Category Archives: NSE bonds

Laikipia Infrastructure Bond

Laikipia County includes Nanyuki town which is famous for its views of Mount Kenya and vast farms, several ranches and wildlife conservancies in the semi-arid north of the country.

Under its second governor, Ndiritu Mureithi, the County Government of Laikipia also went the furthest in advancing the country’s first municipal bond. Under the new constitution (adopted in 2010), counties can do this to finance projects, if the national government guarantees the borrowing, with the approval of the county assembly (local parliament)

The Laikipia county govt pursued this route in recognition that it had limited resources to undertake large projects and in the hope that the funds raised from the bond will help to catalyze its economy from the current Kshs 100 billion to Kshs 400 billion per year.

When the county assembly had earlier rejected the bond proposal, more public participation and marketing was done on the infrastructure bond. This was done in places like Nyahururu and Rumuruti with residents asked to identify their priority needs and the feedback ranged from issuance of title deeds, completion of feeder roads, youth centres, public sanitation and upgrade of health facilities.

In May 2022, the Cabinet granted final approval to Laikipia’s application for a Kshs 1.16 billion domestic infrastructure bond at a “market deemed coupon” and which the Senate was told would be a 7-year note at 12% with a bullet payment on maturity. The bond is to go towards capital projects and be paid from normal revenue.

For investors, infrastructure bonds are tax exempt. The minimum investment required is Kshs 50,000 and investors should have a CDS account.

The funds to be raised are designated as Kshs 1.1 billion for smart infrastructure upgrades in ten towns to have street lights, paved walkways and sewerage lines etc. at places like Doldol. Others are the Bemwaki road, Muwarak lighting, and Nanyuki bus park) as well as dam projects at Wangwaci and Ilpolei for Kshs 165 million that are to enhance agricultural production.

A county can borrow 20% of its audited revenue and counties were given the green light to borrow up to Kshs 60 billion and Laikipia was the fourth county to earn a credit rating after Bungoma, Kisumu, and Makueni – all counties that were led by “progressive” governors. Makueni was hailed for its health care system and agro-processing ventures, Kisumu under Professor Anyang’ Nyong’o, father of actress Lupita Nyongo has a long history even before he became governor, while Bungoma was led by one of the country’s leading actuaries – who also lost his election last week for being on the ‘wrong party.’

It is not clear what will happen to the bond with the exit of its champion governor. In a Standard article (paywalled) after the election loss, Ndiritu was praised was raising Laikipia’s on-source revenue, steering county residents to enrol in the National Hospital Insurance Fund (achieving a national NHIF high of 64%) and developing programs for leasing road-building and medical equipment.

Laikipia was assigned BB+(KE); “outlook stable” in February 2021 by Global Credit Rating (GCR). Later, after a review period, was upgraded to BBB-(KE) in April 2022, followed in June 2022 to ‘evolving’ from ‘stable’ due to enhanced revenue collection of Kshs 840 million in the 2021 financial year.

Whether Laikipia’s bond rating and progress will change, with the defeat of the governor, remains to be seen. One financial expert thinks that the new county government will not see the infrastructure bond as feasible to advance any further.

EDIT November 10, 2022. According to an article in the East African Standard, Joshua Irungu who took over as governor of Laikipia in August 2022 has appointed a task force to look at the viability of the bond as “the county government’s projections of revenue growth, prevailing economic realities, the market base lending rates revision as well as the cost of monies involved are making further pursuit of the bond unattractive at the moment. “

Chase Bank’s Long Tails

Nearly six years after the collapse of Chase Bank, the Capital Markets Authority has come down with harsh penalties on some of its former senior managers, directors and auditors. This is not over the collapse of the bank, but over misleading statements, failure to disclose material information or conflict of interest in the issue of a bond that the bank  floated in May 2015. Its first tranche raised Kshs 4.8 billion, 10 months before ether bank close. The bond’s Information Memorandum (IM) indicated that the funds raised would be used for branch expansion, IT investments, and new products. 

Penalties Levied:

  • Kshs 10 million against Deloitte, the reporting accountant for the bond note program and its partners will be reported to ICPAK.
  • Kshs 5 million fines each against Duncan Kabui, the former Group Managing Director,  Paul Njaga the former CEO and Ken Obimbo the former Group Finance Director. In addition, Kabui is debarred from being a director or partner in an issuer on the Kenyan capital markets for 10 years, while Obimbo is debarred similarly for 5 years.  
  • Kshs 2.5 million each against the former members of the Audit & Risk Committee – Laurent Demey, Muthoni Kuria and Rafiq Sharrif. The fine also was levied against Anthony Gross, who was Chairman of the Committee and who was ordered to attend corporate governance training.
  • Kshs 1 million, a smaller fine, against Richard Carter, a former director of Chase.  

