The apathy afflicting corporate bonds has spread to the secondary market where debt issues have failed to trade in the third quarter of the year.
The Capital Markets Authority says in its latest market soundness report that this category of bonds has suffered due to the lingering effects of the failure of lenders Chase Bank and Imperial Bank shortly after they sold corporate bonds.
Companies that invested in these bonds have had to make expensive write-offs of the paper, which in turn has raised the risk that buyers are associating with company bonds thus the decision to desist from buying existing paper in the market.
The higher risk associated with corporate bonds means they have traditionally paid a higher interest compared to government paper, but now it seems investors are unwilling to take a risk on the corporate paper at any cost.
“The negative sentiments relating to delayed bank resolutions have cast a shadow over the whole corporate bond market,” said the CMA in the report released last week.
“A resolution of the issues in the bonds market relating to the bank issuers to address insolvency and resolution for bonds that have not been listed would go a long way in instilling confidence in corporate bond markets.”
Government bonds accounted for 100 per cent of the trades worth Sh133.7 billion that were done in the secondary market in the three months to September.
South Africa for instance, has a vibrant corporate bonds market with thousands of companies issuing debt in the market.
Drought of issues
In Kenya, the last three years have seen a drought of issues in the primary market, with only EABL #ticker:EABL issuing a paper in the period (March 2017).
Although the segment has traditionally lagged far behind that of government securities in both issuances and daily trading, there is now a risk that it could be wiped out altogether once the existing papers mature.
NSE data shows that out of the 17 outstanding corporate bonds in the market, nine will be due for redemption next year, a further four in 2020 and the remaining four in 2021 and 2022.
Barring new issues coming up in the interim period, the market could therefore be left without a listed corporate bond within four years.