Corporate debt fades on Chase, Imperial defaults

The popularity of corporate bonds at the Nairobi bourse has dropped sharply due to a lack of clear compensation policy and may remain so unless Chase Bank and Imperial Bank bondholders get their cash back.

Capital Markets Authority (CMA) says the absence of a clear policy and action plan to reimburse bond investors whose funds remain locked in the banks has reduced interest in the securities.

“Activity in the corporate bond market in the years leading to 2015 was fairly active until the two issuances brought an unexpected drought in this market,” said the CMA in a recent study on low uptake of products at Nairobi Securities. Exchange.

“The market seems to have taken a back step in the active issuance of corporate bonds as investors who invested in the two bonds still seek recourse on their investments.”

Only one corporate bond has been issued in the last two years against 28 Treasury bonds, as the resolution of Sh10 billion and Sh2 billion Chase and Imperial bonds respectively pend.

READ: Chase Bank to tap into SBM Sh10bn bond issue

According to ICEA Lion Asset Management chief investment officer Barack Obatsa, fund managers are likely to continue shunning the market owing to this prolonged wait.

“For as long as these unresolved issues are not dealt with, it is going to be very hard for us to see new issuance in the market,” he said.

The CMA study said this has been exacerbated by the Kenya Deposit Insurance Corporation and Central Bank of Kenya failure to implement Section 39 of the KDIC Act to the letter leading to the high likelihood that bondholders “will be treated as ordinary depositors upon resolution of the banks”.