High returns attract banks to corporate bonds

Though they may not be involved in the day- to -day operation, they normally offer management expertise and strategic investment decision.

This is done to safeguard their stake in the business.

Currently, there are close to eight PEs and VCs which have set up shop in Kenya in the last one year.

Some of these funds are Fanisi Venture Capital Fund, AfricInvest Capital Partners East Africa, TBL Mirror Fund, Citadel Capital and Business Partners International (BPI).

The rush to issue corporate bonds by various blue chip companies has invigorated the country’s capital market at the expense of commercial banks which traditionally have been the main source of funds for many companies.

Banks’ corporate business, especially loan syndication, has been hard hit as the bonds being issued amount to business moving away from their radar screen.

Loan syndication involves more than one bank coming together to provide finance which is likely to be in the range of billions of shillings.

The arrangement can be either done by the principal bank or a third party such as an investment bank.

Bank executives cite the tedious arrangement process and documentation and pricing as some of the reasons syndicated loans are not attractive to corporate players.

Lending terms

“Syndicated loans have never been popular for a variety of reasons, including the need for financiers to agree on lending terms, complex security documentation and inter-lenders agreements, which means that an inordinate amount of time is spent before the customer can draw down on the funds”, said Mr Macharia.

With the banking regulation capping lending to a single entity at not more than 25 per cent of a bank’s capital base, it limits how much a single bank can lend hence locking out the type of borrowers offering corporate bonds.

For instance, the largest bank in terms of capital, Barclays Bank, has a capital base of Sh24 billion.

In the event of lending, Barclays cannot lend more than Sh6 billion which is a quarter of say, the Sh25 billion raised by KenGen in its bond.

In comparison, the syndicated market has seen Total Kenya, one of the leading oil marketers in the country, receiving Sh4.7 billion as a syndicated loan from a consortium of six banks to pay for its acquisition of Chevron assets which folded shop in Kenya.