SA real estate firm to float Sh2B bond in Kenya

July 21, 2014
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An East Africa lending drive is prompting Real People Investments Holdings (Pty) Ltd. to sell its first bond in Kenya as the South African company seeks to counter slowing growth at home.

The lender may raise as much as 2 billion Kenyan shillings ($23 million) of two- to four-year securities, Chief Executive Officer Neil Grobbelaar said in an e-mail from Johannesburg July 16. Real People sold rand debt due March 2015 pegged to interbank rates in March with a 7.81 percent coupon. That compares with 12.75 percent on September 2018 debt for the Nairobi-based housing finance company Shelter Afrique.

Real People, which provides loans for homes and small businesses, is expanding in Kenya, Uganda and Tanzania as South Africa risks falling into a recession amid rising unemployment and interest rates. The company has invested 300 million rand ($28 million) in Kenya and wants to avoid currency fluctuations by raising local funding for the Nairobi unit, the CEO said.

“The management of Real People’s debt and its liquidity profile is quite sophisticated,” Gareth Bern, a money manager at Prudential Investment Managers, which oversees the equivalent of $4.4 billion, said by phone from Cape Town July 18. “The business is well-capitalized.”

Militant Attacks

East Africa’s growth prospects are attracting companies such as Real People even as incidents of terrorism increase. Almost 250 people have died in attacks across Kenya since September, when al-Qaeda-linked militants raided the Westgate Mall in Nairobi, according to data compiled by Maplecroft, the Bath, U.K.-based risk consultancy.

The violence hasn’t increased risks for bond issuers, with the fallout limited to tourism, Peter Njuguna, head of fixed income and money markets at Kenya Commercial Bank Ltd. in Nairobi, said by e-mail on July 17. British-American Investments Co., Kenya’s biggest money manager, canceled a planned second bond after raising all the money it sought in a sale last week.

Tourism, the country’s biggest source of foreign exchange after tea, has seen arrivals slump 18 percent to 1.4 million last year, partly because of terrorism. “We haven’t experienced an impact on our business” because of the attacks, Grobbelaar said.

High Growth

Real People has sold 30 rand bonds and Swedish and Norwegian securities since 2011, according to data compiled by Bloomberg. Moody Investors Service downgraded the company’s long-term local rating one step Ba1.za on June 11, with a negative outlook, as it slid to a loss in the fiscal year through March because of charges linked to discontinued businesses and increasing impairments. Higher sales from East Africa will be offset by new business costs, Moody’s said.

“Our Kenyan business is operating in a high growth region with consumers who are under-indebted and coming off a low base,” Grobbelaar said. “It’s a good opportunity.”

East Africa’s economic growth will probably accelerate to 6.3 percent this year from 5.6 percent in 2013, according to International Monetary Fund estimates. South Africa’s economy may expand 2.3 percent in 2014 from 1.9 percent last year, according to the Washington-based lender. Real People’s Kenyan business accounts for about 20 percent of profit. It doesn’t have immediate plans to raise debt in Uganda and Tanzania, where the company focuses on lending to small companies, the CEO said.

The rand weakened 1.5 percent against the dollar this year this year, compared with a 1.8 percent decline in the shilling. The South African currency strengthened 1.1 percent to 10.6476 per dollar on July 18.

“We think there’s appetite for a bond,” Grobbelaar said. “We’re in the process of appointing arrangers.”

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