The Nairobi Securities Exchange (NSE) and Capital Markets Authority (CMA) have moved to address the faltering corporate bonds market, seeking large international issuers to fire up the market and off-market trading of securities.
The CMA said in its fourth quarter 2018 market soundness report that it has retained the services of a consultant to help the creation of a hybrid market for corporate bonds, with an eye on improving the liquidity of the paper that has seen little trading in the past year.
CMA data shows that last year, investors traded just Sh1.17 billion worth of corporate bonds in the secondary market, accounting for just 0.21 per cent of total bonds’ turnover which stood at Sh557.7 billion.
“To counter the challenge of an illiquid corporate bond market in Kenya, the CMA has procured a consultancy to support the introduction and implementation of the hybrid bond market model that will allow trading of bonds both on and off the exchange,” said the watchdog in the market soundness report.
On its part, the NSE is looking for large external issuers to put out a local currency bond, which will act as a vote of confidence in the market.
NSE chief executive Geoffrey Odundo told the Business Daily last week the exchange is also asking companies to consider putting up a guaranteed bond, which will ease investor fears about losing money in case of problems with the issuer.
“We are now focusing on having large issuers to inspire the confidence in the market. We are talking to supra-nationals like AfDB to do a local currency bond, and also large corporate companies whose balance sheets can inspire confidence in the market,” said Mr Odundo.
“We are also encouraging issuers to come up with guaranteed bonds, which is where we started in the first place in the corporate bond market before we moved to partial guarantees and then to unsecured paper.”
Both the regulator and the exchange have sought changes in the law to better protect bondholders’ funds in case institutions go into insolvency, citing the cases of Imperial Bank and Chase Bank, which went down with bondholder funds.
“We are speaking to the government about a review of the Insolvency Act to see how to protect capital markets money, and remove the situation where bondholders rank lower in the hierarchy of debt,” said Mr Odundo.