Market Update 31 March 2021
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Market Update
31 March 2021
Local Economy Going Forward
After having successfully curbed the spread of the COVID-19 virus in the In March 2021, Moody’s downgraded Mauritius’ sovereign rating by one
community during the last three quarters, the country has witnessed a notch to Baa2 and a negative outlook, particularly on the back of the
resurgence of local positive cases lately. Subsequently, the authorities erosion of economic and fiscal strength induced by this pandemic.
have announced a national lockdown since 10th March. The overall impact Moody’s warned against further deterioration in debt metrics and rising
of the second lockdown which has recently been extended to the 30th inflationary pressures, which would weaken fiscal and monetary policy
April - on the country’s economic growth performance is likely to be effectiveness and result in further downgrade. As it stands, with no
moderate and to some extent, mitigated by the fact that:(i) additional visibility on policy decisions, the risk of further downgrade looms.
economic activities have been allowed to resume since 1st April; (ii) an
extensive number of Work Access Permits have been promptly issued; and The Government has indicated that the re-opening of borders is highly
(iii) several operators have effectively maintained some level of activity via dependent on the rollout of the vaccination program and herd immunity
remote-work. being achieved. However, we note difficulties to secure vaccine at
source and bottlenecks on inoculation programme. Consequently, the
Overall, we still expect the domestic economy to bounce back this year, country faces the risk of delaying its re-opening with the second
albeit at a softer tempo than previously envisaged. As for headline lockdown, thereby complicating matters. Hence, there is increasing risks
inflation, after standing at 2.4% as at February last, some upward of further downgrades in the economic bounce back forecasted for the
pressures on the Consumer Price Index are likely to emerge over the year 2021, the more so if there is a prolonged period of confinement. In
coming months, fueled by the rise in freight costs, the hike in commodity turn, these could give rise to the specter of more unemployment and a
prices worldwide and the recently-announced increase in the retail prices fall in consumer spending amidst a rise in commodity prices.
of Mogas and Gas oil.
Moreover, Mauritius remains on the FATF “grey list” after the February
On the external front, while currency dynamics would continue to weigh 2021 assessments, despite having made progress on several
in the balance, the trade deficit is set to deteriorate further, amidst a recommendations. The authorities expect that significant progress will
projected rise in imports driven by higher expenditure on machinery and have been made by October 2021 to be removed from the list.
transport equipment and higher oil prices offsetting the pickup in exports,
notably of textile and related products. The current account deficit is Although more than 83% of stocks are trading on average 30% below
projected to remain elevated this year in spite of benefiting from a their December 2019 closing prices, in our view, the current
projected rebound in the services account and overall, the projected uncertainties do not warrant taking further equity risk at this stage of
rebound in capital and financial flows and grants from foreign the lockdown, despite many having subdued downside risks. On the
Governments should support the country’s balance of payments, although fixed income front, in spite of the small uptick in yields in 2021Q1, the
a marginal deficit therein is still expected this year. current excess liquidity in the system coupled with impending MIC
disbursements will likely mitigate rising yields in the near term. We
therefore reiterate our cautious stance on equities and delay our
intended asset class rebalancing from fixed income to equities.Market Update
31 March 2021
Vaccination update Vaccination update
The rollout of vaccines against Covid-19 has been a key focus globally, with
herd immunity touted as the key to a return to a ‘normal’ life and a lift of
international travel restrictions. In Mauritius, the vaccination programme
was opened to the wider public at the start of March 2021 and the
Government has intimated that borders will remain closed until some 65%
of the adult population is vaccinated which sets the target to c. 643,000
vaccinated individuals.
