FINANCIAL MARKET

Sovereign bond issues bolster NSE ranking

This has however dampened Kenya's equities market

In Summary

•The value of bonds listed
 on the Nairobi exchange doubled to $17.5 billion (Sh1.81 trillion) from $8.8 billion (Sh912.56 billion) over the year, due entirely to sovereign issues

•The country has so far floated three sovereign bonds, with the most recent on being Sh210 billion Eurobond sold in May

Treasury buildings.
UNPAID BILLS: Treasury buildings.
Image: MONICAH MWANGI

Increased sovereign bond listings have helped Kenya sustain its position as Africa's third most advanced financial market. 

The Absa Africa Financial Markets Index, places the country after South Africa and Mauritius.

According to the index, sovereign bond listings have have further diversified Kenya’s current asset poo
l set with the introduction of green and blue bonds.

 
 

The value of bonds listed
 on the Nairobi exchange doubled to $17.5 billion (Sh1.81 trillion) from $8.8 billion (Sh912.56 billion) over the year, driven solely by sovereign issues.

The country has so far floated three sovereign bonds, with the most recent  being Sh210 billion Eurobond sold in May.

The dual-tranche of seven-year and 12-year tenors are priced at 7 per cent and eight per cent respectively.

Part of the amount raised was used to settle the first installment of the first Eurobond of about $750 million, which plus interest of about $80 million, about $830 million due on June 24.

One survey respondent in the index said the country’s large government bond issuance in recent years has crowded out investor demand for private-sector securities.

This means investors could be shunning the equities market for more lucrative and secure government bonds.

This has forced Kenya’s Capital Markets Authority to boost
 the country’s venture capital and private equity markets, by creating a pipeline of smaller firms that can pursue initial public offerings through incubation hubs.

 
 

“We are confident that these initiatives will enhance the sophistication of our financial markets and therefore attract more local and global investor participation,” Barclays Bank Kenya chairman Charles Muchene said.

According to the report, Kenya should also bank on high growth of pension assets to boost participation in the bourse.

Kenya’s pension assets rose by 17 per cent $10.5 billion (Sh1.08 trillion) from the previous year. 

According to one of the respondents fragmentation of these assets in many small pension fund schemes, the broken relationship between pension fund trustees and managers, and limited capacity and motives to invest in securities other than government debt and real estate has hampered pension funds’ contribution to capital market development.

Government securities account for 39 per cent of Kenya’s pension assets, followed by real estate at 20 per cent. Large allocations to government securities are common across index countries.

Speaking on behalf of Treasury CS Ukur Yatani, the ministry’s director for public investment management Stanely Kamau said the financial sector was key to growing Kenya’s economy and attaining the UN Sustainable Development Goals.

“This will be achieved through creation of a vibrant and globally competitive financial sector that will promote high level of savings to finance Kenya’s investment needs,” he said.

With a score of 65, Kenya’s financial markets depth leads the East African region, followed by Tanzania (55), Rwanda (53), Uganda (52) and Ethiopia (27).