 The Business Daily (BD) had reported on some findings that the CMA had made unearthed at Chase when it went reviewed its IT systems and which the CMA felt that Deloitte should have flagged such as a Kshs 14 billion hole at Chase, an IT override switch, and a Kshs 1 billion bonus paid to Chase’s former Chairman Zafrullah Khan that was later shared with other directors and executives.  The fines are against 9 of 12 people targeted, and who appeared before an ad hoc committee put together by the CMA but 3 others went to court and halted the CMA probe proceedings against them – and the BD has identified them as Khan, former Finance GM Makarios Agumbi and former Corporate Assets Manager James Mwaura.

In another matter, a judge has ordered SBM Bank which took over the assets of Chase Bank to compensate AfrAsia Bank of Mauritius for a $7.5 million deposit that they had placed at Chase just before the bank was closed in April 2015. The judge said that due process was not followed in notifying depositors about the transfer of the bank assets from Chase to SBM and found that SBM, not the Kenya Deposit Insurance Corporation, is where AfrAsia should have pursued their claims. Will this open the door to other aggrieved depositors in collapsed banks like Chase, Dubai, and Imperial? – Read more in the Business Daily.  

Related:

  • Earlier updates in the Chase and Imperial bank cases 
  • Past CMA actions on company directors on governance matters. 

Kenya Eurobond 2021 A to Z

Kenya’s 12-year Eurobond, in which the Government sought to raise $1 billion, attracted offers worth $5.4 billion after a three-day virtual roadshow with European investors.

Here’s a peek at a draft 223-page prospectus

Advisors to the National Treasury were Citigroup and J.P. Morgan Securities as book runners, co-managers were NCBA and I&M banks, Citi was also the paying agent and registrar, while legal advisors were Dentons, White & Case, Dentons Hamilton Harrison & Matthews and Coulson Harney.

Banking: The Central Bank regulates all mobile phone-based banking products offered by banks.

The government will not participate in the recapitalization of the National Bank of Kenya and plans to divest from commercial banking.

Debt rescheduling: During Covid, Kenya secured debt suspension relief from eight out of its 10 Paris Club member creditors, and China for a total of Kshs 38 billion of 68 billion requested, to free up liquidity for Covid-19 pandemic-related expenditures.

Default: Is non-payment of the principal for 15 days after it falls due or interest for 30 days after the due date. Also if Kenya ceases to be a member of the IMF or default on another security by $25 million.

Litigation: Any disputes shall be resolved under arbitration rules of the London Court of International Arbitration and shall be lodged through the High Commissioner of Kenya in London.

London Bond Listing: An application has been made to list and trade the notes on the London Stock Exchange. Notes are in denominations of $200,000

Past Eurobonds: In 2014, Kenya raised an aggregate $2.75 billion through dual-tranche 5- and 10- year Eurobonds. In 2015, Kenya had $750 million syndicated loan with a consortium of banks and in February 2018, Kenya issued its last Eurobond, a $2.0 billion one comprising a 10-year tranche and a 30-year tranche.

In April 2019, the Auditor General issued a special audit report on the 2014 Eurobond and found the funds were fungible utilized but some were spent outside the Government’s IFMIS.

Purpose: The Kenya Government intends to use the funds for general budgetary expenditures.

Repayments are made in US dollars.

SGR: In January 2021, Kenya secured a debt suspension from China of a loan by Eximbank to fund Kenya’s SGR. US$378 million, will be repaid over five years, after a grace period of one year, in ten equal, semi-annual installments.

The Kenya Electricity Transmission Company recently signed a contract with China Electric Power Equipment and Technology Company for the electrification of this section of the Mombasa-Nairobi railway.

Subscription: In case, the bond was under-subscribed, Citigroup, J.P. Morgan, I&M and NCBA would have filled the gap.

Taxes: All payments are made, without deducting withholding tax. Also, interest payable on the notes has been exempted from income tax and capital gains tax in Kenya.

Family Bank to raise Notes

A few weeks after retiring a bond issue e early, Family Bank has launched a new medium-term notes (MTN) program.