As at 1 April 2021, some 190,000 had their first dose of the vaccine,
implying an inoculation rate for first dose takers of 17.7%. In line with their
vaccination targets, the authorities have ordered doses of various vaccines
as per the following timeline:
Expected
Order Date Type Doses Comments
Delivery Date
16-Dec-20 Covishield 100,000 Jan-21 Delivered Figure 1: Forecast timeline to reach 65% of first dose and second dose takers
16-Dec-20 Covishield 100,000 Feb-21 Delivered Source: GIS Mauritius – computed by MCB PBWM
16-Dec-20 Covishield 100,000 Apr-21
Even if we assume that there are no prolonged vaccine shortages in the
16-Dec-20 Covishield 100,000 Jun-21
26-Jan-21 COVAX 507,200 Unknown 24,000 doses received in Mar 2021
country due to delivery issues, we project that the target of 65%-
05-Mar-21 Covaxin 200,000 Mar-21 Delivered threshold of first dose takers will not be achieved by June 2021 if there
12-Mar-21 Sinopharm 100,000 Unknown is no improvement in the daily vaccination rate.
23-Mar-21 Sputnik 1250000 Unknown To be delivered in 2 equal batches
Table 1: List of Covid-19 vaccines and doses ordered by the Ministry of Health and Wellness Based on our desktop forecast, assuming that the operational capacity is
Source: Hansard (7th National Assembly, 23 March 2021) able to handle both first dose takers and second dose takers in the same
venues and at the same rates, the best case scenario to reach the 65%-
Official scenarios of the Ministry of Health (MoH) forecasted that 62-
threshold for second dose takers would in our view be in early
74% of the adult population would be immunized (two doses) by August
September 2021. Assuming that up to this point, all the people who got
2021 if 10,500 – 12,500 persons were vaccinated per day. This estimate
vaccinated start to develop the antibodies after 3-4 weeks, we are hence
is within the MoH vaccination team’s and private clinics’ capacity to
looking at a base-case scenario of herd immunity in October 2021. If
administer up to 13,000 vaccines per day. However, the average daily
such is the case, there may be a delayed reopening of international
vaccinations have been lower than expected and hovered around 7,400
borders and consequently negatively impact on the economy, and the
and for now, it is unclear whether this below-than-expected average
tourism industry in particular.
vaccination rate emanates from operational constraints or low uptake
from the population.Market Update
31 March 2021
Domestic Equities Domestic Equities
The Stock Exchange of Mauritius was suspended for one session on 10th Financials as a sector lost 5.2% over the quarter driven mostly by MCBG
March 2021 following the national lockdown reflecting better and SBMH (2021Q1 -2.8%), especially following Moody’s downgrades of
preparedness to remote working as compared to the first lockdown, which long-term borrowing ratings of MCB Bank Ltd and Absa Bank (Mauritius)
saw the local market close for 11 consecutive trading sessions. The first Ltd to Baa3 and Ba1 respectively. Furthermore, Industrials (2021Q1
trading session of Lockdown 2.0 (SEMDEX: -1.8%) also contrasted starkly +5.9%) appeared as the only positive sector fueled by gains on
from the first (SEMDEX: -7.4%). This time, investors’ sell-off was muted construction stocks (Gamma +20.9% and UBP +6.6%); the sector is seen
despite the resurgence in local Covid-19 cases and the announcement of as among the most resilient in this pandemic.
confinement measures for an initial period of 2 weeks. The index closed
the first quarter of 2021 at 1,600.19 points, shedding 2.9% over the period Losses on NMH (+15.8%) dragged the hotel sector down by 4.5% even
under review. though LUX (+1.3%) and SUN (+6.2%) posted positive performances in the
This may be partly due to the fact that the index is trading at multi-year quarter. The sale of Kanuhura resort in the Maldives for an undisclosed
lows. Overall, as uncertainties persist, the SEMDEX has remained at low amount boosted SUN shares, which in turn benefited Investment Holding
levels and has yet to recover from the correction we saw in the first Group, CIEL (+19.0%) uplifted by both SUN and resilience of Alteo
quarter of 2020, with 4 out of 5 listed companies on the Official market (2021Q1 -1.0%) at higher than pre-pandemic levels.
still trading at an average of 30% discount to their December 2019 closing
prices.
Gamma 20.9% MCFI -18.9%
For the quarter, the net foreign outflows amounted to c. MUR 0.4bn, CIEL 19.0% NMH -15.8%
compounding to an aggregate outflow of c. MUR 14.9bn from the Official
market since 2015. Banking stock MCBG (-8.1% 2021Q1) saw the bulk of UDL 15.3% BMH -11.3%
the foreign outflows in 2021Q1 at c. MUR 0.6bn. As at 31 March 2021, MUA 7.5%
Lottotech -10.6%
foreign holdings on the stock stood at 10.6% (CY2020: 11.6%).
