Kenya telecoms firm launches bond

October 7, 2009
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, NAIROBI, Kenya, Oct 7- Mobile telephony operator Safaricom will offer a fixed interest rate of 12.25 percent on its Sh5 billion bond that opened on Wednesday.

Anne Aliker the Director and Head of Investment Banking at CfC Stanbic Bank – which is one of the lead arrangers – said the minimum investment for the bond is Sh1 million.

“The notes will be denominated in multiples of Sh100,000 with minimum subscription of Sh1 million. They (Safaricom) are providing an option of either fixed rate note or floating note,” Ms Aliker said.

The floating note will be priced at 185 basis points above the most recent published rate for the 182-day Treasury Bill.

“Our experience in the market this year has indicated that we do have appetite for both fixed and floating depending on the various portfolios of investments that individuals hold.

The offer closes on October 29 while the trading of the bond is expected to begin on November 30. The interest which will be subject to withholding tax will be paid semi-annually.

The communications solutions provider recently received the regulatory approval to raise Sh12 billion which will be split into three tranches.

Safaricom Chief Financial Officer Chris Tiffin explained that the decision to divide the bond into three phases was informed by among other things the current market conditions.

“Liquidity is tight and we don’t need all the money up front. If we did, we would be coming for the full amount. However we would rather be more prudent and come to the market at different times,” he said.

Mr Tiffin however said they were adopting a bullish approach adding that the market conditions and the pricing were right to attract investors to take up the bond.

According to the Information Memorandum, the second Sh5 billion tranche will be issued in April 2010 while the remainder is expected to be launched in September 2010.

The Safaricom corporate bond comes hot on the heels of the KenGen Public Infrastructure Bond Offer whose preliminary results indicate it could be oversubscribed by over 60 percent.

Funds raised from the offer will be used to expand Safaricom’s coverage particularly in rural areas and well as develop innovative products to better serve its clientele which is estimated to be clocking 14 million subscribers.

With a capital expenditure of Sh20 billion, the company would be in a good position to provide good services and products as well as offer value and a good return to their shareholders.

Safaricom Chief Executive Officer Michael Joseph also took the opportunity to urge all parties involved in the issuance of bonds to hasten the process as one way to encourage more companies to raise funds through the secondary market.

Mr Joseph decried the tedious and long procedures that a firm wishing to issue a bond goes through before getting the requisite approvals to list it on the stock market.

“We want to come into the bond market but the time it takes is extremely long and I think something needs to be done about that,” he added.

He also took issue with the implementation of the Universal Access Fund which is due to come into force in January 2010 saying more discussions between the Communication Commission of Kenya and the stakeholders need to be held.

The Fund is contained in the recently introduced Kenya Communications (amendment) Act which stipulates that telecoms firms will be required to contribute not more than one percent of their total turnover to the Fund whose main objective is to expand communications service to the underserved areas of the country.

“The industry has not stopped growing its coverage areas yet and therefore we feel that we have not been given a chance to cover these areas that are considered commercially unviable and we should be given more time,” Mr Joseph pleaded.

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