Market News

Little corporate bond market activity after Chase, Imperial crash

chase

Chase Bank customers outside a closed branch after it was placed under receivership in 2016. FILE PHOTO | NMG

Corporate bond market has almost disappeared with companies finding it hard to use the avenue for raising capital after the earlier collapse of Chase Bank and Imperial Bank.

Only one bond was issued this year, the Sh6 billion second tranche of East Africa Breweries Limited (EABL’s) #ticker:EABL Sh11 billion paper whose first issue was in 2015.  There was no corporate bond issued in 2016.

In contrast, the more secure government bonds segment continues to thrive.

The drought in corporate bonds has come after the risks were brought to the fore by problems at Imperial and Chase. Those who lent the pair that collapsed in 2015 and 2016 respectively still have their funds held up after they went into receivership, and are not earning interest on their investment.

“Challenges facing the issuance of corporate bonds in Kenya include placements under statutory management, compensation challenges and interest rate capping among others,” said the Capital Markets Authority’s (CMA) Third Quarter Market Soundness report released at the end of October.

“The corporate bonds market activity has been depressed with only one bond issuance (EABL) in 2017 and none in the preceding year following the closure of Chase Bank in April 2016 and Imperial Bank in October 2015, which were both corporate debt issuers,” said the CMA.

That these banks had approval by the CMA to raise cash from the market shortly before closure by the Central Bank of Kenya (CBK) also raised questions on the quality of regulation.

The corporate bonds segment also got bad publicity in 2016 due to uncertainty on TransCentury’s ability to repay a Sh8 billion convertible bond.

The matter was eventually closed after an investment from New York-based private equity fund Kuramo Capital enabled the firm to pay bondholders Sh2 billion, with the balance rolled over into a new three-year loan.

This still left the bondholders with a Sh4 billion haircut on investment.