CIM 7.5%
Medine -9.5%
UBP 6.6%
BlueLife -9.0%
SUN 6.2%
POLICY -8.7%
ASL 3.4%
Rogers -8.6%
Vivo 3.1%
MCBG -8.0%
LUX 1.3%
Omnicane -7.9%
Figure 3: Top gainers and laggards by absolute performance (2021Q1)- Source: SEM
Figure 2: Local equity market indices (in local currency) - Source: SEMMarket Update
31 March 2021
Domestic Equities Hotel sector zoom
With international borders staying closed, hoteliers including NMH (YTD: -
15.8%), Lux Island Resorts (YTD: 1.3%) and Sun Limited (YTD: 6.2%) have
all been scrambling for domestic tourists on discounted weekend
packages. Lockdown 2.0, however, has compounded the difficulties that
the sector was already facing.
With the re-opening of international borders pinned on achieving herd
immunity through the ongoing vaccination programme but which we
expect would not be achieved until October 2021, we foresee further
headwinds for the three major listed hotel groups and the tourism
Figure 4: SEMDEX Sector Performance (2021Q1 vs 2020Q4) - Source: SEM
industry as a whole.
Despite the gloomy setup, several large caps saw renewed interests
For FY2020, while revenue were hit by 22% to 42% year on year, the
from investors with some stretching gains into double-digits as at March
indebtedness of these groups have increased non-negligibly between in
2021, relative to the close of March 2020, which saw the largest market
the year, highlighted by their growing gearing ratios. Given their cash flow
correction in years.
constraints, these hotel groups have benefited from a number of
Topping the list versus its March 2020 lows is investment stock Alteo
Government support schemes including the Wage Assistance Scheme
which, on improved results from African operations, bounced back
(WAS) from the government, and this is expected to be ongoing until
46.8%, while MUA (+27.3%), Vivo Energy (+40.8%) and IBL (+11.3%) paid
either end of June 2021 or the re-opening of borders.
out dividends over the past 1-year period and hotelier LUX (+16.2%)
which saw market support. Nevertheless a few large caps namely ENL
As the current situation lingers the level of indebtedness of these hotel
Limited (-18.1%), SBM Holdings (-25.2%) and Medine (-32.1%) have
groups remain cause for concerns. To note, WAS benefits are to be paid
retreated further over the period as well as hoteliers NMH (-21.8%) and
back to the MRA in the form of Covid Levy and represent a liability.
Sun Limited (-11.2%).
FY 2020 SUN Lux NMH*** Table 3: FY2020 financials
In terms of portfolio movements in 2021Q1, we increased our Revenue (MUR m) 5,058 4838 5633 of Sun Limited, Lux Island
YoY change -24% -22% -42% Resorts and NMH
allocations in MCBG to overweight and continued adding Ciel Limited
EBITDA* (MUR m) 1,029 1,029 762
and CIM Financial Services at equal weight to benchmark. YoY change -18% -25% -56%
Source: Annual Reports
2020
Net Debt (MUR m) 8,778 5,004 17,639
SEMDEX Perf
2019 2020 2021 YoY change 12% 17% 11% *EBITDA before
(by period)
Jan -0.25% 1.63% -0.63% Net Debt/Total Assets 41% 32% 49% exceptional items
291 ** Debt/(Debt + Equity)
Feb -0.28% -1.60% -2.43% YoY change (change in basis points) (261) 300
***9-month period
Mar -1.90% -27.84% 0.12% Gearing ratio** 59.3% 47.4% 71%
YoY change (change in basis points) 1,120 590 1,000
Jan-Mar -2.43% -27.81% -2.94%
Wage Assistance Scheme (MUR m) 175 72 299
Table 2: SEMDEX performances between 2019 and 2021 for the period Jan – Mar - Source: SEMMarket Update
31 March 2021
Hotel sector zoom Corporate News
As regards cash flow constraints, while revenue lines will be dry for some Ascencia
time, and given that most groups applied for funding from the Mauritius The company intends to apply to the SEM for the migration of its Class A
Investment Corporation (MIC), it is imperative that: ordinary shares and its redeemable bonds from the DEM to the Official
(i) there is a timely disbursement of these pre-agreed funds. list of the SEM. Should all approvals be received, this stock will be the 5th
(ii) hotel groups re-assess their funding needs and take appropriate largest stock in terms of market capitalization with a value of c.
measures. MUR10bn at current price.
