Money Markets
Weak results push more investors into bonds
An investor looks at the digital board at the Nairobi Stock Exchange. The subdued performance was partly the result of less uncertainty in 2009. Photo/FILE
Posted Friday, March 12 2010 at 00:00
KCB, for instance, plans to raise Sh15 billion for expansion but trading of its counter has been lukewarm.
Sales of the counter’s shares have taken a small dent since the announcement of the bank’s plans due to uncertainty over whether it will raise funds through a bond or a rights issue.
“Due to the size of the funds, KCB might opt to go for a mix of the two,” says Mr Musau.
Should KCB opt to raise the additional Sh15billion through a bond, the tricky part will be the issue of the coupon rate which analysts say is difficult to tell.
Premium coupon
Infrastructure bonds have a 15 per cent tax deduction and should KCB opt to raise a bond it will have to pay a premium coupon rate to compensate investors for the tax deduction loss.
But KCB has the advantage of more predictable cash flows than KenGen.
It also has less government ownership thus bolstering investor confidence in management.
These two factors could see it offer a lower coupon rate than the infrastructure bonds.
“Cash flows for KenGen looked uncertain because of the tariffs but KenGen is a very big and important utility company therefore government has to back it,” says Mr Musau.
This is the reason behind investor confidence in the power generator’s public infrastructure bond offer, he added.
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