Kenya Association of Stockbrokers and Investment Banks
The recently oversubscribed water infrastructure green bond by the Tanga Urban Water Supply and Sanitation Authority (Tanga UWASA) highlights the huge capital market potential for major projects.
Launched on February 22, 2024, and listed on the Dar es Salaam Stock Exchange (DSE) on May 15, 2024, the TZS 53.12 billion (Sh2.575 billion) issue attracted impressive response from investors, both domestic and foreign.
The Tanga UWASA bond saw a 103 percent oversubscription, with 65 percent coming from local investors and 35 percent from foreign investors. Nicodemus Mkama, CEO of the Tanzania Capital Market and Securities Authority, acknowledged the bond's success as a turning point for the country's capital markets.
Kenya has explored similar financing options for infrastructure projects. The Kenya Association of Stockbrokers and Investment Banks (KASIB) has taken an initiative to help water companies obtain funding through the capital market with its County Bonds Financing Programme.
Using this programme, water service providers (WSPs) can raise funds through the capital markets to be invested in smart water metering, expansion of the water reticulation network, and replacement of old and leaking pipes.
The Kenya Pooled Water Fund project previously made an unsuccessful attempt to raise Sh10 billion using a local bond. To fill the Sh995 billion funding deficit, the government gave the green light to water companies to borrow money from the capital markets.
The successful adoption of water/infrastructure bonds in Kenya might result in numerous benefits.
The purpose of water bonds such as Tanga UWASA's is to finance environmentally conscious projects. Additionally, due to restricted funding, the government often encounters project execution delays. Bond issuances can support government initiatives as a competitive substitute for conventional funding sources.
By leveraging the capital markets to raise funds for water infrastructure projects, we can attract both domestic and international investors, which will increase market liquidity and stimulate cash flows. It will also provide diversification opportunities for investor portfolios.
To emulate Tanzania's feat Kenya must take important actions to create a favourable atmosphere for sustainable bond issuance.
A clear and supportive regulatory framework must first be in place. This includes accelerated approval procedures and providing incentives for green projects. To streamline the process, all approvals should be centralised under a single regulator, such as the Capital Markets Authority.
Another critical step is strengthening the capacity of institutions and stakeholders to create and manage bond projects through training programmes. The government should also encourage private public partnerships to share resources and expertise.
Finally, focus should be put on increasing investor confidence through openness, accountability, and consistency.
The writer is the financial literacy Associate at the Kenya Association of Stockbrokers and Investment Banks
