Archive for the 'Bonds' Category

AfDB and stock exchanges group ASEA sign MoU for capital markets projects

Africa’s leading financial institution, the African Development Bank (AfDB), is pairing with the African Securities Exchanges Association (ASEA) to deepen and connect Africa’s financial markets. The partnership aims to help mobilize more resources to drive growth.
The two will work on projects of mutual interest such as developing financial-markets infrastructure, introducing new products, improving market liquidity and participation, information-sharing and capacity-building. AfDB and ASEA signed a 5-year memorandum of understanding on 11 July. This provides “a collaborative framework for harmonizing and coordinating the efforts”, according to an AfDB press release.
The Bank and ASEA have already started successfully collaborating on the African Exchanges Linkage Project, which they co-initiated to improve liquidity and foster greater investments and trading across markets. This aims to link key regional markets and has proposed Casablanca, Johannesburg, Nairobi and Nigerian stock exchanges as regional hubs, according to project documents.

AfDB and ASEA Executive Committee delegation. (From left to right) Stefan Nalletamby (Vice-President for infrastructure, regional integration and private sector, AfDB), Geoffrey Odundo (CEO of Nairobi Securities Exchange), Oscar Onyema OON (CEO of Nigerian Stock Exchange), Akinwumi A. Adesina (President of AfDB), Karim Hajji (CEO of Casablanca Stock Exchange), Edoh Kossi Amenounve (CEO of BRVM) Photo: AfDB

AfDB and ASEA Executive Committee delegation. (From left to right) Stefan Nalletamby (Vice-President for infrastructure, regional integration and private sector AfDB), Geoffrey Odundo (CEO of Nairobi Securities Exchange), Oscar Onyema OON (CEO of Nigerian Stock Exchange), Akinwumi A. Adesina (President of AfDB), Karim Hajji (CEO of Casablanca Stock Exchange), Edoh Kossi Amenounve (CEO of BRVM) Photo: AfDB

AfDB President, Akinwumi A. Adesina says deepening and integrating Africa’s financial markets to mobilize domestic resources to fund African economies is very important to deliver the Bank’s “High 5s” priorities: Light up and Power Africa, Feed Africa, Industrialize Africa, Integrate Africa and Improve the Quality of Life of Africans (all part of the bank’s 2030 agenda for attaining the global Sustainable Development Goals – SDGs).
He says there are huge pools of capital available in sovereign-wealth, pensions and insurance funds and these can be used for developing Africa through appropriate intermediation and capital-markets products. He called for “increased mobilization of domestic pools of savings and support for small and medium enterprises (SMEs), as they constitute the bulk of Africa’s private sector.”
Adesina pointed to the bank’s progress in financial markets development through issuing and listing local-currency bonds in Uganda, Nigeria and South Africa. The bank has also created African Financial Markets Initiative (AFMI) to support domestic bond markets through the African Financial Markets Database. The bank will soon launch an African Domestic Bond Fund building on the success of the AFDB Bloomberg® African Bond Index, which started in February 2015 to combine the Bloomberg South Africa, Egypt, Nigeria and Kenya local-currency sovereign indices and was expanded in October 2015 by Botswana and Namibia..
ASEA President, Oscar N. Onyema, CEO of the Nigerian Stock Exchange, says the MoU will frame projects focused on the development of exchanges, deepening the stock markets and ultimately fueling African economic growth.

IFC raises N$180m bond in Namibia

Photo credit: Namibian Sun www.namibiansun.com

Photo credit: Namibian Sun www.namibiansun.com

The International Finance Corporation, part of the World Bank Group, has continued its programme of helping develop African debt markets by launching the first bond by a non-resident issuer in Namibia. It raised NAD 180 million (about $12m) which it will use for private sector development in the country. The bond yield is 9.812% per annum.

The 5-year bond is named “Namib” after the world’s oldest desert. The bond is part of a medium-term note programme registered with the Namibian Stock Exchange that allows IFC to issue up to NAD 10 billion (approximately $650m) in bonds in the domestic market. Standard Bank and IJG Securities (Pty) Ltd are lead managers for the bond issuance. IJG Securities is also the sponsoring broker on the transaction, while Standard Bank and Transfer Secretaries (Pty) Ltd are fiscal agents.

