSG will begin trading stock on the Botswana exchange Oct. 6, becoming Africa's first publicly traded funeral company.The Gaborone-based company will sell about 30 percent of its 120 million shares for 1 pula apiece prior to listing on the Botswana Stock Exchange. The company has 50 percent of the market.

Allocations to ME/Africa Funds rise to USD 733m in Q2

According to HFN, hedge funds focused on the Middle East and Africa had their highest total of new allocations in the second quarter of 2008. HFN have caluclated that total assets for hedge funds investing in Africa and the Middle East rose 18.78%in the second quarter, with new allocations of USD 733 million.

Ukrainian Parliament splintered

Ukraine has returned to political theater and stocks were suspended today to prevent further falls. We are looking for a semblance of stability in order for the market to stabilise... but the fundamentals are now looking interesting. First half results are showing impressive top and bottom line growth.

Ukrainian Parliament splintered two nights ago with Yulia Timoshenko's block siding with Party of Regions in passing a legislation to reduce Presidential powers. In short, the rift was caused by an attempt to shift power more from the president to parliament as well as the tension caused by the Russia - Georgia conflict.

Impressive financials coupled with low valuations in a market down over 50%! Watch this space.

GCC Financials

Banking and finance companies represent 40 percent of the 150 largest market capitalisation companies in the GCC region.

Al-Rajhi Bank has the highest market cap of US$32 billion. Kuwait Finance House has a market capitalisation of US$21.68 billion, and in third place is National Bank of Kuwait (US$18.7 billion).

Other large banks and financial companies include Samba Financial Group (US$16.26 billion), Emirates NBD (US$16.23 billion), SABB (US$14.22 billion), Qatar National Bank (US$13.96 billion), Riyad Bank (US$13.1 billion), Saudi French Bank (US$11.66 billion) and National Bank of Abu Dhabi (US$10.72 billion).

Iamgold bids for Euro Resources

Botswana Stock Exchange listed and Toronto-based Iamgold has made a bid of BWP 1.20 a share for Euro Resources, which has a royalty agreement on its Rosebel mine. Euro Resources, a French company, was up 26% on the back of the announcement.

Clearly, this clears up the capital structure and obviously Iamgold knows what the mine is worth, so it looks like its good news for everyone.

Bank of Georgia

Bank of Georgia, the country's leading universal bank, released announced first half net profit increased 86.2% year on year. The bank’s ROAE was 17.3% and CAR was 25.8%. It will be interesting to see how this impresive growth was affected in the second half by the troubles.

We understand that on September 1, the Central Bank of Georgia sold more dollars in August than in any other month in at least nine years. The US$187.2 million that was sold amounted to almost 13% of Georgia's US$1.5 billion reserves. .

Zambian Breweries (Zambrew)

Zambian Breweries is diversifying into soft drinks.

The company has announced plans to invest USD 60m over the next 2 years on re-designing Northern Breweries. Zambrew will invest a USD 20m will of this in soft drink production facilities. These will consist of a 42 000 bottles per hour packing line.

Globacom rumours

Nigerian entrepreneur Mike Adenuga Jnr is rumoured to be implementing his plan to build a pan-African telecoms giant by acquiring Telkom of South Africa.

The idea is that if Globacom can do a deal based on Telkom's 50% stake in Vodacom. Globacom cannot bid for the Vodacom shares directly, as Vodacom's other 50%-owner, Vodafone, has the first right of refusal. So it can only access Vodacom by acquiring Telkom outright.

Telkom, so far, has claimed it has not entered any discussions. That said, rumours suggest Telekom's CEO and Adenuga had now met. Talk is that Globacom proposes that the new entity, to be called Vodaglo would be equally owned by Globacom and Telkom.

The question now is whether Telkom's shareholders, which include the South African government's 39%, would be interested in the bid by Nigeria's second-largest cellular operator.

Alka Banerjee on frontier markets

Alka Banerjee, vice president of Global Equities, Standard & Poor's Index Services was recently inteviewed on what distinguishes a frontier market from an emerging market.

She replied "there is as yet no real defined number or threshold that can actually tell you that this is frontier versus this is emerging. The frontier markets concept came into existence in the mid-1990s when the IFC decided to focus on markets which were typically not part of the regular emerging markets—those that had established stock exchanges, had a trading history, but were very small and illiquid."

When Banerfee was asked if frontier markets provide a new level of noncorrelated returns? she replied "they absolutely provide diversification. Emerging markets have over the years become far less of a diversification strategy than they were 10 years ago—or even five years ago. Now emerging markets tend to correlate upwards of 85 to 95 percent with developed market performance. It varies across markets, but the correlation numbers for frontier markets can be in the range of 40 to 60 percent, which is a huge diversification."

Hippo Valley Estates

The beligered Hippo Valley Estates in Zimbabwe is starting to attract attention as a post Mugable play. The listed sugar plantation covers 124 square kilometres, and the company employs around 5,000 people. Hippo Valley Estate has a capacity of 300,000 tonnes of sugar per year but is currently producing below that. In 2004, parts of the estate were listed for confiscation by the government of Zimbabwe as part of its land reform project. The company has had a bad time of it ever since the advent of farm invasions that started in 2000. Still, Zimbabwe and the Hippo Valley have the right conditions for agriculture, so hopefully things will look brighter for the company once the country returns to a more normal political path.

Africa: New Emerging Markets

Iraqi soveriegn debt

Iraq's $2.7 billion issue, the 5.8 percent 2028's, has gained 45 percent since August 2007, according to Merrill Lynch & Co. The bond currently trades at a 484 basis point pick up to US treasuries.

Merrill's make light of the fact that the spread is narrower than for a number of Ohio banks including National City Corp. and KeyCorp, suggesting Baghdad may be safer for bond investors than Cleveland!

Co-Operative Bank of Kenya Ltd.

Undetered by the fate of Safaricom's share price, Co-Operative Bank will launch its Initial Public Offering on Friday 17 October. The KES 10bn IPO follows a major restructuring and conversion from a co-operative. 77% of the company will be owned by its 3,805 societies. The balance of 23% will be held by individual members. 51,000individuals have now been allocated one share each. The bank serves the 7m-member co-operative movement in Kenya.

The bank recently announced a half-year profit of KES 1.7bn, moving

Dominican electricity sector

The Dominican electricity sector faces problems arising from to the inability of Dominican state-owned distribution companies to pass through the increasing cost of privately generated electricity to end users. Accross the whole country power generation has fallen and blackouts are now the norm. Total electricity production in the country currently only stands at 1,311 MW, implying an energy production deficit of 700 MW. To make matters worse, Corporación Dominicana de Empresas Eléctricas Estatales had a transformer explode last week.

The whole sector is clearly on our 'default watch'.