Mauritius Investment Corporation (MIC) update Gamma
The MIC has approved c. MUR17.0bn worth of applications, with 85% The company intends to implement a multi currency note programme by
relating to the ‘Accommodation & Food Service Activities’ sector. As at 08 way of private placements of up to MUR 3bn to fund working capital,
March 2021, merely 12% of the overall approved funds has been disbursed future strategic initiatives and investments. The first tranche will be for
(c. MUR 2.0bn). MUR 1bn and will not be listed on the SEM.
Lavastone
The company has successfully raised MUR 1.5bn under a secured notes
programme by way of private placement.
ENL Limited
Though ENL Limited published it FY June 2020 results in March 2021, it
has however asked for an extension from the SEM to publish its Q1 2021
& H1 2021 results by 30 April 2021.
Update on FATF
Following representations made to the FATF during the plenary meeting
Figure 5: Sector allocation of MIC-approved applications Source: MIC website in February 2021, Mauritius nevertheless remained on the FATF list of
jurisdictions under increased monitoring. In its Mutual Evaluation Report,
Corporate News ESAAMLG upgraded the jurisdiction on two recommendations (26 & 32)
Omnicane but will keep it on the enhanced follow-up list after it was re-rated down
Omnicane indicated on 31 March that it has initiated discussion with the on one recommendation (15).
MIC seeking for financial assistance as its operation will be adversely
impacted by the pandemic. The amount under consideration has not been Additionally, the UK added Mauritius on its list of Third High Risk
communicated. This communique contrasted with an announcement back Countries with regards to AML/CFT control deficiencies. To note, the UK,
in October 2020 where the company was in cause for a financial re- which was initially using the EU’s list for such, has now established its
structuring exercise and its bonds maturing in June 2021 might have been own list, which is a replica of that of the FATF.
subject to early repayment.Market Update
31 March 2021
Fixed Income Fixed Income
During the quarter, the Treasury yield curve steepened, albeit very On the other hand, average bid to cover ratio was nearly three times for
timidly compared to major international economies notably US and BOM and Government bond auctions in January and February 2021. As
Europe. While in the latter regions, the differential between the such, it could be viewed that BOM has so far refrained from mopping up
benchmark 2-year and 10-year bond yields roughly doubled, in the high excess liquidity in the system, thus contributing to contain a
Mauritius, the spread merely inched up from 1.82% to 1.97% (+15 bps). premature pick-up in rates, which would be detrimental to an economic
3.50 turnaround while the government look for other recourse to finance its
Government of Mauritius Bonds Yield Curve
fiscal deficit.
3.00 Yield curve based on MCB mid rates
Additional monetary stimulus will also gradually materialise in the form of
2.50 MIC disbursements; this powerful firepower totalling MUR 80bn coming
2.00 as fresh money in the banking system, has only started being deployed
with only c. MUR 2bn disbursed to date.
1.50
While increasingly leveraged corporates and the uncertain outlook
1.00 mitigate investment in some sectors, we risk moving towards a liquidity
0.50 31-Dec-20 31-Mar-21 trap situation, where rock-bottom level of interest rates fail to boost
growth and push rates higher over the short to medium term. This could
- prolong the period of high excess liquidity and low rates in the local
3M 6M 12M 3Y 5Y 10Y 15Y 20Y
market.
