Capital Markets

Kenya’s mortgage refinancier delays debut cash call

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Kenya Mortgage Refinance Company (KMRC) chief executive officer Johnstone Oltetia. PHOTO | DIANA NGILA | NMG

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Summary

  • The Kenya Mortgage Refinance Company has pushed back a planned debut bond issue by up to three months, allowing consultants more time to work on finer details of the cash call.
  • Chief executive Johnson Oltetia said the State-backed mortgage refinancing firm is looking to raise funds from institutional and retail investors in October-December 2021 period as opposed to an earlier plan to go to capital markets by September 2021.

The Kenya Mortgage Refinance Company has pushed back a planned debut bond issue by up to three months, allowing consultants more time to work on finer details of the cash call.

Chief executive Johnson Oltetia said the State-backed mortgage refinancing firm is looking to raise funds from institutional and retail investors in October-December 2021 period as opposed to an earlier plan to go to capital markets by September 2021.

“KMRC is yet to finalise on the features of the bond, and that includes determination of the quantum,” said Mr Oltetia.

“[But] KMRC is on course to issue a bond in Q4 2021.”

The mortgage refinance firm presently lends to participating banks and savings and credit co-operative society (saccos) at five percent from funds committed by the World Bank Group (Sh25 billion) and African Development Bank (AfDB) (Sh10 billion) as well as Sh2.2 billion in equity capital.

The KMRC will have to borrow at below average market rate to offer loans to primary mortgage lenders at rates that will enable them to continue pricing loans at single-digit rates in line with the affordable housing plan.

NCBA Investment Bank and Lion’s Head Global Partners — an emerging and frontier markets-focused financial advisory, headquartered in London with offices in Nairobi, Lagos, Dubai, and New York— are lead advisers for KMRC’s capital raising plan.

Mboya Wangong’u and Waiyaki Advocates, a top-tier law firm, are providing legal support for the proposed bond issue.

Mr Oltetia had in an earlier interview said KMRC had reached a deal with the AfDB to guarantee the planned bond issue, piggy-backing on development financier’s top credit rating (AAA) with a stable outlook status to attract cheaper funds.

“A new institution like KMRC doesn’t have a track record and that means you face a bit of challenge raising funds,” Mr Oltetia said.

“We have worked out an arrangement with AfDB for a credit enhancement, and that means KMRC will be replaced by an AAA-rated institution like AfDB’s balance sheet to support that (bond issue).”

KCB Group — the largest mortgage financier by market size — received more than three-quarters of the Sh2.748 billion issued in the year ended June 2021 which covered about 1,400 mortgages that met conditions on size, interest, and tenure under the KMRC disbursement criteria.

Other beneficiaries were HF Group (Sh515 million), Stima Sacco (Sh69million), and Tower Sacco (Sh30 million).

The average size for the 1,400 home loans refinanced by KMRC last fiscal year is Sh2.6 million — more than three times smaller than the banking industry’s average mortgage size of Sh8.6 million last year.