Money Markets

Jamii Bora hits Sh1bn corporate bond-sale target

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Jamii Bora Bank chief commercial officer Timothy Kabiru. The bank’s bond sale recorded a two per cent oversubscription. SALATON NJAU

Jamii Bora Bank chief commercial officer Timothy Kabiru. The bank’s bond sale recorded a two per cent oversubscription. SALATON NJAU  

By John Gachiri

Posted  Monday, August 26  2013 at  20:03

In Summary

  • Jamii Bora Bank's bond sale recorded a two per cent oversubscription rate, indicating high investor appetite for fixed income securities.
  • Institutional investors accounted for 80.2 per cent of the bond buyers (Sh802 million), while retail investors took up the 19.8 per cent balance (Sh198 million).
  • The five-year bond has a 13.3 per cent coupon rate that assures investors of slightly higher returns than that offered by a Treasury bond of similar tenure, which is paying a high of 11.85 per cent.

Jamii Bora Bank has hit its target of raising Sh1 billion through a corporate bond sale, boosting the lender’s plans to expand its mortgage loans business.

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The bond sale recorded a two per cent oversubscription rate, indicating high investor appetite for fixed income securities.

Institutional investors accounted for 80.2 per cent of the bond buyers (Sh802 million), while retail investors took up the 19.8 per cent balance (Sh198 million).

“The Jamii Bora Bond Allocation Committee has accepted Sh1 billion as per its mandate and a refund of Sh21 million will be made by the bank by the close of business tomorrow (Wednesday) in accordance with the committee’s allocation criteria,” said Jamii Bora Bank’s chief commercial officer Timothy Kabiru.

The bond, which was sold through a private placement, did not have a green shoe option which would have allowed the bank to take the excess money instead of refunding it to applicants.

The five-year bond has a 13.3 per cent coupon rate that assures investors of slightly higher returns than that offered by a Treasury bond of similar tenure, which is paying a high of 11.85 per cent.

Jamii Bora had indicated in its offer documents that cash raised from the bond would be used to boost its lending kitty, particularly to mortgage borrowers and SMEs including offering invoice discounting. The bond proceeds will also raise the bank’s working capital.

The average application size was Sh11.2 million for the bond, which was sold in Sh1 million notes.

Analysts said the over-subscription showed that there is room for companies that want to raise funds through the bonds market, which has mainly been catering for the government which has shown a huge borrowing budget.

“For them to raise that money it means there is good appetite for corporate paper,” said Alex Muiruri, a fixed income analyst at African Alliance Investment Bank.

Shelter Afrique is currently selling a Sh8billion bond while mortgage provider HF and property developer Home Afrika are looking into the idea of floating corporate bonds but have not finalised plans.

The Jamii Bora bond went on sale in July and at a time when uncertainty on the bank’s profitability clouded prospects for the financier to raise the targeted amount.

“Jamii Bora Bank is also in the market for Sh1.bn through a 13.3 per cent, five-year bond. However, the cyclical nature of micro-lender’s earnings could undermine local investors’ interest in the paper,” said a fixed income weekly report by NIC Securities at the time of issue.

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