Dollar shortage to worsen as dividends repatriation starts

Dividend repatriations by listed multinationals and firms are set to worsen the effects of dollar shortages. FILE PHOTO | SHUTTERSTOCK

Dividend repatriations by listed multinationals and firms with significant foreign shareholding look set to worsen the effects of dollar shortages that have seen banks run out of the greenback on some days.

Blue chip companies like Safaricom, BAT Kenya, Standard Chartered, Bamburi Cement and Stanbic Bank are entering their dividend season, with the banks expected to issue outsized payouts after reporting record profits for the year ended December 2022.

The significant foreign ownership of the multinationals and firms like Equity Bank will see the companies seek hundreds of millions worth of dollars as they enter the forex market every year to buy the US currency for onward payment of dividends to offshore investors.

Already hit by a sharp rise in global commodity prices, increased shipments of raw materials and equipment and Russia’s invasion of Ukraine, Kenya’s external accounts are also under pressure as dollar inflows from traditional sources such as agricultural exports and tourism fail to keep up with demand.

The entry of big corporates in search of dollars for dividends will apply additional pressure on the forex market.

In April last year, the bankers’ lobby, the Kenya Bankers Association (KBA) blamed shortages of the US currency on strong demand from companies remitting dividends and manufacturers importing components.

Analysts say foreign investors are already struggling to access dollars after share sales at the Nairobi bourse for repatriation offshores amid the sell-off from overseas investors.

Read: Central Bank in the spotlight as lenders run out of dollars

The currency woes have hit demand for key banking stocks at a time when they have witnessed increased investor interest in projected higher dividend yields.

“The current dollar shortage challenge is likely to be a challenge for foreign investors during dividend repatriation. Foreign investors are currently having challenges in executing their sale orders and the same is likely to affect them during dividend payments,” said Solomon Kariuki, the head of research at city-based investment bank AIB AXYS Africa.

A number of currency traders and importers say banks have imposed a daily cap on dollar purchases of as little as $5,000 as firms struggle to obtain adequate forex to meet their supply needs.

This has forced industrialists to start seeking dollars daily and from several lenders for their monthly hard currency needs as the shortage puts a strain on supplier relations and the ability to negotiate favourable prices in spot markets.

Having banks, including the top tier lenders, run out of the greenback suggests an escalation of the currency woes that started mid-last year with lenders rationing scarce dollars.

Safaricom is Kenya’s top dividend payer due to its large volume of issued shares and high profitability.

The telco announced an interim dividend of Sh0.58 per share on February 28, to be paid out on March 31.

Safaricom will distribute Sh23.24 billion to shareholders, including Sh9.3 billion ($72 million) to be wired to South African telco Vodacom and its parent Vodafone of the UK, which together owns a 40 percent stake in the Kenyan entity.

Starting in 2021, the Central Bank of Kenya (CBK) has encouraged Safaricom to split its dividend payouts into two within a financial year to shield the weakening shilling when the firm seeks dollars for repatriation to foreign investors.

Previously Safaricom would pay its dividend in one go after it closed its financial year in March, a move that would see it go to the market for sums in excess of $200 million.

Manufacturing firms BAT Kenya and EABL are also due to make dividend payments in April and June respectively, following the recent announcements of their full and half-year results.

BAT, which pays the highest nominal dividend in the stock market, is this year distributing a final payout of Sh52 per share, which translates to Sh5.2 billion in actual expenditure.

The tobacco firm is 81.4 percent foreign-owned, meaning that it could be in the market for up to Sh4.2 billion worth of dollars for dividend payments.

For EABL, its Sh3.75 per share interim dividend per share amounts to Sh2.97 billion, with British multinational Diageo in line for half of the payout on the back of its 50.03 percent stake in the brewer, not counting the other foreign shareholders on its books.

Among the majority-foreign-owned banks, Stanbic has already announced a dividend of Sh12.60 per share, which is 40 percent higher than that paid out for the year ending December 2021.

The tier one lender, whose foreign ownership stake is 81.8 percent—a majority in the hands of South African parent Standard Bank— enhanced its payout to Sh4.98 billion from Sh3.56 billion in 2021 after reporting record net earnings of Sh9.06 billion in the year to December 2022.

It will need dollars equivalent to Sh4 billion for Standard Bank and other foreign investors’ dividends.

Two other multinational lenders Standard Chartered Kenya—which releases its financials this week— and Absa Kenya have a record of paying a larger share of net profits as dividends.

Kenya’s listed lenders last year nearly trebled the dividend payouts to Sh51.7 billion, up from Sh18.8 billion in 2020.

This is expected to rise this year on the back of the banking industry’s record profits before tax of Sh244.1 billion for the year ending December 2022, up from Sh194.8 billion in 2021.

Analysts have blamed the CBK for the dollar crisis, saying the regulator introduced tough rules on the foreign exchange interbank market, crippling market operations.

Through the interbank forex market, banks are able to trade hard currency with each other at rates that determine the official or spot rate.

Read: Dollar shortage to dampen Nairobi bourse performance

A muted interbank market has, for instance, forced banks to seek dollars from companies and individuals, forcing retail transactions to happen at weaker rates.

The shilling was on Friday exchanged at an average of Sh128.88 units to the dollar, having depreciated from Sh104.44 at the end of March 2020.

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