Shelter Afrique tests investor appetite with bond offer

Pan-African mortgage financier Shelter Afrique has opened a 10-day offer for a Sh3.5 billion bond that will be priced at between 12.5 per cent and 16 per cent.

This is the first tranche of a Sh8 billion bond approved by Capital Markets Authority last month.

The offer, which closes on September 20, could rise up to Sh5 billion in the event of oversubscription as it has a greenshoe option of Sh1.5 billion.

The floating rate has been pegged on the 182-day Treasury bill rate with a margin of 1.5 per cent, with its floor set at seven per cent and a ceiling of 16 per cent.

Currently the six-months government paper is priced at 10.46 per cent, at which rate it will pay interest at 11.96 per cent.

“There are 10 residential development projects with an estimated project cost of Sh9 billion in Kenya that will be financed from the proceeds of the bond notes issued,” said Shelter Afrique managing director Alassane BÂ.

Shelter Afrique currently has three medium term bonds listed on the Nairobi Securities Exchange with coupon rates of between 12.5 and 12.75 per cent. The securities will mature between July next year and December 2015.

The minimum subscription for the offer is Sh100,000 with a tenor of five years.

The offer comes days after international ratings agency Moody’s raised the red flag over Shelter-Afrique’s loan portfolio, pointing out that debt issued by the firm are deemed to have speculative elements and are subject to substantial credit risk.

Moody’s assigned a BA1 credit rating to the firm highlighting the quality of its asset as its undoing while citing deepening capitalisation, adequate liquidity and low leverage as its strengths.

The rating implied that the lender was likely to face demands for higher interest on the planned bond as investors attach a premium above returns on government securities of similar tenure.

The mortgage firm owned by 44 individual African States, African Development Bank (AfDB) and African Reinsurance Company plans to increase its share capital to $1 billion from $300 million.

Kenya is the largest shareholder among national governments with an 11.14 per cent stake and has committed to defend its position by participating fully in the rights issue. Kenya has a huge housing gap with an estimated annual demand of 120,000 housing units against a supply of less than 35,000.

CfC Stanbic Bank and its financial services arm SBG Securities are the joint arrangers, while Kingdom Securities is the sponsoring stockbroker and placing agent.

Moody’s noted that the biggest risk for Shelter Afrique comes from lack of callable capital —the portion of the capital not yet paid in by the company’s shareholders.

“Although Shelter-Afrique is well capitalised, its current lack of callable capital means that it is more at risk than most other multilateral development banks,”  Moody’s said.