The bond is issued under IFC’s Pan-African Domestic Medium Term Note Programme, which was launched in May 2012 to support capital-market development in the region. The IFC has already issued local-currency bonds in Rwanda and Zambia, and 9 countries are part of the programme.

Jingdong Hua, IFC Vice President and Treasurer, said: “Deep, vibrant capital markets create access to long-term, local-currency finance for the private companies so they can get tailor-made financing for growth and expansion. The IFC Namib bond is an integral part of IFC’s strategy to support Africa’s capital market development and create access to finance for the region’s private sector.”

IFC supports local capital market development in Africa by working with governments, regulators and market authorities to put in place frameworks that encourage market entry by domestic and international issuers. IFC also supports African companies looking to access capital markets.

More recently, IFC launched a new capacity-building programme for African capital market regulators and practitioners. This is a partnership with the Milken Institute and George Washington University and will create a network of experts and advocates to support the region’s capital markets.

Ipumbu Shiimi, Governor of the Bank of Namibia, said: “Developing Namibia’s capital markets will be critical for long-term economic development, and especially for the expansion of the infrastructure and banking sectors. We hope that other international and domestic issuers will follow IFC and connect savings to Namibia’s private sector investment needs.”

IFC issues bonds denominated in local currencies in emerging markets as part of its regular programme of raising funds for private-sector development, and to support the development of domestic capital markets. In many cases IFC is the first, or among the first, non-resident issuer in a domestic market. IFC bonds are rated triple-A by Moody’s Investors Service and Standard & Poor’s.

Exchange trends from World Exchange Congress 2016

A couple of interesting statements from speakers at the excellent World Exchange Congress 2016, happening 22-23 March at Bishopsgate in London.

Exchanges – back to the information coffee house
Stu Taylor, CEO of Algomi: Fixed-income trading was dominated by banks who use voice trading and support it with their balance sheets. Most banks and their clients prefer this way and are not naturally going to switch to putting limit orders through the exchanges. We try to see how we can help with parts of the transactions, we worked first with the regulated Swiss exchange to put technology components at banks and that can help them sometimes with their trades, the exchange can help them find different counterparts, or with missed trades or, when they are struggling to complete a deal, the exchange can make suggestions. We suggest actions into the existing workflow, rather than trying to change the workflow. Exchanges can connect information sources so the exchange is the place to see what’s going, it can offer “bond dating”, trying to match buyers and sellers into a transaction.

Historically the technology focus for exchanges has been on execution, but now the innovation is that the exchange is about the information itself. Technology is shrinking the world, we used to talk about 6 degrees of separation in the world. Technology such as Facebook has made that number closer to 3 degrees of separation. Exchanges are back to the origins of exchanges as the coffee shops, finding a place to know someone who knows someone. Information and pre-trade are where the next waves of innovation for exchanges are going to come from.

Exchanges role in banks' bilateral bond trading, source www.algomi.com

Exchanges role in banks’ bilateral bond trading, source www.algomi.com

Can technology create liquidity?
Ganesh Iyer, Director of Global Product Marketing at IPC Systems: “Technology has become a facilitator of liquidity. Uber has no taxis but it provides taxi “liquidity”, Airbnb has no rooms but provides accommodation “liquidity”. Technology does not create liquidity on its own but it brings together market participants and that leads to liquidity. In the capital markets it can bring very diverse market participants together, for instance a mutual fund seller with a diverse “buy-side” community including hedge funds, retail, etc.

Move over-the-counter (OTC) trading onto exchanges
April Day, Director, Equities, Association for Financial Markets in Europe: “There is always a need for keep some balance, some trades are not suitable for exchange trading, there is still a time when investors choose to trade off exchange for reasons such as not wanting to share market information, reduce costs, less disclosure, etc.

Sergio Ricardo Liporace Gullo, Chief Representative EMEA BM&FBOVESPA; The Brazil market has reached a big harmony, we have survived many crises and we have a sophisticated system offered by the exchange which offers central clearing and makes all parties’ lives more efficient and offers better use of capital.

Keisuke Arai, Chief Representative in Europe of Japan Exchange Group: The Japaese experience is that it’s important for the exchange to strike the right balance between market efficiency and investor protection.

