African Capital Markets News » Bonds

Kenya’s 25-bond bond is 3 times oversubscribed

Tom Minney — Fri, 25 Jun 2010 21:25:20 +0000

Kenya’s Government has successfully issued a 25-year bond, which sets a marker for the capital market, points the way for other African markets to follow, and is a major boost for investor confidence. It also helps the Government access cheaper and longer-dated debt, according to a report in The Nation newspaper (www.nation.co.ke), as stiff competition meant the bond was issued at a low interest rate.
The 25-year bond, priced at an indicative coupon of 11.25% and redeemable in 2035, raised KSh7.5 billion (US$91.7 million) at good interest rates as the average rate was 10.46%.
The Nation quotes Mr Duncan Kinuthia, head of fixed income at Bank of Africa: “The return is very low for a bond with such a tenor, which explains the excess liquidity in the market looking for investment opportunities but with not many options.”
Accordig to Bloomberg, the bond was 3 times oversubscribed, as the Central Bank of Kenya (www.centralbank.go.ke) received 586 bids totaling KSh 27.1 billion, citing Jackson Kitili, Monetary Operations and Debt Management Director at the bank: “The number of bids accepted was 248 worth KSh 7.5 billion and the weighted average rate of successful bids was 10.458%.”
The bond was listed at the Nairobi Stock Exchange (www.nse.co.ke) for secondary trading and the price climbed quickly, dropping the yield to 9.9%, says the report, citing the forecast of Fred Mweni, managing director of Tsavo Securities and chairman of Bond Traders Association of Kenya: “I see it settling at the rate of 9.5%.”
The Treasury bond was oversubscribed by over 260% with bids for a total KSh27.1 billion, showing the interest in Kenya fixed income investments. The Government has been seeking ways to lengthen the maturity of its debts. In the past 3 years it has offered 20-, 15-, 12- and 10-year bonds, boosting its debt maturity from 3.8 to 5.5 years. By going long-term the government has also lowered the refinancing risk by reducing the proportion of domestic debt to be refinanced within 12 months from 40% as in December 2008 to 28% at the end of June 2010.
“It is also an opportunity for the government to move in and retire the expensive debt that it is holding,” Mr Mweni says.
The Central Bank website records that annual inflation was 3.88% by May 2010 and the last 6-month Treasury Bill auction went at a yield of 2.45%. The Nation says that pressure is eased for servicing Government debt, which is projected to hit KSh1.1 trillion, equally shared between the domestic and external borrowing.

