Category Archives: NSE bonds

Two Rivers Development Bond

Peek at the Two Rivers bond prospectus

This week Centum investments announced a Kshs 2 billion one year 14.5% note for the Two Rivers Development Limited – which is 58% owned by Centum, 39% by Avic, and 3% by ICDC.

Two Rivers had a facility of Chase Bank to finance infrastructure developments, which they had drawn on partially when the bank closed. They also had Kshs 650 million of deposits at Chase.

Two Rivers owns 50% of Two Rivers Lifestyle Centre and 100% of phase two of Two Rivers, apartments, and offices. 50% of the mall, the largest in Sub-Saharan Africa (i.e. outside South Africa) which opened on Valentines’ Day was sold to Old Mutual in 2015 for Kshs 6.4 billion. Two Rivers Development was valued at Kshs 41 billion in March 2016.

To pay for the retirement of the bond, they are selling 11 plots of land (some residential, some mixed use, one for a hotel) which have a combines market value Kshs 6.6 billion, and a mortgage value of Kshs 5.6 billion. Interest will be paid at maturity, and the note is guaranteed by Centum Investments.

The Centum investor briefing (PDF) for 1Q2107 identifies education, leasing, and agribusiness as key areas of growth at Centum in the future.

$1 = Kshs 103

M-Akiba: Kenya’s new government bonds that are bought by phone

Today saw the launch of M-Akiba, a long awaited product that through which ordinary Kenyans tcan buy government bonds on their phones, using mobile money. The can purchase units as small as Kshs 3,000 (~$30) and earn 10%.

Some tweets about the events today: 

  • The Central Bank of Kenya governor (@njorogep) said  #MAkiba bond is in line with @CBKKenya strategy to increase the level of financial inclusivity in the economy – @NSEKenya   
  • #MAkiba is a collaborative initiative between @NSEKenya @KeTreasury @cdsckenya @SafaricomLtd @AIRTEL_KE @KCBGroup – @NSEKenya
  • Phase One of M-Akiba Runs for 3 weeks targeting Sh150M. Main offer targeting Sh4.85Bn in Q2-Q3 Will run for 3 Months – @kenyanwalstreet
  • M-Akiba bond has so far been Ksh. 535k purchased. I am surprised Kenyans were this interested. So far highest buy is at Ksh. 50k – @MumbiWarui
  • Day One Of M-Akiba; Bonds worth Ksh 1.0 Million Bought Via Mobile Phones In the first 60 Minutes http://kenyanwallstreet.com/m-akiba-retail-bond-goes-live … @kenyanwalstreet
  • To trade #MAkiba bond open a CDS account by dialling *889# either on @SafaricomLtd @AIRTEL_KE .The initial investment per account is 3,000. – @NSEKenya
  • CDSC to manage the register of the bond, offer IPO managements system and the depository and settlement services on behalf of the government – @cdsckenya
  • We have just witnessed the launch of the first M-Akiba bond at the Treasury. It has a coupon rate of 10%p.a.Tradable through the phone.- @JimnahMbaru
  • The #MAkiba bond entry level is kshs 3,000 compared to the current entry point of Ksh 50,000 for any govt securities. @M_AKIBA2017 – @NSEKenya
  • #MAkiba bond is a tax free bond that will attract a 10% interest paid biannually within a period of 3 years @CMAKenya @cdsckenya @CBKKenya – @M_AKIBA2017
  • We are receiving A LOT of transactions per sec. In case of any delays, please just try again. Thank you for the overwhelming response so far – @M_AKIBA2017
  •  UPDATE: Subscription figures- @AIRTEL_KE  Airtel Money -1,300 @SafaricomLtd  MPESA-420 Total collection KES 2.4 million. AS AT 4PM TODAY – @M_AKIBA2017

Some Blogs:  

EDIT

  • M-Akiba is a three year fixed coupon infrastructure “special limited offer” bond
  • Issue number MAB1/2017/3
  • Amount Kshs 150 million (~$1.5 million) issued in March 2017
  • Apply by *889#, and runs from 23 March to 7 April and will be allocated on a first come first served basis
  • Minimum investment is Kshs 3,000, maximum investment is Kshs 140,000 (~$1,400) per day
  • Coupon 10% a year
  • Bond will be listed on the NSE and will be tradable by phone from April 11
  • Trading commission is 0.1% of actual allocations
  • M-akiba interest is tax exempt
  • Pays interest every 6 months: on (2017) 9 Oct, (2018) 9 April, 8 Oct., (2019), 8 April, 7 Oct., (2020) 6 April
  • From a prospectus in a local newspaper.

