Kaimana Consulting

Kamakura Corporation reported on 06 February it will launch a suite of commercial real estate default probability models based in part on data furnished by Trepp’s Data Feed, which integrates the best of various information sources to provide a single supply of high quality data regarding property types, tenant and market information on a daily basis.  Kamakura Risk Information Services already distributes default probabilities for public firms, non-public firms, and sovereigns.  The Kamakura commercial real estate default models represent another major expansion in KRIS coverage to the commercial real estate asset class, with total commercial real estate loans outstanding in the United States estimated at over $3.2 trillion and globally at over $7 trillion.

In addition to the Kamakura CRE Default Models, Kamakura announced that Kamakura Risk Manager Version 8.0, to be released in February, will have full automated access to the Trepp CMBS Engine. The Trepp libraries provide the most comprehensive, industry standard CMBS models in the market.  The flexibility of the Trepp Engine, which will be called from within Kamakura Risk Manager, also accommodates the unique nuances of commercial real estate analysis and stress testing. The design allows for a range of vector or logic-based scenario assumptions at the individual loan, group, and pool levels for CMBS transactions, with call-back capabilities to employ Kamakura’s proprietary default and prepayment models.  Read more here.

Kamakura Corporation reported 06 February that the Kamakura index of troubled public companies declined, rising 0.77% to 7.27% in January. The index has deteriorated in seven of the last nine months.  The index hit an intra-month high of 8.74% on January 9 having risen from an intra-month low of 6.98% on January 2.  Seasonal factors drive part of the deterioration in the index during the month.  At the 7.27% level, corporate credit quality is at the 74th percentile (with 100 being best all time credit quality) over the period from 1990 to the present. In December 2010, by contrast, the index was at the 99th percentile of credit quality and last month it was at the 86th percentile.  Catalyst Paper, which announced that it would file for protection from creditors, surpassed Tokyo Electric Power Company as the firm with the highest default risk during the month.  Tokyo Electric Power Company had the world’s second highest one-month default risk among rated companies, with a default probability of 43.87%. Read the full report here.

Business Monitor International: Regional Oil and Gas production has bounced back strongly over the last quarter in line with the rapid return of Libyan volumes. We expect full pre-war Libyan output to resume by the second half of 2012. Production is likely to continue growing as high oil prices drive further exploration and production across Africa.

The key themes for Africa’s oil and gas sector are as follows:

• Total oil production is set to recover quickly in line with Libyan volumes and higher output from Ghana, Angola and Nigeria.
• Gas output is also likely to rise significantly over the next five years to 2016 as new sources emerge and governments attempt to harness previously flared gas for domestic power generation.
• We forecast a rise in oil consumption on the back of steady economic growth. This is likely to necessitate further investment in the downstream sector, with Chinese development loans most likely to be the principal source of investment.
• The main investment opportunities are likely to be upstream, with West African subsalt and East African gas plays among the most exciting projects. High fuel prices are likely to incentivise further exploration and appraisal over the next decade.

Read full report here.

Kenya’s government will seek a compromise with parliamentarians over demands to cap bank lending rates that are holding up budget finance legislation, incoming acting Minister of Finance Robinson Githae said on 30 January, Reuters reported.

Just before parliament’s Christmas recess, outgoing Finance Minister Uhuru Kenyatta withdrew from debate a bill covering financing needs for the year to July this year after lawmakers introduced an amendment seeking to control banks’ lending rates.

If the government cannot get the finance bill through parliament when it resumes sitting on February 14, the government may run out of funds for its day-to-day business and development programs.  Read full story here.

Kamakura Corporation reported on 26 January that it has released an important new research paper by Managing Director for Research Prof. Robert A. Jarrow entitled “Problems with Using CDS to Infer Default Probabilities.” The popular financial press frequently quotes default probabilities for a specific firm on the basis of a credit default swap spread that may be based solely on dealer indications, not traded prices. Leaving the issue of illiquidity aside and using an analogy to life insurance, Professor Jarrow shows that frequently used formulas for converting credit default swap spreads to implied default probabilities are riddled with errors and therefore highly inaccurate.

Professor Jarrow begins the paper by showing that life insurance economics and credit default swap economics are essentially identical. Professor Jarrow states in the paper “It seems absurd to…use life insurance premiums to infer the mortality probabilities,” because the mortality probabilities can be directly calculated using actuarial science. Professor Jarrow goes on to say the following:

“Surprisingly, when discussing corporate or sovereign default probabilities, the common belief is almost the reverse. For some unknown reason, it is believed that implied default probabilities from CDS spreads provide reliable estimates. This paper shows that this common belief regarding implied default probabilities is false.”

Read the full report here.

Zambia is investigating the 2007 sale of a 49 percent stake in state-owned Zanaco Bank to Netherlands lender Rabobank , in yet another case that could see a reversal of a deal involving foreigners, Reuters reported.

President Michael Sata has chipped away at several deals made during the administration of his predecessor Rupiah Banda, after being elected in September on a promise to fight corruption.

On 29 January, Justice Minister Sebastian Zulu said a government commission would determine whether the sale of Zanaco was legal and met privatisation requirements. Read full story here.

South Sudan has fully shut down oil output in a row with Sudan over export transit fees and will only restart after a broader deal on issues including border security and the disputed region of Abyei, its oil minister said on 29 January, according to Reuters.

South Sudan took about three-quarters of Sudan’s oil output when it seceded in July, but still needs pipelines running through its northern neighbour to export its crude. The two have not agreed on a transit fee.

The new nation said on January 20 it would shut down production after Khartoum started confiscating some oil in lieu of what it said were unpaid fees.  Read full story here.

Late and insufficient rains in parts of Southern Africa at the end of 2011 have raised concerns that the region could face a period of drought, lean harvests and food shortages after several years of bumper crops. Although we do not believe that a crisis is imminent, we assess the risks posed by poor rains at both a regional and country level in Business Monitor Online and in our weekly Emerging Markets Monitor magazine.

There are three channels through which Southern African economies could be hurt, if the region experiences the wrong kind of weather: Inflation, Economic Activity and Monetary Policy.    In our article, we analyse how the above factors will affect the economies of Malawi, Mozambique, South Africa, Zambia, and Zimbabwe.  Read BMI’s report here.

Ivory Coast’s $2.3 billion bond hit two-month highs on 12 January, boosted by speculation that the country’s finance minister may detail payments of missed debt coupons at upcoming meetings in Europe, Reuters reported.

An Ivory Coast delegation led by finance minister Charles Koffi Diby will travel to London and Paris this month for meetings with creditors, Ivory Coast officials said.

Ivory Coast advisers Lazard will host a meeting for bondholders on Jan 23, a Lazard spokesman said.  Diby, who said in November that the country will resume payments starting with the June 30, 2012 coupon, will address the meeting. Lazard did not give details of the agenda.  Read the full story here.

Nigeria’s main oil union said on 12 January it would shut down output from Africa’s biggest oil producer on 15 January if the government did not reverse its decision to remove popular fuel subsidies, Reuters reported.

Tens of thousands of Nigerians have been protesting up and down Africa’s most populous nation for four straight days in protest against the axing of the petrol subsidy, which more than doubled the price to around 150 naira per litre.

“PENGASSAN shall be forced to go ahead and apply the bitter option of ordering the systematic shutting down of oil and gas production with effect from … 0000 hours of Sunday January 15 (2300 GMT on Saturday January 14), if the federal government of Nigeria fails to yield to the popular agitation of Nigerians on her unacceptable approach to fuel subsidy removal,” the oil union said in a statement. Read the full story here.