More trading records fall as JSE passed 200k trades in a day

Tom Minney — Wed, 23 Jun 2010 12:21:30 +0000

South Africa’s full service securities exchange, the JSE Ltd (www.jse.co.za), on 17 May recorded 205,748 trades valued at more than R20 billion (US$2.6 billion). This coincided with the JSE’s equity futures “close out” when trades in derivatives called futures contracts had to be settled.
It is the first time in its 123-year history that more than 200,000 trades have been done in a day. On 7 May 2010 the previous record number of trades was 189,253.
According to a press release, Leanne Parsons, Head of Equities Trading at the JSE, explained: “This increased activity occurred on yesterday’s futures close-out as traders closed out their derivatives positions and purchased the underlying shares.”
Close-outs happen 4 times a year in March, June, September and December and usually bring a spike in trading activity.
A general rise in average daily trade numbers in 2010 also contributed to the record. According to the latest JSE monthly trading statistics published for May 2010, the number of equity trades is up by 24% year-on-year, from a total of 8.2 million trades in the first 5 months of 2009 to 10.1 million in the same period of 2010. There has been an average of 99,128 trades each day in the first 5 months of 2010, compared to average daily trade numbers of 46,216 (in 2007), 69,295 (2008) and 84,018 (in 2009).
On the JSE’s equity derivatives market, volumes of futures contracts traded rose nearly 7% during the first five months of 2010 on the previous period (2010: 51.3 million; 2009: 48.1 million). The number of futures contracts traded in May alone was 6.8 million. Allan Thomson, Head of Derivatives Trading, said in a press release: “This year-on-year growth is pleasing.” Trade in index futures increased 101% year-on-year off a low base.
The number of commodity futures contracts traded on the JSE’s commodity derivatives market increased by more than 8% in the first five months of 2010, compared with the same period in 2009 (2010: 662,000; 2009: 610,000). In the same period, volumes traded in commodity options have grown 27% year-on-year.
In the JSE’s interest rate market, cash bond volumes remain stable with volumes reported to the exchange in the month of May slightly below R1.4 trillion compared to R1.1 trillion in April. Year-to-date volumes also remain in the same range as 2009 with the 2010 reported trade number at R5.85 trillion compared to R5.83 trillion in 2009.
“Given the stable interest rate outlook and the continued issuance by National Treasury and state-owned enterprises there is no reason to anticipate any major market volatility with regard to price or volume movements. June and July will present some volume pressure due to the soccer world cup; however volumes should return to normal after the event,” commented Graham Smale, Director: Interest Rate Products.
Positive growth continues in the market for listed interest rate derivatives. Contracts traded during the 3 months ended May grew nearly 45% year-on-year, off a low base. “We will continue to focus on building a successful exchange-traded interest rate derivatives market,” added Smale.
The JSE connects buyers and sellers in 4 different financial markets: equities, equity derivatives, commodities derivatives and interest rate instruments. The JSE Ltd says it offers the investor a first-world trading environment, with world-class technology, surveillance and settlement in an emerging market context. It is amongst the world’s top 20 largest equities exchanges in terms of market capitalisation.
The JSE’s equity market has been particularly volatile recently in line with turbulent global markets. This volatility is represented in numeric form by the JSE’s South African Volatility Index (SAVI) which rose from a low of 18% in April to a high of 33% in May before subsiding to 26% by close of trade yesterday.
The JSE’s introduced a new billing model on 1 March 2010, which aims to incentivise increased trade and to recognise retail and algorithmic investors, both important target markets for the JSE.

Trading statistics for the 17/06/10
Volume 394,839,938
Value R20,839, 256K
Number of trades 205,748

Trading statistics for previous record number of trades 7/05/2010
Volume 1,018,433,885
Value R30,613,372K
Number of trades 189,253

Automated bond trading boosts liquidity on Nairobi Stock Exchange

Tom Minney — Tue, 15 Jun 2010 14:03:15 +0000

Liquidity is up, while the number of days for settlement and cases of fraud are down in bond trading as fixed-income traders and investors flock to the Automated Trading System (ATS) of the Nairobi Stock Exchange (NSE – www.nse.co.ke).
According to report in Kenya’s Business Daily (www.businessdailyafrica.com), citing data provided by NSE, the value of bonds traded by the end of May was KSh 177.5 billion ($2.2 billion), up 60% on the KSh 110.6 billion traded in the same period in 2009.
The report says that 90% of bonds traded are transacted by banks and institutions, such as fund managers. High-net-worth individuals are also active.
James Mutuku, Head of Asset Liability Management at Standard Chartered Bank, reportedly attributes the increased liquidity to the ATS – “At the moment the system is working very well” – and because banks are establishing dedicated bond trading desks. Reportedly some trades settle the day after the trade, because of the ATS efficiency, compared to a week previously.
Ronald Olembo, a fixed income analyst at CFC Stanbic Bank, is quoted saying that there is a better match between inflation and bond yields. According to the Central Bank of Kenya (www.centralbank.go.ke), annual inflation was 3.9% in May, compared to 26.6% in 2008 and 12.4% per cent in 2009. Last October the Kenya National Bureau of Statistics started using the geometric mean method to calculate inflation, which gives lower figures than the arithmetic mean method used previously. In April KNBS adjusted the basket of goods and services used to calculate the consumer price index. The central bank says it reflects changed consumer tastes and makes the inflation rate comparable with that in other countries.
Olembo reportedly compared present and past said that before.. “..We had 20-year bonds yielding approximately 12%, yet inflation was 26%. Investors are now seeing a positive real return on their investments.”
Cases of fraud have also reduced, increasing investor confidence.