Family Bank has got approval from the Capital Markets Authority (CMA) to borrow up to Kshs 8 billion over the next five years to go towards growing its capital base, launch new products, and support lending mainly to MSME’s (micro, small, medium enterprises) . The first tranche will be Kshs 4 billion. 

This announcement is a welcome sign for the Nairobi corporate bond scene that has been shrinking for the last few years. Last week East African Breweries (EABL) announced it was retiring its bond program, and earlier, in April 2021, Family Bank had paid back Kshs 2 billion to its noteholders – concluding a Kshs 10 billion borrowing multi-currency program of fixed and floating rate bonds that it had launched in 2015.   

CEO Rebecca Mbithi said she was confident of the bank’s upward trajectory as Family is the fourth largest bank in the country by branch network, with 92 branches. The bank has recorded net compounded growth of profit-after-tax of 21% in the last five years, with assets growing annually by 7% and deposits by 14%. In the first quarter of 2021, it had a 71% increase compared to its earnings last year. 

Transaction advisors for the MTN program are NCBA Investment Bank and Genghis Capital. Other partners are PricewaterhouseCoopers (reporting accountants), MTC (note trustees), Mboya Wangong’u & Waiyaki (legal)  and Tim-Sky Media (PR). 

EDIT June 8: Family Bank Bond details are out.

  • The first tranche aims to raise Kshs 3 billion (about $27.8 million) in Kenya shillings or other currencies, with a 1 billion green-shoe option.
  • Maturity is 5.5 years.
  • The rate is fixed at 13% p.a. or floating (at the T-bill ±2.5%).
  • Funds may be used to expand branches, for on-lending, ICT investments, capital strengthening or regional markets entry.
  • Bond opens on 8 June, closes on 22 June,
  • The minimum investment amount is Kshs 100,000 (about $927)
  • Interest payments will be twice a year.
  • Bonds will be listed at the NSE from June 2021 to December 2026.

EDIT: June 24: The first tranche of the notes was fully subscribed and attracted bids for Kshs 4.41 billion. Family Bank was then granted approval by the CMA to exercise a green shoe option for Kshs 1 billion above Kshs 3 billion tranche size.

The entire first note tranche will pay investors at a fixed rate of 13%, paid semi-annually and will be listed on the Nairobi Securities Exchange on June 30, 2021.

EDIT June 30: Trading of the first tranche of Family Bank bonds at the Nairobi Securities Exchange (NSE) started this morning.

Bank Chairman, Wilfred Kiboro reiterated that Family plans to list its shares on the NSE and that activities like the successful bond listing, which raised Kshs 4.42 billion from investors, will increase the attractiveness of the bank.

Absa Kenya launches Asset Management

Absa Bank Kenya has rolled out an asset management subsidiary following approval from Kenyan regulators to expand its century-old business of offering financial services in the country. 

Following approval by both the Capital Markets Authority (CMA) and the Retirement Benefits Authority (RBA), Absa Asset Management will offer advice and products for customers to invest in listed shares, treasury bonds, corporate bonds, private equity, property, offshore and other investment classes.

Anthony Mwithiga, the CEO of the new Absa Asset Management unit, said they would offer fund and investment management for institutions, such as pension schemes, retail solutions for the mass market, and bespoke or personalized services for high-net-worth individuals.

The retail solution will offer investment opportunities through five different unit trusts being, a money market fund for Kenya shillings or US dollars, a bond one, a balanced fund, and an equities fund that people can subscribe to for as little as Kshs 1,000. All the classes will benefit from the data-driven insights, investment professional advice and risk management of Absa that is guided by three pillars of value growth, income generation and value preservation.

The CEO of the RBA Nzomo Mutuku said that that investment management, now with Kshs 1.4 trillion of assets under management, still has great potential to grow and that the performance of these investments is what drives pension benefits in Kenya, not pension contributions.

He said that being diverse had sustained growth even during Covid-19. While there has been a decline in interest for corporate bonds, private equity has gone up (from 0.07% to 0.12% as a share of portfolios) and good returns had also been got from ETF‘s that are about to get a boost from a new class for fixed income, and REIT‘s from new tax laws. He added that, when the shilling depreciates, offshore investments deliver good performance. Another new class is now infrastructure in which funds can invest 10% of assets and they are waiting to see which Public-private-partnership (PPP) projects come online.