Capital Markets

Family Bank sets rate for second interest payment on floating bond

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Family Bank CEO Rebecca Mbithi during the bell-ringing ceremony to mark the start of trading of its corporate bond at the Nairobi Securities Exchange on June 30, 2021. PHOTO | DIANA NGILA | NMG

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Summary

  • Family Bank will pay investors an interest rate of 12.5 percent on the tranche of its corporate bond which carries a variable coupon.
  • The bank says investors holding the floating rate bonds will receive their second interest payment on June 24, 2022, when owners of its fixed rate notes will also be paid at the set rate.

Family Bank will pay investors an interest rate of 12.5 percent on the tranche of its corporate bond which carries a variable coupon.

The bank says investors holding the floating rate bonds will receive their second interest payment on June 24, 2022, when owners of its fixed rate notes will also be paid at the set rate of 13 percent.

Family Bank issued Sh4 billion in floating and fixed rate bonds in June, with investors overwhelmingly going for the fixed rate paper (Sh3.999 billion) as opposed to the floating rate tranche (Sh1 million).

The interest on the floating rate debt is calculated based on the 182-day T-bill rate plus a 2.5 percent margin and subject to a floor of 12.5 percent and a cap of 13.25 percent.

The coupon rate is determined at the start of each six-month period over which it will accrue.

The five-year Sh4 billion bonds represent the first half of a total of a Sh8 billion total fundraising programme, with the balance expected to be raised over the next few years.

Family Bank says the funds are being used to strengthen its capital position and drive its growth in the core business of lending to small and medium-sized businesses.

The lender is among only four corporate issuers of investment grade bonds, with the market having shrunk considerably in recent years after investors were burnt by the defaults of Imperial Bank and Chase Bank.

Most of the issuers redeemed their bonds and opted for other alternative source of funds including loans from banks, shareholders and development finance institutions.

Other companies with outstanding corporate bonds are property developer Acorn, Centum Real Estate Limited and East African Breweries Plc.

The brewer is now the biggest corporate bond issuer, raising Sh11 billion in October through the five-year securities which pay a fixed interest rate of 12.25 percent.