S Africa firm to raise Sh2bn from Kenya bond market

South African firm Real People Investment Holdings Ltd plans to raise up to Sh2 billion from the Kenya bond market, marking the first time a foreign firm has made such an issue.

Real People, listed on the Johannesburg Stock Exchange (JSE), said the bond would be issued by the end of this year as the firm seeks to shield its local investments from the rand’s appreciation.

In the past, only multilateral agencies EADB Bank, PTA Bank and Shelter Afrique have made such issues at the Nairobi Securities Exchange.

The firm said borrowing from the local market would hedge against foreign exchange losses arising from funding its local business which is predominantly SME financing.

“We are planning to issue in the Kenyan market before year-end. The reason is to fund our Kenyan business in local currency,” Real People head of treasury Werner Nel told the Business Daily.

The lender’s 2013 annual report says strengthening of the rand against the shilling and lack of a futures market reduced the value of its local investment by Sh16.96 million, up from a Sh9.26 million depreciation a year earlier.

The rand’s strengthening also eroded the value of its investments in Uganda, Tanzania and Malawi.

The firm has started looking for transaction advisers on the proposed bond. Real People added that it will also enter the property market which is in need of more diverse sources of funding.

“The group will focus on providing financial products to tap into the strong and growing demand for housing in Kenya and is planning to pilot a version of home finance in Nairobi in 2014. Moderate growth is expected for this division in 2014,” said the annual report.

The firm lends homeowners expanding their houses or making renovations.

Kenyan real-estate developers have been going to the bond market which has proved liquid enough to support massive projects in recent years.

Britam recently raised Sh6 billion while UAP is raising Sh2 billion. Both firms will use part of the proceeds to finance real estate projects.

Housing Finance, Shelter Afrique — the African Union housing arm —and Centum have also gone to the bond market for real estate related projects.

Home Afrika, the only real estate developer listed on the NSE, is also looking to issue a bond by end of the year. Expectations that interest rates will drop towards the end of the year have, however, halted borrowing plans by some firms such as Housing Finance.

HF chief executive Frank Ireri said that the bond market’s ability to provide long-term funding will still see companies access the market to fund projects. “We still need longer-term fixed rate funding,” he said.

Corporate finance analysts said the successful uptake of previous issues could have given confidence to Real People to make its debut on the Kenyan bond market.

Johnson Nderi, corporate finance and advisory manager at ABC Capital, said there was healthy appetite for bonds in the market which augurs well for issuers.

“There is quite a bit of liquidity out there,” said Mr Nderi.