South Africa – politics affects the market, damaging savings and jobs

Pravin Gordhan (photo enca.com)

Pravin Gordhan (photo enca.com)

Stock exchanges act as a powerful and fast indicator of how the market and the business world view political initiatives. Many believe that the overall market has a wisdom that an individual policymaker or even a group of political leaders cannot expect to have. Of course political leaders are the ones elected and responsible to lead in the interests of the people, but the market is a very useful tool for quick feedback and possible corrective action.

Usually the signal is only given by plunging share prices or rising bond yields/falling bond prices (the same thing). However, last Sunday the Johannesburg Stock Exchange decided to spell out how policy decisions affect not just the stockbrokers, but the whole population, including hitting their savings, their jobs and their hopes. This came after President Jacob Zuma on 9 Dec appointed unknown David van Rooyen as Finance Minister in very dubious circumstances after sacking respected Nhlanhla Nene.

The revolt inside the African National Congress ANC and across the country was also strong. By Sunday night 13 Dec the National Treasury was back in what is seen as safe hands, with the reappointing of a previous minister, Pravin Gordhan. The ZAR currency gained on Monday, climbing back past ZAR15 = USD1, and reaching ZAR14.97=USD1 by this morning according to Reuters compared to ZAR14.43=USD1 before Nene was fired.

We reproduce a statement published by the Johannesburg Stock Exchange (JSE) and its CEO Nicky Newton King earlier on Sunday 13 Dec in full. It indicates how the market affects everyone’s welfare:

IT’ S NOT JUST THE NUMBERS – IT HURTS ORDINARY SOUTH AFRICANS
Says JSE CEO Nicky Newton-King

Johannesburg, 13 December 2015. South African capital markets posted significant losses and saw unprecedented activity following the announcement by President Jacob Zuma on the evening of the 9th of December to replace the Minister of Finance. Investors, ranging from individual retirees to huge pension funds, have seen the value of their holdings plummet. Businesses already under pressure now face increases coming from rising borrowing costs and a weaker Rand which devalued from R14.53 to R15.89 (9.36%) against the USD and from R15.94 to R17.45 (9.47%) against the EUR in the two subsequent days.

Thursday 10 and Friday 11 December 201 saw exceptional trading volumes across most platforms of the JSE:
• Average daily value traded in the Equity Market on those two days, at R47.8bn, was more than double the year to date average for 2015 (R19.9bn)
• Average daily number of trades in the Equity Market on those two days of 589 721 (both of which were record trading days) was more than double the year to date average of 246 338 trades
• The FTSE/JSE Financial15 Index (FINI) dropped 13.36% from 15 600 to 13 515
• The FTSE/JSE Banks Index lost 18.54% dropping from 6 556 to 5 340
• The FTSE/JSE All Share Index (ALSI) dropped 1 456 points in those two days, closing at 48 068 on Friday, down 2.94%
• The FTSE/JSE Top 40 Index shed 987 points over the same period, closing at 43 558 on Friday
• The entire market cap fell R169.6bn from R11.35tr to R11.18tr (1.49%)
• Activity in Equity Derivatives also peaked – value traded on 10 December (R51.1bn) was double that of the daily average of the year and on 11 December (R129.7bn) was 5 times the daily average of 2015
• In the bond market, the benchmark R186 started the week at a yield of 8.66% and closed on 10.40%. By contrast, on 29 January 2015 the yield was 7.055%.

Says Newton-King:

“While the JSE systems were able to handle this unprecedented activity, we should not just be concerned about the immediacy of market reaction but should be mindful of the longer term impact on the financial stability of our economy.

“Market losses put strain on credit extension and interest rates, and raise borrowing costs for companies and individuals. As cost of capital becomes more expensive, this in turn constrains the growth stimulus which we desperately need. The outlook for much needed job creation opportunities diminishes. And higher lending rates make everyday life more expensive for ordinary South Africans. Continued currency depreciation will have a profound impact on fuel prices and on inflation overall, which will hurt companies, small businesses, and individuals.

“We should remember that behind the daily statistics are the life savings of ordinary South Africans which are likely to be negatively impacted. This will put pressure on the ability of people to fund their health and housing requirements, their household budgets, their children’s education and their entrepreneurial aspirations.

“As individuals and as corporates we need to be aware of how we are impacted by the seriousness of this moment and take accountability for how we respond.”

