Kengen Bond launches Automated Trading in Nairobi

The first bond launched on the Automated Trading System (ATS) of the Nairobi Stock Exchange (NSE – www.nse.co.ke) on 9 November, when KenGen listed its KSh25 billion (US$336 million) bond. The firm had offered its investors the choice of trading on the automated system by immobilizing their holdings (holding them on the computer systems) or trading on the traditional market with paper holdings and 91% opted to have bond certificates immobilized in CDS accounts, according to local media.

The ATS links to the central depositories of the Central Bank of Kenya (CBK) and the Central Depository and Settlement Corporation (CDSC www.cdsckenya.com). It offers T+3 settlement (payment and transfer of ownership on the third day after trading), compared to T+7 on the manual market, and a much better flow of information.

On Monday, some market players told local press that there had been problems with trading, but the NSE said that the system was functioning well and the only difficulties had been with some pricing by the sponsoring broker Standard Investment Bank, and some clarification on schedule dates falling on a Saturday, according to local press reports.

NSE Chief Executive Officer Peter Mwangi was reported as saying: “From this day forward, all immobilized listed bonds, such as the KenGen bond will trade in an end-to-end automated capital acquisition platform, right from the placement of orders, to matching and finally settlement. This is basically what has been implemented.”

NSE First Vice Chairman Lutaf Kassam told Monday’s listing ceremony: “Automation is the key that will unlock the much needed capital required to stimulate this economy. Automation is really about ensuring easy flow of information so as to allow market players, investors and potential issuers to make informed decisions.” He thanked investors for their support in choosing to have their bonds traded electronically.

The KenGen bond is currently the only corporate bond that has been immobilized abnd listed on the ATS to date. The next step could be to trade treasury certificates (which make up 92% of the KSh385 bln – $5.2 billion – market) and Government bonds, which are on the CBK central depository and so already linked to the ATS. Other corporate bonds can join but those already in issue and traded on the manual market would have to ask their bondholders to immobilize their certificates through an immobilization timetable approved by the Capital Markets Authority and CDSC.

The ATS is expected to offer more liquidity and attract more retail investors. It offers real-time data streaming from the transactions and more information on bond market mechanics. It guarantees T + 3 settlement for corporate bonds and T + 0 for government bonds and this will help liquidity. Bond Traders Association chairman Fred Mweni is reported as saying the ATS could boost annual trade volumes to KSh1 trillion from this year’s projected trade volume of about KSh200 bln.

On the first day of trade, a deal worth Sh77 mln was reported. The bond had initially aimed to raise KSh15 bln but offered an additional KSH 10 bln through a “green shoe” option after applicants offered KSh26.5 bln.

Based on reports from Nairobi SE, Business Daily and Capital FM.

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