African Program Manager of Climate Bond Initiative (CBI) at the launch of the Kenyan Green Bond listing at the London Stock Exchange
Mr. Olumide Lala (a former GM at the Nigerian Stock Exchange) and African Program Manager for Climate Bond Initiative (CBI) was present to witness the listing of the first shilling-denominated green bond programme on the London Stock Exchange (LSE), marking a step forward in the bid to open up Africa’s local currency bond market to international investors.
Low
global rates have bolstered demand for Kenyan and other frontier market
local currency government bonds, but corporate risk has proved a
stretch too far for most international investors, meaning that access to
funding for African corporates is limited to local sources.
Recent
developments in Kenya’s bond market may point to a way forward. Acorn
Holding’s green bond comes with a guarantee by development agency
GuarantCo and is dual-listed in London and Nairobi. The structure and
international listing should alleviate the concerns over transparency,
lack of available data and low liquidity that have kept many investors
on the sidelines.
The
proceeds will be used to finance the construction of six
green-certified student properties in Nairobi. It is the first
non-governmental green bond rated by Moody’s in Africa. “An
international listing in Kenyan shillings, or any other local currency,
can not only help issuers raise investment without bearing
foreign-exchange risk, but can also provide increased visibility and
profile to set benchmark yields for future issuances,” says Shrey Kohli,
head of debt capital markets and funds at LSE.
Though
small, at KES4.3 billion ($40 million), the programme “works well for a
demo”, says Geoffrey Odundo, chief executive officer of the Nairobi
Securities Exchange (NSE). “Acorn has opened up a new avenue. Green
bonds are one area we want to grow very aggressively. "We know there is a
lot of money out there targeting green assets so that is why the Acorn
debut will be very good for future bonds.” The bond is the first Kenyan
shilling-denominated green bond listed on the LSE, though there are 101
African bonds currently listed there.
Bank failures
The
deal is of particular importance to Kenya’s market because it is only
the second corporate bond to be issued since the failure in 2016 of two
banks, which resulted in large losses for the country’s pension funds.
The defaults by Chase and Imperial banks, which are yet to be resolved,
had a negative impact on investor sentiment and were a setback to the
development of Kenya’s capital markets, Odundo says.
They
were followed by a number of others. “The market had expanded to well
over 15 issuances until about three years ago,” he explains. “The
private sector would bring out a bond and it would be fully subscribed,
then we had two bond failures. There were some losses suffered in the
bond market and [investors] were very unhappy.” Now, investors are
demanding secured or collateralized bonds to ensure greater protection
from default risk and the market is slowly regaining their trust.
This
is where organizations such as GuarantCo, which provides guarantees for
local currency infrastructure bonds and is backed by the governments of
the United Kingdom, Switzerland, Australia, Sweden and The Netherlands,
come in. Janice_Kotut-GuarantCo-160x186.png Janice Kotut, GuarantCo “It
can be a bit challenging raising financing if you don’t have a long
track record,” says Janice Kotut, GuarantCo’s regional director for east
and southern Africa, based in Nairobi. “The benefit of [the guarantee]
is to crowd in institutional investors into the transaction. “It is a
landmark transaction with a number of firsts: the first project bond,
the first deferred drawdown structure and the first under the new
restricted public offering regulations.”
The deferred drawdown structure of the bond means that investors pay in as the construction of the student housing develops, rather than a lump sum at the beginning, which reduces the interest rate for the issuer. It also means that local pension funds – the targeted investor base – do not need to liquidate existing investments to get involved. The total value of guarantees written to date by GuarantCo is around $1.4 billion, enabling investments of $6.4 billion. Kotut says there is a strong pipeline of deals.
The deferred drawdown structure of the bond means that investors pay in as the construction of the student housing develops, rather than a lump sum at the beginning, which reduces the interest rate for the issuer. It also means that local pension funds – the targeted investor base – do not need to liquidate existing investments to get involved. The total value of guarantees written to date by GuarantCo is around $1.4 billion, enabling investments of $6.4 billion. Kotut says there is a strong pipeline of deals.
Frontier focus
An
off-benchmark bet, local currency bonds remain a niche product for many
money managers, but the market has seen several developments in the
past year or so that may make it more attractive to investors, says
Esther Law, who manages a local currency debt fund at Amundi. Law
Esther-160x186 Esther Law, Amundi “For liquidity and transparency, the
local market has developed,” she says. Low interest rates and the need
to diversify portfolios has kept investors focused on local currency
bonds and provides a supportive backdrop for development in the year
ahead, says Law.
One
notable development is the availability of more regular price quotes,
making it easier to gain the information needed to invest. “Regular
price updates are a huge development,” she says. “I would only see one
US bank quoting Kenya local currency on demand – there was no price or
no curve two years ago. “Now there are a handful of banks showing me on a
weekly basis a run on the local bonds.” To receive more Emerging
Markets
Low global rates have
bolstered demand for Kenyan and other frontier market local currency
government bonds, but corporate risk has proved a stretch too far for
most international investors, meaning that access to funding for African
corporates is limited to local sources.
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Kenyan property
developer Acorn Holdings has issued a small but smartly structured bond
programme, which will remove barriers to entry for local market bonds as
local currency bonds retain appeal.
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Full article: https://www.euromoney.com/article/b1jzjd4d7m9jkc/first-kenyan-shilling-green-bond-lists-on-london-stock-exchange?copyrightInfo=true
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Kenyan property
developer Acorn Holdings has issued a small but smartly structured bond
programme, which will remove barriers to entry for local market bonds as
local currency bonds retain appeal.
Full article: https://www.euromoney.com/article/b1jzjd4d7m9jkc/first-kenyan-shilling-green-bond-lists-on-london-stock-exchange?copyrightInfo=true
Visit http://www.euromoney.com/reprints for additional distribution rights. For more articles like this, follow us @euromoney on Twitter.
Full article: https://www.euromoney.com/article/b1jzjd4d7m9jkc/first-kenyan-shilling-green-bond-lists-on-london-stock-exchange?copyrightInfo=true
Visit http://www.euromoney.com/reprints for additional distribution rights. For more articles like this, follow us @euromoney on Twitter.
Kenyan property
developer Acorn Holdings has issued a small but smartly structured bond
programme, which will remove barriers to entry for local market bonds as
local currency bonds retain appeal.
Full article: https://www.euromoney.com/article/b1jzjd4d7m9jkc/first-kenyan-shilling-green-bond-lists-on-london-stock-exchange?copyrightInfo=true
Visit http://www.euromoney.com/reprints for additional distribution rights. For more articles like this, follow us @euromoney on Twitter.
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