Steep fall in bond market stirs up fear
A financial sector player has raised concerns about the lacklustre performance in the corporate bond market and asked institutions to repay maturing bonds on time.
The value of corporate bonds issued on the Nairobi Security Exchange (NSE) has dropped by Sh13.68 billion over the five years since 2014, thereby triggering fears that come 2022 when the last of the current listed facilities matures there will be nothing to celebrate.
Currently, there are 20 bonds issued by 12 companies with a total value of Sh57.6 billion compared to August 2014 when Kenya had 28 listings with a sum value of Sh71.28 billion.
Speaking yesterday, Housing Finance (HF) Group Chairman, Kaushik Manek, said there is need for the sector regulators to inspire confidence among investors by addressing market challenges that lead to delayed payments to bondholders.
The mortgage finance provider redeemed its Sh3 billion corporate bond, which matured yesterday.
He said institutions can also help to restore faith of investors in bonds is to ensure they deliver on promises which they give them whenever they turn to the market to look for funds.
“When you borrow money in the bond market and repay as promised, it is one way of inspiring of investors and restoring confidence in the market. But if you borrow and fail to repay as promised the faith wanes out,” Manek said.
A corporate bond is a debt instrument issued by a company seeking a loan to finance its operations. The company is the borrower and investors who buy the bond are the lenders.
Participants in the bond market are mostly institutional investors – insurance companies, investment companies, banks, etc. – who trade in relatively large amounts. Individual investors are not a major element in bond trading.
HF Group first went to the bond market in 2010 to borrow Sh7 billion and returned in 2013 to borrow another Sh3 billion. The first bond taken in 2010 was redeemed in 2017, while the Sh3.1 billion borrowed in 2013 was redeemed yesterday. Group Chief executive officer Robert Kibaara said they have retired the full amount of tranche II of the seven-year Medium Term Note.
“Over the years, HF Group has continued to maintain its deep understanding of the market to sustain its consistent operational metrics while meeting its responsibility to investors which mirrors our robust corporate governance culture and a well-defined corporate strategy,” he added.
Kibaara said the bond significantly aided HF Group to boost its loans and advances, which grew from Sh25 billion to Sh44 billion as at December 2018, while total assets grew from Sh31billion to Sh57 billion within the same period.
“The funds raised played a pivotal role in the growth of our full service banking offering and specifically in financing the working capital and expansion of the bank’s growing SME customer base, end buyer mortgage financing and asset financing,” he added.
The bond also propelled the HF group’s project financing of developers seeking to tap into the growing housing demand, the sales of which accelerated after the launch of Shika Nyumba Na HF campaign.