Yesterday and today the markets started to recover. The banking index had fallen nearly 20% and on Monday climbed back 15% but then pared back gains to 8.7% by Monday evening. The yield on the benchmark 2026 ZAR186 government bond, with effects on all debt across the market, was down 101 basis points to 9.37% on Monday morning, but closed yesterday at 9.95% and this morning was at 9.87%, while the JSE’s All-Share Index was up 2% to 49,051.

Reuters reports Investec chief economist Annabel Bishop: “Finance Minister Gordhan has averted the rout, but the damage to sentiment cannot be repaired quickly, and South Africa will continue to suffer under it for quite a while.”

NOTE – PRIME EXAMPLE Markets reflect earnings prospects: It was fascinating to see how the “elephant bond” – Cote d’Ivoire’s previous Eurobond – adjusted its yields with every advance or retreat in the country’s 2010 civil war. It was eventually defaulted on in 2011 and resumed proper payments in 2012, with a very warm response given to the 2014 and 2015 editions, according to Euromoney.

Local bond markets to fore at AfDB workshop

The African Development Bank’s African Financial Markets Initiative (AFMI) is discussing local-currency bond markets this week in Johannesburg, and over 30 countries will be there according to the press release. Key topics include how to develop domestic institutional investors, with experiences shared from across Africa, and updates on gathering data and help to include more countries in an AfDB-Bloomberg bond index.
AFMI runs a helpful financial markets database, available through their website www.africanbondmarkets.org, featuring bond and money-market news and helpful capital market descriptions for different African countries as well as a data portal.
The first day of the workshop, today 30 Nov, covers the database and the African Fundamental Bond Index as well as technical assistance. It includes how to collect accurate pricing data so that more countries can be included in the African Development Bank (AfDB/AFMI-SM) Bloomberg® African Bond Index (ABABI).
Tomorrow, 1 Dec, is open to investment banks, stockbrokers, exchanges and financial institutions. This includes presentations on the ABABI index, an African Domestic Bond Fund, and perspectives from institutional investors.

To participate in the 1 Dec African bond markets workshop please contact afmi@afdb.org as soon as possible.

AfDB launched the initiative in 2008 as part of its strategy to develop Africa’s financial sector. It contributes to developing domestic bond markets through: the African Financial Markets Database (AFMD); and the African Domestic Bond Fund (ADBF).

African Financial Markets Initiative data portal

African Financial Markets Initiative data portal

Soaring trading on Nigeria’s FMDQ market for fixed income and fx

Nigeria’s booming fixed interest and currency securities exchange FMDQ OTC Plc (“over-the-counter” market) recorded market turnover of NGN93.9 trillion ($471.7 billion) for the 8 months to 31 August. This includes all products traded on the FMDQ secondary market as well as trade executed between dealing members, dealing members & clients, and dealing members & the Central Bank of Nigeria (CBN).

According to a recent report in Vanguard newspaper, treasury bills transactions accounted for NGN31.7trn (34%) of the total trading; repurchase agreement/buy backs were NGN21.354trn (23%) turnover; and foreign exchange (forex) NGN19.84trn (21%). The top 10 dealing members accounted for NGN67trn, 71% of the turnover; 3 dealing members accounted for NGN27.9trn (42%) of the broker trading.

Photo: FMDQ OTC

Photo: FMDQ OTC


Major listings in July included NGN26bn ($130m) FCMB Financing SPV PLC series 1, 7-year 14.25% fixed-rate unsecured bond under a ₦100trn debt issuance programme. This came after the listings of NGN4.8trn of bonds issued by the Federal Government of Nigeria (FGN) and quotation of NGN2.8trn of treasury bills. Other key listings have included a NGN30.5bn bond by UBA and a NGN15.54bn bond by Stanbic IBTC.

Other instruments traded in the 8 months to August:

  • Unsecured placements – NGN9.2trn
  • FGN Bonds – NGN6.1trn
  • FX Derivatives – NGN5.5trn
  • Money-market derivatives – NGN101bn
  • Eurobonds – NGN33bn
  • Other bonds – NGN18bn.

The figures exclude primary-market auctions in T-Bills, Bonds and FX.

According to CEO Bola Onadele Koko, revenue in 2014 was NGN1.75bn, compared to NGN155.65m in 2013, based on transaction income only for one month, December 2013. The bourse aims “to be No. 1 in Africa in the fixed income and currency markets by 2019”.