Figure 6: Government of Mauritius Bonds Yield Curve Source: MCB Treasury
On the corporate side, the secondary bond market for MUR denominated
Despite the small uptick in rates, as uncertainties abound in the wake of bonds continued to be characterized by low liquidity, with total
a second lockdown, we believe expectations of an economic rebound transactions standing at MUR 770M (2.8% of outstanding issues as at
and inflationary pressures in 2021 are unlikely to drive local interest rate end-March) over the last 12 months, of which MCB and SBM bonds
significantly higher in the short term. Excess liquidity in the banking represented 66%.
system will remain a key driving factor in our view. We hence continue Although interest rates are expected to stay low in the short term, we
to closely follow the evolution of excess liquidity, which fell 34% to believe investors will increasingly seek liquid fixed income instruments to
Rs32.0bn in March 2021, after touching a 12-month high of MUR 49.6bn more efficiently managed their bond holdings to allow them to better
in December 2020. manage their duration risk.
On the one hand, the supply shortfall of foreign currency on the local
market since the Covid-19 outbreak has to some extent helped mop-up
some of the excess MUR levels; as commercial banks hand in MUR to the
BOM in exchange for USD during their regular market interventions.Market Update
31 March 2021
Fixed Income FX
Top 5 issuers with largest cumulative transaction values over the last 12 At the end of the quarter, EUR-MUR stood at 47.52 after hitting a 12-
month high of 48.40 in January 2021. As for the greenback, it was
Cum. transaction value (MUR
300 months (MUR bonds) 10%
7.9%
250 trading at a 12-month high of MUR 40.50 on the last day of the quarter.
6.2%
% of outstanding issue
200 In the wake of this second lockdown, the BOM intervened in the
150 5% secondary market to sell USD at 0.8% higher on 16th March at 40.25.
m)
100 1.8% Then on 24th March it sold at 40.30, USD 50m, double the size of its
1.5% 1.0%
50 weekly intervention since August 2020. Although the BOM has the
0 0% capacity to supply foreign currency given the high import cover of 13
MCB SBM SUN CIM FS Medine months at end-February 2021, we need to keep an eye on the
Transactions value % of outstanding issue management of these reserves.
Figure 7: Top 5 issuers with largest cumulative transactions values (Mar 2020 – Mar 2021) USD, EUR & GBP vs MUR
Source: SEM, MCB PBWM (31 Dec 2020 =100)
105
Given the current spread between USD and MUR interest rates, and the 103
spectre of a weakening MUR, we believe some investors may turn to 101
USD fixed income investments to earn more decent returns whilst 99
weighing their interest rate, credit, foreign exchange and liquidity risk 97
factors. 95
US and MUR 5-yr Treasury yield spread
11-Feb
18-Feb
25-Feb
11-Mar
18-Mar
25-Mar
4-Feb
4-Mar
31-Dec
14-Jan
21-Jan
28-Jan
7-Jan
4.00
31 December 2019 to 31 March 2021
3.50
3.00 MRU-5yr (MCB Treasury mid-rate) US-5yr USDMUR Index EURMUR Index GBPMUR Index
2.50 Spread: Figure 8: MUR against USD, EUR & GBP Source: MCB website
2.00 2.01 %
1.50
1.00 USDMUR rate USD m
0.50 40.50 60.00
50.00
- 40.00
40.00
Apr-20
Nov-20
Jan-20
Jan-21
Dec-19
Mar-20
Oct-20
Dec-20
Mar-21
Jul-20
Aug-20
Feb-20
May-20
Jun-20
Sep-20
Feb-21
39.50 30.00
20.00
39.00
Source: MCB Treasury MCB PBWM 10.00
38.50 -
8-Dec-20
2-Nov-20
17-Mar-21
6-Oct-20
13-Jan-21
22-Jan-21
31-Jan-21
17-Dec-20
26-Dec-20
18-Feb-21
27-Feb-21
8-Mar-21
11-Nov-20
20-Nov-20
29-Nov-20
4-Jan-21
15-Oct-20
24-Oct-20
9-Feb-21
FX
Over the quarter, the EUR-USD declined 4.0%, whilst we saw a 1.6%
MUR appreciation versus the single currency, and 3.0% MUR Amount in USD m - RHS BoM sell rate (MUR) - LHS
depreciation versus the greenback. Figure 9: FX Intervention over the last 6 months Source: Bank of MauritiusYou can also read
