Companies

Bond insurer Dhamana gets Sh4 billion backing

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Chief executive at CPF, Hosea Kili. FILE PHOTO | NMG

A Kenya-based firm that will offer default insurance to debt investors funding infrastructure projects has received Sh4.42 billion backing from various entities, including the UK government, giving it a boost ahead of launch early next year.

Dhamana Guarantee Company Limited, which will be insuring bonds issued by regional companies, has now seen two more entities commit to funding it as it eyes to mobilise $100 million (Sh15.3 billion) in three years.

A brief note shared at the ongoing COP28 summit shows the UK government through the Private Infrastructure Development Group, has agreed to fund it to the tune of $15 million (Sh2.29 billion) while pension funds administrator, CPF Financial Services, has offered Sh600 million.

“Kenya and its East African neighbours are on a collective mission to increase financing for SMEs, infrastructure, and the green economy. CPF’s support for the Dhamana initiative is a crucial step in realising this vision,” said Hosea Kili, chief executive at CPF.

The backing from the two entities adds to the recent commitment from the African Development Bank (AfDB) to make an equity investment of $10 million (Sh1.53 billion) in Dhamana set for launch first quarter of next year.

Dhamana will be based in Kenya and its establishment is expected to revive the corporate bond market, helping borrowers to raise funds from institutional investors such as pension funds and insurers.

The firm hopes to use the guarantees to unlock local currency debt from untapped pools of capital in Kenya and neighbouring countries, providing a financial lifeline to sectors that have traditionally faced challenges in raising local currency funds.

Dhamana’s credit guarantee activities are expected to provide investors with the necessary comfort to support the allocation and intermediation of pools of private institutional investors’ funding into infrastructure, said the development bank.

The company has been developed by Cardano Development and InfraCo Africa (part of the Private Infrastructure Development Group), with additional support from Financial Sector Deepening Africa.

The corporate bond market in Kenya has shrunk considerably in recent years, shaken by major losses on debt that were issued by troubled firms such as Chase Bank, Imperial Bank and Real People.

Chase had issued a Sh4.8 billion bond shortly before it went into receivership in April 2016. Imperial Bank also collapsed in October 2015 after raising Sh2 billion from debt investors.

East African Breweries Plc (EABL) currently has the largest high-grade outstanding corporate bond of Sh11 billion, followed by Family Bank (Sh3.9 billion, Acorn (Sh1.8 billion) and Kenya Mortgage Refinance Company (Sh1.9 billion).

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Real People, which defaulted on its obligations, still has a total of Sh1.3 billion of bonds outstanding.

Corporate bonds were previously popular among private and listed companies, expanding their funding options beyond rights issues and loans from banks and development finance institutions.

Some of the firms that have not returned to the corporate bond market after paying their debt include HF Group, Britam Holdings and CIC Insurance Group.

Institutional and high-net-worth debt investors have capital amounting to hundreds of billions of shillings but have preferred to invest most of it government securities which are seen as safe and currently offer the highest returns