The FMDQ concept was promoted by the Financial Markets Dealers Association (FMDA) in 2009 and sponsored in 2010 by the Bankers’ Committee, chaired by the CBN with the Nigeria Deposit Insurance Corporation (NDIC) and all the banks and discount houses operating in Nigeria as its members. The committee resolved to set up a self-regulated organization licensed by the Securities and Exchange Commission (SEC) to operate all the over-the-counter inter-bank market activities in fixed income and currencies.

FMDQ was incorporated on January 6, 2011 with a NGN100m contribution by the CBN and equal contribution of NGN15m by each of the 25 banks and 5 discount houses to the company’s initial capital. On 6 Nov 2012, SEC registered FMDQ as an OTC securities exchange and self-regulatory organisation. It started operations a year later, 7 November, 2013.

By 31 Dec 2014 there were 26 FMDQ-licensed dealing members made up of banks and discount houses licensed to make markets in debt securities, money-market instruments and currencies on FMDQ. It was due to add specialist dealing members to deal in treasury bills and FGN Bonds. There were 13 licensed associate members, including SEC-registered inter-dealer brokers and brokers, as well as clients including institutional investors/asset managers, pension fund administrators and corporate treasurers.

From 2014 annual report

From 2014 annual report

fmdq_bannerad

IMF cuts African growth forecast

Africa’s growth is slowing dramatically, says the International Monetary Fund, and it could get worse if the global economy does not grow. The IMF says economic growth for 2015 is likely to be 3.75% and 4.25% next year, the lowest level in 6 years and down from last year’s 5% average growth.

In its October 2015 report African Economic Outlook: Dealing with the Gathering Clouds, the IMF writes: “The strong growth momentum evident in the region in recent years has dissipated. With the possibility that the external environment might turn even less favourable, risks to this outlook remain on the downside.”

There are many that are flourishing, including Cote d’Ivoire, forecast to grow at 9% this year because of an investment boom that followed the end of a brief civil war in 2012. It just had a very peaceful election and President Alassane Ouattara, a former IMF official, is widely expected to win.

In real growth terms (page 81) Ethiopia is Africa’s fastest-growing economy this year with 8.7% growth, followed by Democratic Republic of Congo (8.4%) and Cote d’Ivoire (8.2%). Ethiopia is second fastest next year with 8.1% forecast, just after Mozambique (8.2%).

The fund blames a slump in commodity prices and cheap dollars returning to the US and out of African credit markets for the lower overall growth. Hardest hit are the 8 countries that export oil from sub-Saharan Africa, where the prices are far lower. Top producers Nigeria and Angola will see revenues falling fast, while . weak minerals prices, power shortages and difficult financing conditions are slowing growth in countries such as Ghana, Zambia and South Africa. It said commodities revenues are forecast to remain depressed for several years.

According to a report by Reuters, Antoinette Sayeh, head of the IMF’s Africa department, said governments should work quickly to diversify revenue sources by improving domestic tax collection: “Mobilizing more revenues is an urgent matter – as is being more exacting in choosing expenditure. It’s a difficult patch, but we definitely think that countries can move out of the very difficult terrain and grow more robustly.”

The fund urges governments to increase productivity: “To sustain rapid growth the region will need to diversify away from commodities, increase export sophistication, and integrate into global value chains.”

Low interest rates, especially by issuing Eurobonds on international fixed income markets since 2007, has meant African governments have borrowed and public debt levels have risen. Sayeh warned governments to be “very careful” in how they managed dollar financing to ensure it is invested wisely. Some governments, such as Ghana, have been accused of frittering away Eurobond revenues on state salaries. Sayeh said Accra was doing “reasonably well” in its efforts to curb public spending under a $918 million IMF programme agreed in April.

She says that Zambia has not yet asked IMF for financial help. It is also struggling with the rising cost of servicing USD debt after the value of its currency fell 50% this year.

The Fund also notes that Sub-Saharan Africa has among the highest levels of inequality—both income and gender—in the world, even after accounting for the lower levels of per capita income in the region. There is growing international evidence that such inequality can impede macroeconomic stability and growth

Highlights from the report
In most low-income countries, growth is holding up, as ongoing infrastructure investment efforts continue and private consumption remains strong. The likes of Côte d’Ivoire, the Democratic Republic of the Congo, Ethiopia, Mozambique, and Tanzania are projected to register growth of 7% or more this year and next. But even within this group, some countries are feeling the pinch from lower prices for their main export commodities, even as lower oil prices ease their energy import bill. On average, activity for this group is now projected to expand by 6% in 2015, some three-quarters of a percentage point lower than foreseen a year ago.

