Majority Real People Sh2.5bn bond investors opt for fixed rate note

Real People plans a floating-rate option in its second issue of Sh5 billion bond, even after the market overwhelmingly opted for fixed-rate notes in the tranche listed Wednesday.

Investors opting for the floating-rate five-year note would earn a higher return under the prevailing interest rate regime, but most chose the more secure fixed returns.

The first tranche of the bond that went on sale earlier this month sought to raise Sh2.5 billion, with the option of three- and five-year fixed rate notes and a five-year floating rate note pegged at 275 basis points above the prevailing 182-day Treasury bill yield, currently at 11.9 per cent.

READ: Real People bond buyers to earn nearly 15pc

“The interest rates now are higher than the average for the past 12 months, and when we had conversations with investors they expressed preference for the fixed notes,” said Real People East Africa chief executive Daniel Ohonde.

“The market generally seems to prefer fixed notes, but going forward in the next tranche which we will open in the next six months we will still offer investors a floating-rate option.”

Real People becomes the first credit only financial institution to list a bond on the Nairobi Securities Exchange.

The bond brought in a total of Sh1.63 billion against Sh2.5 billion target, which the company said was partly due to the issue coming when the market was under tight liquidity.

While there were no takers for the floating-rate note, investors heavily opted for the five-year fixed rate paper, taking up Sh1.36 billion, while in the three-year fixed rate note they took up Sh270.3 million. The notes offer a 13.65 per cent rate of return per annum.

In opting for the fixed rate notes, investors may have been hedging against a future decline in interest rate on the 182-day government paper, which over the past year has fluctuated between 8.5 and 12.1 per cent.

The proceeds of the bond will be used for onward lending, with Real People targeting to double its loan book in next 12 months. The company, however, does not intend to increase its branch network from the current 17.

Real People recorded a 26.7 per cent drop in profit for the full year ending March to Sh146.5 million, which it attributed to lower gains from foreign exchange and increased provisions for bad loans.

Its loan book also contracted by 22.1 per cent over the same period to Sh1.6 billion — from Sh2.1 billion in 2014 — attributed by the management to a decision to slow down loan origination to finalise the capital drive.