Notes

‘Akiba’ means  ‘savings’  in Swahili
$1 = Ksh 103

EuroBond & Mindspeak with Henry Rotich

Last weekend, the Mindspeak series had National Treasury Cabinet Secretary Henry Rotich

Treasury Cabinet Secretary . There was a lot of expectation that he was there to talk about Eurobond but that wasn’t the case and it was merely one subject he touched on his talks about his role and functions in the government, and economic outlook for Kenya.

In his intro, host Aly-Khan Satchu said that the Kenya Eurobond which was the perfectly timed and a stunning issue at 6.875%, the largest SSA bond perfectly times. It has helped the shilling  – stunning issue outperform many currencies – only losing 11% against the dollar, compared to the Rand (-39%) , Angola (-50%) and Kwacha (-73). KCB CEO Joshua Oigara noted that people outside Kenya are more confident than people within, and people who are doing great things, should know that a certain percent will not agree with you.

CS Rotich at Mindspeak

Excerpts of the CS presentation, remarks, and Q&A session 

  • Kenya Outlook China slowdown to focus on domestic and US exit from international market will have an impact on the world, but Kenya with a diversified economy and strong private sector should be resilient
  • Challenges include to reduce poverty, and inequality, and also create employment. The economy needs to grow faster than 5-6% and not getting enough innate employment. 1 million a year. 6% will only create 600,000 jobs. so need 10% growth to create jobs 1 million per year. 
  • Agriculture has not been modernized for a long time. these services sector (ICT, financial). manufacturing has been flat for two decades (10% of GDP) – and this needs to be 20%. That’s  why they are support leather & textile, and working to lower energy costs and , improve the business environment through special economic zones.

The Job 

  • He is guided in his job by three measures of economic health – interest rates, exchange rates and inflation (stable, single digits).
  • The ministry has undertaken fiscal reforms, and the budget is more policy-based.They pay suppliers with Gpay and IFMIS, new procurement laws are in place, the auditor general reviews expenditure, and there are quarterly reports on the website and which are submitted to parliament.

Eurobond/Debts:

  • Kenya still has low and sustainable external debt levels. It did not get HIPC debt relief, unlike other countries and has paid debts on time – this was a big selling point when marketing the Eurobond.
  • The current account deficit gone from 10% to 7% of GDP mainly because of lower oil prices, and less thermal energy generation and slowdown of consumer imports  (good, as the focus should be  on investments not consumption)
  • You cannot be a growing economy if you can’t borrow from outside – you need to safeguards.  The bond was oversubscribed and when it traded favorably, they also did a tap sale that picked another $750m. Aly-Khan said the government actually got $815 million and only has to pay back $750 million.
  • Explanations and documentation about the bonds are on the treasury website.
  • Euro bond proceeds received have been spent on 2013-15 budget programs like infrastructure projects. The bond was not specific, and not earmarked to any project. it was for budgetary support of programs, some initiated by the previous government, such as roads and electrification
  • We will remain as participants in the international market and soon intend to borrow more

Savings

  • Need to raise Kenyan savings from 12% to at least 30% of GDP – perhaps through more innovative finance products (from insurers  & capital markets) to save.
  • M-akiba bond launch has been delayed. It was meant to come out last October, but interest rates were still high and volatile.
  • They have also sorted issues with Safaricom and CDSC  – all that’s left is to set the price and launch.
  • Kenyans will be able to buy government bonds of amounts of Kshs 3,000 (~$29) by phone.

Taxes:

  • Wants to raise tax to GDP ratio to 25%, but people say there are too many taxes already
  • Wants to keep government wages below 35% of revenue.
  • New VAT and excise bills have come, but we are yet to modernise income tax. That should happen by the next budget with a view to expanding tax base (very few people pay tax now).
  • They will also support county governments to implement and collect taxes assigned to them like property tax.