• The region’s 8 oil-exporting countries, conversely, are being hit hard by the continued weakness in oil prices. Falling export incomes and resulting sharp fiscal adjustments are taking their toll on activity, now expected to expand by 3½% this year, down from the 7% expected before oil prices started falling. Headwinds are particularly strong in Angola and Nigeria, but also among oil exporters in the Central African Economic and Monetary Community (CEMAC).

• Several middle-income countries are also facing unfavourable conditions. A combination of supply shocks (for example, curtailed electricity production in Ghana, South Africa, and Zambia), more difficult financing conditions in a context of large domestic imbalances (Ghana and Zambia), and weaker commodity prices (Botswana, South Africa, Zambia) are set to lower growth.

Moreover, there is a risk of still lower growth if the external environment continues to weaken. Existing vulnerabilities, especially on the fiscal front, could also come to a head if the external environment were to turn even less favorable, via further declines in commodity prices, stronger growth deceleration in China, or a disorderly global asset reallocation.

Debt crunch
With gross external financing needs in excess of 10% of GDP in many of the larger economies (Ethiopia, Ghana, Kenya, Senegal, South Africa, Tanzania), it might at best become increasingly difficult and expensive to cover these needs, and at worst, impossible to do so, forcing an abrupt adjustment.

Where fiscal deficits are particularly large and external costs have already risen substantially, recourse to domestic markets is also becoming increasingly difficult, as in Ghana and Zambia. This has pushed domestic borrowing costs up— crowding out the private sector in the process and restraining the emergence of new, more diverse, domestic sources of growth.

inflation is now inching up in some of the largest sub-Saharan African economies, in contrast with the trend of recent years. Average inflation in the region is expected to reach 7% this year and 7¼% next year. In some countries, specific factors such as electricity tariff hikes (South Africa), the elimination of fuel subsidies (Angola), and rising food prices (Ethiopia, Tanzania) have also pushed inflation up. However, inflation in most other countries remains contained, particularly in the CFA franc zones, where it ranges from 1 to 3%.
some central banks have intervened in the market to contain exchange rate volatility, and others, most notably oil exporters, have drawn on their external buffers to smooth the adjustment to lower commodity prices (Figure 1.12). Some countries, including Angola and Nigeria, have also introduced administrative measures to stem the demand for foreign currency, significantly hampering the conduct of private sector activities in the process.

Banks could well see a worsening of the quality of their assets. Recent analysis suggests that financial stability indicators in natural-resource-rich countries, such as bank profitability or nonperforming loans, tend to deteriorate and the probability of systemic banking crises tends to increase in the wake of negative commodity price shocks

Power block
Infrastructure bottlenecks have long been an impediment to attracting new activities and fostering trade integration.8 These bottlenecks have come to the forefront even more acutely recently for a wide range of countries. Load shedding and electricity shortages, triggered by delays in upgrading aging power plants and filling the power generation gaps, have become a regular occurrence in Ghana and South Africa, with particularly acute effects in the manufacturing sector. Worsening conditions in electricity supply have also been severely hampering activity in a few other countries (Comoros, Madagascar, Nigeria, and Zambia).

These difficulties are in stark contrast with encouraging progress made elsewhere in the region, as past investment is now bearing fruit. In Kenya, the doubling of geothermal generation capacity in the second half of 2014 led to a 20% increase in overall capacity and a 25% decline of electricity cost (IMF 2015b). The coming onstream of new hydropower plants in Ethiopia is contributing to a further increase in electricity availability for the entire east African region, and will do so even more in the next few years—supporting the emergence of new activities. In west Africa, a new dam put in service in Guinea in the summer of 2015 will also allow electricity exports to neighbouring countries.

