The Kenya Mortgage Refinance Company (KMRC)’s debut bond issue has been oversubscribed nearly six times, continuing the recent trend of high demand for corporate bonds.
The Sh1.4 billion offer attracted bids worth Sh8.1 billion, the Capital Markets Authority (CMA) said on Tuesday, affirming expectations by analysts that the paper would attract good demand due to the interest rate premium it was offering comparable to government bonds of similar duration.
The seven-year bond’s principal will be paid down annually, meaning the average time the debt will be outstanding is 4.5 years. It is the first tranche of a Sh10.5 billion medium-term note programme.
The company is paying a fixed interest rate of 12.5 percent on the paper, which is a percentage point above what the government is paying on its bonds that have about five years to maturity.
KMRC will however only take up Sh1.4 billion out of the Sh8.1 billion put on the table by investors since the company did not include an option to accept more funds in what is technically known as a greenshoe option.
“This is a major milestone which positions the capital markets as a source of funding to support productive economic activities such as the delivery of affordable housing, which is one of the pillars of the Big Four Agenda. It affirms the growing issuer and investor confidence in the bond market,” said CMA chief executive Wyckliffe Shamiah.
The funds will be used to supplement the company’s existing capital that was raised from the World Bank and African Development Bank (AfDB) via the National Treasury and other shareholders.
The funds will be on-lent to banks and other financial institutions at five percent interest, allowing them to offer their customers long-term mortgages at single-digit, stable interest rates.
The KMRC bond is the third to be oversubscribed in the past eight months, signalling a return to health of the corporate debt market that was badly damaged by the collapse of Imperial and Chase banks in 2015 and 2016 respectively.
Family Bank’s June 2021 bond that had sought Sh3 billion raised bids worth Sh4.42 billion, with the lender then opting exercise a greenshoe option ofSh1 billion to take its total borrowing on the paper to Sh4 billion.
East Africa Breweries Plc also got a massive oversubscription on its five-year, Sh11 billion offering last October, where it raised bids worth Sh38 billion. The brewer however did not include a greenshoe option on its paper, meaning it settled for the advertised Sh11 billion.