Capital Markets

UAP Holdings starts sale of Sh2 billion corporate bond

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Market experts say the fall in interest rates in the past two years and increased liquidity have renewed interest in corporate bonds. Photo/FILE

Financial services firm UAP Holdings on Monday kicked off its Sh2 billion bond sale as Kenyan companies lined up to raise tens of billions of shillings in corporate bonds this year.

Investors will put a minimum Sh100,000 in the latest bond with a tenure of five years. It came after the Friday closure of Britam’s Sh6 billion bond.

The largest planned bond is that of KenGen at Sh30 billion, part of the Sh437 billion fund-raising strategy in the next five years for generation of 5,000 megawatts by 2018.

Cement manufacturer Athi River Mining has also announced it is preparing for a Sh25 billion issue in its expansion bid.

READ: Athi River mulls Sh25bn bond to ease debt burden

Market experts say the fall in interest rates in the past two years and increased liquidity have renewed interest in corporate bonds.

“I think companies want to take advantage of the liquidity that is in the market to fund their expansion or meeting of regulatory requirements. The interest rates on offer are quite favourable to investors,” said Augustine Misoka, a research analyst at Sterling Capital.

Since 2011, the policy interest rate has fallen to 8.5 per cent from a peak of 18 per cent, rekindling interest in the bond market.

The best year for corporate bonds was 2009 when KenGen raised Sh37.5 billion, along with several other firms, bringing the total amount in the market to Sh75 billion.

In 2010, about Sh9.53 billion was raised by two firms after which the market slumped to Sh2.5 billion in 2011. In 2011, the financial markets experienced their worst year with the policy rate spiking to 18 per cent in December, following the weakening of the shilling exchange rate to a historic low of Sh107 to the dollar.

The depreciation of the local unit led the Central Bank of Kenya’s Monetary Policy Committee to push up interest rates in the last quarter of the year.

The bond market has since been quite with only limited number of issues.

In 2013, only two bonds— including Consolidated and I&M bank—were issued worth Sh8.655 billion, which was an increase from the Sh5.147 billion issued in 2012.

The pricing has also lured investors. Mr Misoka noted the Britam bond, for example, with a coupon rate of 13 per cent, was favourable to investors as they would not easily get that rate if they tried to buy the paper from the market.

Other analysts noted although there had been an uptick in the yields for bonds listed on the Nairobi Securities Exchange (NSE), this was temporary as it was driven by government spending at the end of financial year, which was not anticipated.

“The rapid climb in bond yields last month was supposed to be a one-off event prompted by unanticipated spending at the end of the financial year…. We expect interest rates to remain unchanged over the next three months,” said Alexander Muiruri, head of fixed-income markets at Nairobi-based advisory and brokerage firm Kestrel Capital.