Kenya’s revolutionary mobile phone M-Akiba bond on 21 Oct

Nairobi centre (credit www.kenya-advisor.com)

Nairobi centre (credit www.kenya-advisor.com)

Kenya’s National Treasury will float a KES5 billion ($48.6 million) M-Akiba bond which will only be purchased through mobile-phone platforms. The minimum investment will be KES3,000 ($29.13) and the maximum KES140,000, which is the maximum allowed in a single mobile-money transaction (it can be increased by making more applications).
The 5-year infrastructure bond will float on 21 October. The National Treasury and Central Bank of Kenya will set the rate, which will be free of income tax. Finance Cabinet Secretary Henry Rotich said the rate will be higher than rates offered by commercial banks (currently 1.37% on cash in savings accounts) but did not give more details.
It is unlikely to be as high as the soaring rates in local money markets – a 91-day treasury bill was at 20.637% at the auction for value dated 5 Oct, up from 18.607% on 28 Sept according to the CBK and 182-day paper on 28 Sept was 14.5%. The Government’s 1-year KES30bn bond sold at a record rate of 19.062%, offering the biggest returns for investors in 3 years. Kenya’s inflation in Sept 2015 was 5.97%, up from 5.84% the previous month and above expectations, according to www.tradingeconomics.com.
The new bond will only be available to Kenyans, who currently make up 2% of investors into bonds listed on the Nairobi Securities Exchange (NSE).

Innovative mobile money tech
The innovative Treasury Mobile Direct (TMD) platform means individuals will buy the bonds instantly instead of the previous 2-day process. Potential customers will only need to have a mobile phone line and subscription to a mobile-money transfer service, which will enable telcos to open an electronic account with the CDSC on their behalf, as well as a valid ID. They will dial *889# and follow the prompts. Treasury will pay the coupons every six months through Safaricom mobile transfer service M-Pesa.
M-Akiba aims to help more people save and invest and make it easier for the Government to raise funds and diversifying their investor base. Stephen Chege, corporate affairs director of mobile phone company Safaricom, was quoted in this news story in Nation as saying it would help build a savings culture: “Currently, only 11% of Kenyans save on a regular basis as compared to 22% in Rwanda and Uganda, while in Qatar this figure stands at 60%.” Up to 23m Kenyans could participate. The National Bureau of Statistics says the rate of savings has stagnated and remains far below the medium-term targets.
The bond was launched on 28 September, and NSE chairman Eddy Njoroge said: “Our bond market is currently dominated by foreign and local institutional investors, M-Akiba is in line with NSE’s strategy of enhancing financial inclusion by driving retail investor participation.”
The prospectus will be released on or after 16 October.
Rose Mambo, CEO of the Central Depository Settlement Corporation (CDSC) was reported as saying: “This will be a vanilla bond attracting a fixed rate of interest and redeemable in full on maturity which will not be affected by changes in the market interest rates and the principal is secure.”
Previously the minimum investment possible in a Treasury bond was KES50,000.

Mobile money reach
Mobile money bond investments will be a technology revolution for world capital markets.
According to CNBC, mobile penetration across Kenya was last recorded at 83.9% for the period between April and June 2015, according to the Communications Authority of Kenya. The mobile money service M-Pesa has become a formidable competitor for local banks since it was launched by Safaricom in 2007 and last recorded a total of 23.3m customers, more than half of the country’s near 44m population. Statistics from digital finance researcher Financial Inclusion Insights show over 62% of Kenyans actively managed money on their mobile phones in 2013, compared to 21% who held bank accounts.

Nairobi SE trades bonds on new automated trading system

nairobise40926_logoSTT40926_Logo

 

 

 

 

 

 