Local Banks

  • Wants to reduce bank interest rate spreads from 17% to 8% – we’ve been asking banks what is this 8%? Can they share infrastructure, reduce the cost of perfection securities etc.
  • There are too many banks that are not offering competition;  5 banks control 70-80% – the other 30 are competing for 30% market share. Parliament stalled a move to increase bank capital, but his aim is for 15-20 banks which actually compete.

 Oil & Petrol

  • It’s good that Kenya did not discover oil early – and was thus able to diversify and develop agriculture, and services, and its only now that oil & minerals are being discovered.
  • The petrol pump price would be lower if exchange rate was 88-90. Now the rate at 102 has eaten a lot of  savings.
  • When oil prices fall, we should  actually keep the petrol price the same and transfer the savings to a fund

Privatization

  • There has been no government privatization since Safaricom — the current law is a hindrance rather than  facilitator as there are too many lengthy requirements and safeguards. We may have to amend the law if you wants to see more privatization transactions, and need to trust the government by not requiring too many consultations.
  • There’s a pipeline of projects to sell,  starting with sugar companies, then a few banks (government owns 4 banks), hotels stakes etc.

Bowie Bonds

Musician David Bowie died today after a long battle with cancer. A very successful rock musician, between the 1960’s-1990’s, he gained more financial fame in 1997 with the issue of what became known as Bowie Bonds, and Investorpedia has a nice summary about them.

  • Definition: An asset-backed security;which uses the current and future revenue from albums recorded by musician David Bowie as collateral. The 25 albums a Bowie bond uses as their underlying assets were recorded prior to 1990. David Bowie used the proceeds from the bond sale to purchase old recordings of his music. In creating the bonds, he ultimately forfeited royalties for the life of the bond (10 years).
  • Bowie bonds, issued in 1997, had an interest rate of 7.9% and a life of 10 years. The Bowie bonds were purchased by Prudential Insurance for $55 million.
  • Bowie bonds represented one of the first instances of a bond that used intellectual property as the underlying collateral. The value of the bonds began to decline as online music and file sharing grew in popularity, decreasing album sales. This resulted in a downgrade by Moody’s in 2004. However, the advent of legal online music retailers renewed interest in these securities in the latter part of the decade.

Other musicians and artistes attempted to structure variants of the Bowie bond including Madonna, Michael Jackson,  Bob Dylan, the Motown songwriting team, and even photographer Annie Leibovitz.

Where is Kenya’s Euro Bond?

 The search for Kenya’s Euro Bond, launched in 2014 seems to be a question that preoccupies many people, along with where the money raised was banked and what it was used for. It also coms as Kenya has jut launched another Kshs 30 billion bond to raise funds for infrastructure which was what the Euro bond was marked for.

 There are in fact two Euro bonds:

Bond 1

Bond 1 is Kenya 2024

Issuer name Republic of Kenya
Issuer profile Central bank of Kenya has multiple interests in the development of bond markets. At a fundamental level the government Treasury bond helps to fund budget deficits.

Amount $2 billion 

Initial issue amount $1.5 billion
Start of placement 06/16/2014
Last reopening date 11/25/2014
Coupon frequency 2 time(s) per year
Issue managers Bookrunner: Barclays, JP Morgan, QNB Finance Ltd, Standard Bank
Stock exchange and OTC quotes: December 1 on  Frankfurt S.E., Berlin Exchange, Stuttgart Exchange

Bond 2 is Kenya 2019 

Bond 2Issuer Republic of Kenya
Issuer profile Central bank of Kenya has multiple interests in the development of bond markets.

Amount $ 750 million

Initial issue amount $500 million

Start of placement 06/16/2014
Coupon frequency 2 time(s) per year
Issue managers Bookrunner: Barclays, JP Morgan, QNB Finance Ltd, Standard Bank

Stock exchange and OTC quotes:  December 1 on Frankfurt S.E., Berlin Exchange, Stuttgart Exchange

Charts from cbonds.com