Liquid Uganda braces for new bonds in common market

Debt issuers in the Ugandan capital markets are bracing for a field day as a scarcity of fixed income investments in an economy flush with cash sets the stage for the full take up of bond offers.

This comes as the final tranche of the Sh1.1 billion (USh30 billion) Housing Finance Bank Uganda bond was oversubscribed by Sh222 million (USh6 billion) prompting the firm to take up a green shoe option to the tune of Sh185 million (USh5 billion).

Despite increasing the offer, the mortgage financier said refunds still had to be returned to some large investors.

“Now that we have experienced first-hand the growing depth of the capital markets, we will likely be back to issue instruments that serve both developers and home buyers” says Njoroge Ng’ang’a, Head of Investments at Housing Finance Bank Uganda (HFB).

HFB’s note programme was first launched in December 2007, to December 2008, during which it issued Sh12.5 billion at a fixed rate in three different tranches to institutional investors.

Key objective

The key objective for the debt issue was funds to supply the growing demand for mortgages in the Ugandan economy.

The consequent encouraging take up of the HFB bond issue has set the stage for potential capital market based innovations in the Housing finance sector like mortgage bonds.

These instruments have significant influence on the cost of borrowing to finance home ownership and make the capital markets relevant in the home ownership industry that is important for job creating GDP growth.

But at a time when the Ugandan capital markets remain thinner than the Nairobi Stock Exchange (NSE), investible funds across the region are bound to chase the wide variety of investment options available in the country.

“The (Ugandan) economy is quite liquid and very few bonds available so the demand is quite high,” says Edward Gitahi, senior investment manager at Pinebridge Investments.

The Uganda Securities Exchange (USE) only has 5 listed corporate bonds and 30 government bonds compared to the NSE’s 11 corporate bonds and 80 governments bonds.

But with the opening up of the East African Community last week, fund managers in other East African countries are now likely to eye investments in Kenya.

NSSF Uganda and NSSF Rwanda for instance, are today the fourth and eighth largest shareholders in Safaricom, respectively.

Expectations are that with the opening of the capital account in Tanzania, there are expectations that cross border investment will be fairly regular on the regional stock exchanges as fund managers seek higher returns and portfolio diversification.