The Capital Markets Authority (CMA) has opened a window for Kenyan companies to issue bonds to investors across East Africa in a move aimed at diversifying the investor base and strengthening the region’s financial integration agenda.
The market regulator, through a special issue of the Kenya gazette supplement No 204, says a local company may raise funds by issuing a bond in any country in the region without restriction on where the proceeds of the issue will be used.
“An offer of fixed income securities approved for issue in more than one jurisdiction in East African Community shall be considered as a regional offer of fixed income securities and shall comply with the relevant regulations, rules or guidelines attaching to issuers of securities to the public in any jurisdiction in which the issue has been made,” says CMA.
“An issuer may raise funds in any jurisdiction in the region without restriction on the jurisdiction where proceeds are to be used subject to disclosure of that fact in the information memorandum and subject to obtaining the necessary exemptions on exchange controls if required.”
Under the plan, a company seeking to raise additional capital by issuing a bond to regional investors shall determine the currency or currencies for the issue subject to the prevailing policy and the minimum size of the regional bond shall be the local currency equivalent of $850,000 (Sh122 million at current exchange rates).
“Notwithstanding that, an issuer has made a regional fixed income security offer, the issuer may, at any time, raise an additional amount in any one or more jurisdictions in accordance with a further pricing supplement updating the disclosures in the regional information memorandum,” says CMA.
“In all events, where a green shoe option is available, it shall be made to all countries where the offer has been made available.”
According to the EAC Secretariat, the key objective in the regionalisation of capital markets is to make them more attractive both to issuers and investors and, as a result, expand those markets.
The bloc has set out a plan to achieve an EAC capital markets regime which permits the free flow of capital that is attractive to foreign as well as regional investors.
An issuer who is not eligible for listing may be approved to issue its securities to sophisticated, institutional or professional investors and the securities may be approved for trade on regulated over-the-counter (OTC) markets.
Companies seeking to issue regional bonds shall be required to have minimum paid-up share capital in the local currency equivalent of $850,000 and net assets in the local currency equivalent of $1.7 million (Sh244 million at current exchange rates).
However, all sovereign borrowers, quasi-sovereign borrowers and treaty organisations are exempted from the share capital and net assets requirements.
Companies shall be required to choose a primary jurisdiction to lodge their prospectus and simultaneously submit the prospectus to the regulators of other jurisdictions which they propose to raise capital for approval.
According to CMA, an issuer of regional fixed-income securities shall maintain a valid credit rating for so long as the issue remains outstanding provided that where an issuer has no track record or where the debt is to be funded from revenue from a specific project or designated cash flows, then the credit rating shall be in respect of the project or performance projections.
The Kenyan corporate debt market is facing a confidence crisis after several companies in the past defaulted on their loan obligations. These included Nakumatt Holdings, ARM Cement and Real People. Nakumatt and ARM collapsed under a heavy debt load.
In 2015, Chase Bank and Imperial Bank received the CMA go-ahead to issue Sh4.8 billion and Sh2 billion worth of bonds, respectively, only for the two mid-tier lenders to be pushed into receivership in quick succession by the Central Bank of Kenya as a result of financial and corporate governance issues.