Kenya bonds market gains ground

July 23, 2009

, NAIROBI, Kenya, July 23 – The bonds market at the Nairobi Stock Exchange (NSE) is increasingly becoming an attractive avenue for raising medium to long term capital despite the prevailing hard economic times.

NSE First Vice Chairman Lutaf Kassam said on Thursday that turnover for the Fixed Income Securities Market Segment (FISMS) increased by over 127 percent to Sh65 billion for the first six months of this year.

“The half year period running from January to June 2009 has witness an increase in turnover volumes to Sh65 billion up from Sh28 billion for the comparable period in 2008,” he said.

Compared to the equities market, this segment is largely underdeveloped and has for a long time being dominated by government securities and a few corporate bond issues.

It is also considered relatively illiquid when compared with other markets in Africa. For instance, while the NSE bond turnover was close to $1 billion that of Egypt and South Africa was $4 billion and $2 trillion respectively.

Mr Kasaam however expressed optimism that that this growth would continue particularly as corporate companies begin to appreciate the enormous potential that the debt market offers.

The interest in this market is also expected to be bolstered by the government’s initiatives to rejuvenate this segment.

In the recent budget submissions, Finance Minister Uhuru Kenyatta reduced withholding tax from 15 to 10 percent on bonds with at least a ten year maturity in order to encourage long term investment. He also announced the reduction of listing fees to encourage more companies to list.

Players acknowledge that more measures however need to be taken to address challenges that hinder its development.

The Capital Markets Authority is in the process of setting up an Over the Counter (OTC) market to improve liquidity as well as strengthening the legal and regulatory environment.

“A Bond Steering Committee to oversee the overall implementation of the establishment of an OTC market for bonds has been meeting in June and it is expected to put in place appropriate structural arrangements for the market for the bonds,” said CMA Chief Executive Officer Stella Kilonzo.

The two officials spoke during the listing of the first tranche of the Sh5 billion CfC Stanbic Bank fixed and floating rate note.

The Bank’s Executive Director for Corporate and Investment Banking Shiru Mwangi said the success of the Sh2.5 billion issue which was oversubscribed by 28 percent pointed to the investor confidence in the market and added that they intend to raise the full amount locally.

“We see this as both a function of our confidence in the local market and a measure of our commitment to assist in developing this market further,” she said.

While CfC Stanbic has arrange several bond issues for its clients, this was its first issue that they had arranged for themselves and whose proceeds will be channelled towards the future growth of the bank.

As an arrangers’ advisor, the bank disclosed it will in the next few months bring to the market four issues valued at Sh17.5 billion.

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