Commercial Bank of Africa (CBA) has snatched from Kenya’s biggest bank, KCB #ticker:KCB, a multi-billion shilling deal to guarantee buyers of the mobile phone-based bond, M-Akiba, an exit route whenever they need it.
People familiar with the deal said KCB had been beaten to the contract in the heat of a price war that CBA appears to have won.
Geoffrey Odundo, the chief executive of the Nairobi Securities Exchange (NSE), confirmed the CBA deal.
“They (CBA) will be the buyer to every seller and a seller to every buyer,” he said.
CBA, which is owned by the Kenyatta family, will now act as the buyer of any mobile phone bonds that investors put in the market but cannot find a buyer.
KCB is said to have failed to agree with the Treasury on the cost of providing liquidity for the three-year paper.
KCB is said to have sought three per cent compensation on the value of any bond it purchases, which is similar to what the central bank gets when it buys a bond from an investor as buyer of last resort.
The Central Bank of Kenya buys bonds from investors that have either not matured or have failed to attract a buyer at the Nairobi bourse, but at a discount of three per cent of the prevailing price.
KCB had also attached a fee of 0.5 per cent for the guaranteeing offer, but CBA offered a lower rate of 0.3 per cent and did not demand additional compensation, the Treasury sources said.
KCB said it would not comment on the matter.
The Treasury raised Sh150 million with the three-year M-Akiba bond, becoming the first in the world to issue a government bond via the mobile phone. Investors who bought the bond started trading the paper yesterday on the NSE.
“Conversations with previous liquidity providers are still ongoing. We have not finalised. But we had a deadline we needed to fix this and process for today,” Wohoro Ndoho, the head of debt at the Treasury, said in response to questions on the matter, adding that the government is looking to a future in which there are multiple liquidity providers.
CBA was the first to start offering saving and lending products on mobile phones.
The bank in 2012, launched M-Shwari on the M-Pesa mobile cash platform, owned by telecoms operator Safaricom #ticker:SCOM.
More than the equivalent of Sh154.5 billion has since been lent to customers on M-Shwari in Kenya and in neighbouring countries where CBA operates, according to the bank.
More recently, KCB is has also become a major player in collecting deposits and lending via the mobile phone.
The second tranche of M-Akiba, worth Sh4.85 billion, is set to open in June and Mr Ndoho said other mobile issues would follow.
“We do not envisage this as a one-off. This has to be a permanent part of our financial services market architecture that offers the average Kenyan an opportunity to participate in the bonds market,” Mr Ndoho said at a bell ringing ceremony for the bond.
Analysts said CBA is poised to make a fortune, but only subject to the volumes of transactions.
“Once we see scale (which I expect) then it will be profitable. For now it’s a nickels and dimes game but M-Pesa has proven that there is scale in this game,” said Rich management chief executive officer Aly-Khan Satchu.
Sterling Capital investment director John Kirimi noted the rates are small but would be very lucrative with the rise in transaction volumes.
CBA Group executive director Martin Mugambi said the lender won the deal after providing the best pricing.
Mr Odundo said about 108,000 Kenyans have registered on their mobile phones to invest in M-Akiba since last month, compared with just 20,000 existing retail investor accounts with the central bank for normal Treasury bonds, showing the potential for M-Akiba to help mobilise savings.