Global ratings agency Moody’s has offered a stable rating for a Sh5 billion medium-term note set for issue by property developer Acorn Group and London-based private equity fund Helios to fund construction of university hostel units in Nairobi.
Moody’s local currency rating of B1 Stable for the note is a rung higher than Kenya’s sovereign rating of B2 Stable, due to a partial guarantee being made to investors through GuarantCo.
Acorn and Helios target is to build up to 3,800 university hostel units in Nairobi at a cost of about Sh7.4 billion. They have already put up more than 1,000 units in Ruaraka, Jogoo Road and Parklands under the Qwetu brand.
"The Acorn student housing transaction is an important milestone in the development of the local capital markets for private financing of infrastructure in Kenya," said Moody's vice president and senior credit officer Christopher Bredholt in a statement.
"The partial guarantee provided by GuarantCo enhances noteholder recovery and supports a rating above Kenya's B2 sovereign bond rating".
The partial guarantee that has aided the rating will see bondholders recover up to 50 percent of their principal and interest in case of a default.
Moody’s also says the construction of the hostel units will not rebalance the supply and demand metrics for student housing in Nairobi (where supply is currently trailing demand); thus the agency is forecasting occupancy levels above 90 percent.
The rapid expansion of both public and private universities has created a huge demand for student accommodation, prompting private developers to step in either independently or through partnerships with tertiary institutions.
Previously, universities were able to accommodate students in their hostels, but the explosion of student numbers in the last decade has meant that only a small number is accommodated on campus at any one time.
Acorn, which has also developed a number of commercial property for clients such as Coca Cola, Deloitte and UAP Holdings, was previously minority owned (25 per cent) by insurer Britam.