Shelter Afrique bond unlocks cash for real estate projects
Shelter Afrique headquarters in Nairobi. Photo/File
What you need to know:
The bond offer, which follows a successful floating of the first tranche of Sh2.5 billion in 2011, will earn investors a fixed return of 12.5 per cent.
Housing development financier Shelter Afrique’s Sh500 million bond has been fully subscribed, unlocking cash for real estate development in Nairobi and Mombasa.
The bond offer, which follows a successful floating of the first tranche of Sh2.5 billion in 2011, will earn investors a fixed return of 12.5 per cent, and is expected to mature on December 14, 2015.
This was the last tranche of the Sh3 billion medium-term note issue in 2011 after it had tapped Sh2.5 billion in the same year.
“Ten projects at an estimated cost of Sh9.4 billion have been funded with proceeds of the first tranche. Proceeds from this last tranche will be used to fund already approved projects in Nairobi and Mombasa,” said Shelter Afrique managing director Alassane BÂ.
Some of the latest projects financed by Shelter Afrique include a Sh350 million housing development comprising luxury villas neighbouring Sigona Golf Club, near Nairobi.
International credit rating agency Moody’s had upheld Shelter Afrique’s credit rating of Ba1, citing the firm’s adequate capitalisation levels and strong liquidity before the bond issue which would have given investors confidence in taking up the bond.
Good returns
The financier opted for a fixed rate of return unlike in its first issue where it had Sh1.4 billion at a floating rate of the 182-day Treasury bill rate plus 1.5 per cent while Sh1.08 billion was at a fixed rate of 12.5 per cent.
A spike in interest rate witnessed in late 2011 hurt institutions that had issued bonds on a floating rate as the cost shot up. At the time the 182 T-bill rate rose to highs of 21 per cent, indicating that Shelter Afrique’s bond was returning 22.5 per cent.
The rates have since dropped with the 182-day T-bill currently returning a rate of 8.1 per cent making the Shelter Afrique bond an attractive investment.
Kenya’s real estate market has been on a rally mainly driven by the huge demand that outstrips supply, ensuring good returns for different players in the industry.
It is estimated that the country has an annual demand of 150,000 housing units against a supply of less than 35,000, a gap that Shelter Afrique seeks to help bridge by financing house developers.
“There is a growing need for viable and adapted options for funding housing development, against the backdrop of a growing demand for housing that surpasses supply,” said Mr. BÂ.
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