Money Markets

Home Afrika eyes bond market for project funds

Home Afrika plans to turn to the bond market to raise money for completion of its projects.

Chief executive Njoroge Ng’ang’a said details on the bond’s terms will be given once industry regulator, the Capital Markets Authority (CMA), approves the issue.

“We have asked for approval from the CMA. It will not be a bullet issue but a programme,” said Mr Ng’ang’a at the firm’s annual general meeting.

Real estate firms can only recognise revenues once projects are completed and sold and Home Afrika therefore has to wait until projects are finished before it can record revenues. The firm’s shareholders also have to wait longer to earn dividends from the property.

Home Afrika’s net profit declined by 25 per cent to Sh80.6 million in 2013 from Sh108.1 million a year before which the firm attributed to low unrealised gains on investment property revaluations. The company did not pay dividends.

The bond programme will be used to shorten the lead time between breaking the ground and transferring the properties to buyers.

“A project should not take more than three years,” said Mr Nganga.

The Migaa Development, in Kiambu County, for example is projected to take five years and is a prime candidate for the bond’s proceeds. The project is 33 per cent complete and the firm expects to cross the halfway mark over the next 10 to 12 months.

Home Afrika joins its listed peer Britam in raising money through the bond market this year.

Britam is raising Sh4 billion through its bond programme and will use part of the proceeds to invest in real estate.

Housing Finance and Shelter Afrique are other companies that have raised funds through the bond market.

Fixed income analysts said expected liquidity towards the end of the year and the cost of goods coming down will make it cheaper to borrow through the bond market.

“We expect rates to come off 100 basis points by the end of the year as liquidity enters the money markets and inflation tracks downwards in quarter four,” said Alex Muiruri, head of fixed income trading at Kestrel Capital.

Shortening the period is also meant to reduce the firm’s exposure to a surge in the prices of raw materials such as steel and cement.

Other developments in the pipeline are Lake View Heights, Kisumu County and Llango, Kwale County which will require more than Sh1 billion.

The company is also planning to issue a Real Estate Investment Trust and in late 2013 appointed NIC Capital as the transaction advisor on the deal. Home Afrika listed on the Nairobi Securities Exchange in June 2013.