The Nairobi Securities Exchange (www.nse.co.ke) is trading corporate bonds and Government of Kenya treasury bonds on an automated trading system. It marks another step forward for South Africa’s financial software development company Securities Trading & Technology Pty (STT), which also supplies the STT bond trading system used by the Johannesburg Stock Exchange (JSE), Africa’s most liquid bond market.
The new system allows on-line trading of debt securities and is integrated with the settlement system at the Central Bank of Kenya (CBK) for treasury bonds. It offers true delivery-versus-payment (DVP) to mitigate risk. In August 2014 the NSE increased the number of settlements in treasury bonds to 3 per day, with settlements at 11:00, 13:00 and 15:00 each day so that a bond trader can buy a Kenyan treasury bond and sell it the same day.
The new STT automated trading system (ATS) also is efficient, scalable and flexible, and supports trading in bonds that have been issued in different currencies.
Peter Mwangi, CEO of the Nairobi bourse, said in a press release: “This is a significant step towards the exchange’s goal of ensuring that the secondary market becomes more transparent and the price-discovery mechanism is beyond reproach.
“The multicurrency trading functionality of the new system means that foreign-denominated bonds can now be listed and traded on the NSE. With this development, we look forward to the listing of the Government of Kenya Sovereign Bond at the exchange.” He was referring to Kenya’s debut $2bn Eurobond that was successfully floated on the Irish Stock Exchange in June after attracting bids for 4 times the initial target.
Nairobi’s stock market was reported to be working with the Central Depository and Settlement Corporation (CDSC) and the CBK for settlements of corporate bonds.
It also follows the South African practice and allows reporting of bond prices by yield (i.e. the current interest rate to investors). According to an earlier report in Standard Media, Mr Mwangi said: “the bond trading system.. will allow reporting of bond prices by yield… Decision-making will be faster and this should spur further liquidity in the bond market.”
The STT system supports market-making, a 2-way-quote trading model, ability to integrate with regulators’ surveillance systems and ability to report transactions that are concluded over-the-counter (OTC) for purposes of settlement.
In enhancing the bond trading system, the Nairobi Securities Exchange acknowledges the vital role that a vibrant secondary market for active African bond trading continues to play in raising long-term capital for the Government and corporate entities. County governments can also use the same system to raise capital through issuing and listing county bonds.
Ms. Michelle Janke, Managing Director of Securities Trading & Technology said: “I am delighted to have partnered with the NSE, all teams have put in an enormous effort to take the market live”. The market went live on 26 September.
The Dar es Salaam Stock Exchange went live using the STT system on 27 June, as reported on this blog, after switching from Millennium IT system.

Ethiopia to ring in new year with Eurobond

Ethiopia’s Finance Minister Sufian Ahmed has been meeting international banks about a planned Eurobond issue for the end of this year or early 2015. The advisors are likely to be Barclays, Citi and BNP Paribas. The are currently no details on the amount to be raised but the duration is likely to be “at least 10 years”.

Finance Ministry spokesperson Haji Ibsa told Reuters: “We are aiming for late December to early January at the latest as the time for our debut into the international capital markets.. Bonds are very much part of the plan to improve infrastructure.” He mentioned plans for railway, road and power links with neighbours such as Djibouti and Kenya.

Photo: www.ventures-africa.com

Photo: www.ventures-africa.com


Earlier this year Ethiopia achieved favourable international ratings. Fitch rating agency assigned a long-term foreign and local currency Issuer Default Debt Rating (IDR) of “B” with stable outlook, compared with Kenya’s ‘B+’ which issued a heavily oversubscribed $2 billion Eurobond in June 2014, according to Reuters. Standard & Poor’s (S&P) assigned “B/B” foreign and local currency ratings and also said the outlook was stable, see our May story here.

The Economist Intelligence Unit remains less optimistic, giving Ethiopia a rating of CCC, but it says the bond is likely to prove attractive to investors, as have other African issues.

According to the EIU: “The financing of similar schemes under the country’s Growth and Transformation Plan (GTP) has already seen external debt as a percentage of GDP treble over the past five years, to an estimated 33.9% in 2013, and the government hopes that issuing a Eurobond will both diversify sources of credit and help rebrand the country, thus attracting more international companies to operate there.

“If successful, the bond will reduce Ethiopia’s reliance on domestic borrowing, and suggests a slight moderation of the government’s previous determination to finance the 2010-15 GTP, and any successor programme, domestically, largely via direct central bank financing and by forcing private banks to purchase Treasury bills. However, it is unlikely that this will translate into a broader rethinking of the government’s commitment to a state-driven growth model or its insistence that certain key sectors, including banking and telecommunications, remain off limits to foreign firms. It would appear, therefore, that limits will remain on the government’s stated aim of rebranding the country and attracting a broader range of foreign operators.”

The EIU refers to Ethiopia’s strong economic growth rates, market size and substantial untapped resources. “However, we continue to flag the possibility that the government will struggle to fund its substantial infrastructure requirements and that, in the medium to long term, the authorities may have to cut spending significantly or return to the IMF for financing.”

In May Fitch was upbeat “Fitch expects real GDP growth of 9% in 2014 and 8% in 2015. Ethiopia’s growth over the medium-term can be sustained by large, untapped resources, including large hydro-electric potential”. However, it also warned about private sector weakness and inadequate access to domestic credit as limiting growth potential over the medium-term as public investment slows.”