Kenya, Rwanda seek elite foreign investors

Monday January 27 2020

Kenya’s President Uhuru Kenyatta at the London Stock Exchange.

Kenya’s President Uhuru Kenyatta at the London Stock Exchange. The country’s $40 million debut green bond received a lukewarm reception. PHOTO | FILE | NATION MEDIA GROUP 

NJIRAINI MUCHIRA
By NJIRAINI MUCHIRA
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Kenya and Rwanda are hoping to expose the East Africa region to sophisticated foreign investors after floating two bonds on the London Stocks Exchange (LSE) last week.

However, Kenya’s $40 million debut green bond received a lukewarm reception with no trading recorded in the first week.

While the cross-listing of the bond was intended to expose investors to a deep market that is significantly liquid, the issue has failed to generate interest from investors with LSE market statistics reflecting zero trading.

Trading of the bond by Nairobi-based property developer Acorn Holdings has been flat in the secondary market.

The World Bank floated a $40 million Rwandan Franc bond that offers investors an annual coupon of 9.25 per cent payable in US dollars when it matures in 2023.

The World Bank intends to raise funds to invest in government bonds issued in the local market.

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“This issuance of a Rwandan franc-dominated bond on the international market by the World bank demonstrates the trust you have in our economy and more so in our economic management,” said John Rwangombwa, governor of National Bank of Rwanda.

Analysts contend that for Kenya, lack of trading on the five-year bond priced at an interest rate of 12.5 per cent is a reflection of subdued activities at the bond market.

Besides, some bondholders driven by a risk-on sentiment are not enthusiastic to trade at the secondary market owing to the attractive coupon rate of the bond coupled by the fact that it is backed by a guarantor.

“There has been subdued activity on the corporate bond market amid corporate governance concerns surrounding some of the past issues. Therefore, Acorn's bond is a shot in the arm to investors who may have general misgivings about a corporate bond issue,” said Churchill Ogutu, a research analyst at Genghis Capital.

He added that the bond being 50 per cent guaranteed by GuarantCo is a major incentive for investors bearing in mind the erosion of trust in the corporate bond market.

Chase Bank and Imperial Bank listed corporate bonds that contributed to waning investor appetite.

The Consolidated Bank of Kenya bond has also had a negative impact on the market after the lender defaulted on paying the principal and interest amount whose maturity was in July and only managed to settle in October following a bailout by the National Treasury.

In its information memorandum, Acorn warned investors not to expect significant yields and activities on the secondary market because the Kenyan corporate bond market is not very active with very few trades conducted on the market each day.

“If the market does develop it will initially not be very liquid therefore investors may not be able to sell their notes easily or at prices that will provide them with a yield comparable with similar investments that have a developed secondary market. Illiquidity may have an adverse effect on the market value of the notes,” warned the prospectus seen by The EastAfrican.

It added that with very few of the corporate bonds trading, the actual pricing of bonds is not as objective as it would be in an active, developed market.

According to statistics from the Kenya Capital Market Authority, activity at the corporate bond market continues to be sluggish. During quarter four of 2019, bond market turnover decreased by 42.5 per cent with $1 billion worth of bonds traded compared with $1.8 billion traded in quarter three. In comparison to the same period in 2018, bond turnover declined by 9.8 per cent from $1.1 billion.

Acorn is using the proceeds to build environmentally-friendly accommodation for 50,000 university students in Kenya.

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SLOW ACTIVITY

In its information memorandum, Acorn warned investors not to expect significant yields and activities on the secondary market because the Kenyan corporate bond market is not very active with very few trades conducted on the market each day.

According to statistics from the Kenya Capital Market Authority, activity at the corporate bond market continues to be sluggish.

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