Bullish bond market sign of recovery?

Thursday, October 28th, 2021 00:00 | By
Bullish bond market Photo/Courtesy

East African Breweries has received 245 per cent oversubscription for its high yielding debt issue amounting to Sh37.9 billion for its Sh11 billion medium-term note in a massive vote of confidence in the brewer.

The performance of Kenya’s single largest non-infrastructure corporate bond is a show of faith in EABL in what is an indication of heavy liquidity and investors willingness to take risks.

“The fact that this achievement was delivered in the face of depressed economic conditions further signifies the belief investors have in our strategy as this business turns 100 next year,” said EABL Group chief executive, Jane Karuku.

The medium term note programme will offer investors an interest rate of 12.25 per cent per annum payable semi-annually and will be listed on the Nairobi Securities Exchange (NSE) on 1 November 2021.

The brewer said applicants in the offer, which was open for 15 days beginning October 6, 2021, will be allotted notes of a minimum Sh100,000 and the balance on a pro-rata basis in multiples of Sh10,000.

However, this comes on the backdrop of a once vibrant corporate bonds market which has undergone turbulent times in the past five years.

How listings shrunk

In 2014, the corporate bond market had a portfolio size of Sh71.3 billion and 28 listings which shrunk to a paltry three investment-grade bonds with a total outstanding value of Sh11.7 billion after successful issuances by student hostel developer Acorn Holdings, Family Bank and Centum Real Estate.

The Capital Markets Authority CEO Wycliffe Shamiah now says the EABL fete was a demonstration of rising investor interest in Kenya’s corporate bond market.

“I am delighted with the performance of the EABL Medium Term Note which is a testament of the renewed interest in the corporate bond market with growing issuer and investor confidence,” Shamiah noted.

The funds will be used to finance investments in expanding production, repay debts taken in the  course of business, refinance short-term borrowings and provide working capital.

Shamiah said that in the last 11 months, the authority has approved the issuance and listing of the Centum Investments Company’s Sh4 billion medium-term note with a Sh2 billion green shoe option, and the Sh8 billion multi-currency Family Bank medium-term note.

The latter recorded an oversubscription of 147 per cent. As of June 30 2021, the bond market turnover stood at Sh 301 billion, compared to Sh228 billion registered in quarter 3, 2020, recording a 32 per cent increase.

Massive subscription could however also mean that EABL under-quoted its issue and and the offer could still have been funded even if they had quoted lower returns for investors.

Did EABL underquote?

“The application process was delivered through a digital platform, a first in Kenya and we received interest from a diversified group of investors.

We are committed to continuously deliver strong returns for our business and investors,” said Risper Genga Ohaga, EABL’s Group CFO.

ABSA Bank CEO Jeremy Awori said as the lead arranger for the bond issue, the lender considers the success despite a challenging economic environment as a signal that investors were still not ready to take risks despite assurances that the economy will grow by over 5 percent this year.

The offer was opened on October 6 and closed on October 21 and will be listed for trading on the Nairobi Securities Exchange starting November 1.

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