Bondholders at Chase Bank to wait longer for NSE trading to resume
Capital Markets Authorities (CMA) acting chief executive officer Paul Muthaura on April 21, 2016. PHOTO | DIANA NGILA
What you need to know:
Chase Bank bondholders face a longer wait for the suspension of trading in the security at the stock exchange to be lifted even as the lender reopens next week, the Capital Markets Authority (CMA) has said.
CBK’s terms of receivership of the lender prohibit payment of any claims to the bank’s creditors, who include the bondholders.
The troubles facing the Chase and Imperial bonds have done damage to the reputation of corporate bonds at the NSE, where investors have traditionally opted for the security offered by government bonds.
Chase Bank bondholders face a longer wait for the suspension of trading in the security at the stock exchange to be lifted even as the lender reopens next week, the Capital Markets Authority (CMA) has said.
The Nairobi Securities Exchange (NSE) suspended trading of the seven-year bond just 10 months after it listed following a directive from the CMA effective April 8, which was a day after the lender was placed under receivership.
Chase Bank collapsed on April 7 following failure to pay panicky customer’s deposits after it ran out of cash.
CBK’s terms of receivership of the lender prohibit payment of any claims to the bank’s creditors, who include the bondholders.
“Even with the announcement of the reopening, the moratorium still stands and that is the critical issue...that the bank still continues to be under receivership,” said acting CMA chief executive officer Paul Muthaura Thursday.
“It is a work in progress. With the steps that have been taken with KCB stepping in as manager with a view to acquisition, it is now creating a clearer ground for us to determine the way forward concerning the date to lift the suspension.”
CBK on Wednesday announced that it had struck a deal that could see KCB buy an undisclosed majority stake in the troubled lender, paving the way for Chase to reopen its doors on April 27 and start paying out deposits of up to Sh1 million a customer.
While the vast majority of depositors can access their funds, the bondholders will be locked into their investment without the option of cashing out through the secondary market at the NSE.
Chase got the approval to issue a Sh10 billion bond from the CMA in June last year, managing to raise Sh4.8 billion in the first tranche that was listed on the NSE the same month.
At the time of listing, the Chase bond was offering the highest coupon rate in the market at 13.25 per cent, later overtaken by the Real People bond issued in August which carried a coupon rate of 13.65 per cent. Imperial Bank, another of the troubled lenders, was placed under receivership on October 13, 2015, ironically the day that the bank was set to list its Sh2 billion bond that had been issued in August.
The troubles facing the Chase and Imperial bonds have done damage to the reputation of corporate bonds at the NSE, where investors have traditionally opted for the security offered by government bonds.
This has often meant that corporates have to offer higher coupon rates to attract buyers for their bond issues, factoring in both the low liquidity and risk of default—which has now shot up. Trading on corporate bonds accounts for a small percentage of total secondary trading at the NSE’s fixed income board, dwarfed by the trades on government bonds.
In March, corporate bond trades amounted to Sh130.4 million, which was just 0.2 per cent of the total bonds turnover of Sh67.5 billion.
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