Investors back $ billions of African bonds

Tom Minney — Mon, 31 May 2010 15:46:26 +0000

Interest in African sovereign debt has been climbing again in recent months. Angola has stil not issued a $1 billion – $2 billion benchmark bond due in May. However, Kenya, Nigeria and Mauritius and many other countries have flourishing debt markets and international interest is good in high-yielding hard-currency bonds such as those issued by the Republic of Congo and Cote d’Ivoire.
In April top bond broker Exotix (www.exotix.co.uk) gave a “buy” recommendation on the REPCON 2.5% bond, redeemable in 2029. Then it was trading at 57.0 and offered a yield of 10.8% and was the highest-performing African sovereign bond.
Trading in $2.4 billion of Cote d’Ivoire debt in US dollars trading under New York law (2.5%, redeemable in 2032) began in mid-April, after the country exchanged it for Brady bonds it had defaulted on nearly a decade ago. Exotix only rates it a “hold” at 64.2 in mid-April, when it yielded 9.6%. The bond was expected to make up 0.75% of the $400bn Emerging Market Bond Index (EMBI), according to a recent article in The Banker, and many were expected to buy it for this reason. Exotix commentary on the bond included detailed assessment of politics and economic developments including current account surpluses and International Monetary Fund assessments.
Governments in some countries are seeking to create longer-term yield curves for domestic investors, in order to provide a framework for longer-term finance and investment. For instance Barclays Kenya is offering 20-year mortgages, compared to a few years ago when the limit was 5 years. Bonds are also being moved into electronic trading and being handled by central depositories.
According to a report on 19 May on Bloomberg, Angola was awarded credit ratings of B+ by Standard &Poors and Fitch, 4 levels below investment grade, and Moody’s assigned an equivalent ranking of B1, putting Angola on par with Nigeria, Lebanon, Belarus and Ghana. The country plans to issue $1billion – $2 billion in bonds this year.
Other high-yield bonds, including in local currencies, can be found in Tanzania, Zambia, Ghana and Kenya. Economic commentators are encouraged, as debt can be a more cost effective way to fuel long-term economic growth than equity.
Better economic management and good investor interest in government debt has paved the way for more corporate bonds, including for power and telecommunications infrastructure. This site has already reported how Kengen and Nampower have issued bonds to fund urgently needed power expansion. Telecommunications giant Safaricom has also been successful.
The successes are tribute to the increasing quality of economic and fiscal management by African governments.

Rwanda Investment Group postpones $40 mln bond for cement

Tom Minney — Thu, 13 May 2010 13:07:31 +0000

Rwanda Investment Group S.A. (www.rig.co.rw) has temporarily suspended plans to issue a bond with a value of RWF 23.1 billion (US$40 million) to RWF 28.9 bln ($50 mln), in order to to finance a new cement factory. The group says costs may be high, due to low liquidity and high interest rates, according to a report in the local New Times (www.newtimes.co.rw) newspaper.
RIG was set up in 2006 by 41 shareholders, comprising of 6 institutional investors, 4 mid-sized private companies, and 31 individuals, mainly Rwandese entrepreneurs. They contributed US$ 25.1 mln as start-up capital to capitalise the group.
The bond had been intended to finance the construction of the new cement factory for Cimerwa, in which RIG has a controlling stake. Earlier RIG had announced that it had signed an agreement with a Chinese manufacturer, Pengfei, to upgrade the fuel-fired plant into one that burns peat and to increase production from 100,000 metric tons to 600,000 metric tons. RIG Director General Fiacré Birasa was reported in the newspaper as saying the group will contribute 30% of the funding to build a $70m cement plant in Cyangugu. The rest is to be raised from other equity investors and other channels.
M. Birasa was reported as saying that RIG has put the plans on hold as they wait for better market conditions: “The market has high interest rates and as investors we should closely watch the trend, see the growth possibilities of having slightly low rates.” He also reportedly said the the $50m bond could be too much for local market capacity and that RIG was considering partnerships with regional and international stakeholders. “We are still holding because the market is not responding. RIG’s equity is $25m which is bigger than local banks’ liquidity.”
The Central Bank recently lowered its key repo rate (at which it lends to commercial banks) by 0.5 percentage points from 7.5% to 7% to boost liquidity.
Rwanda is set to hold presidential elections in August.

Africa investor offers masterclass in Bond Markets

Tom Minney — Mon, 19 Apr 2010 05:17:28 +0000

Africa investor (Ai) magazine (www.africa-investor.com) is organizing a Bond Markets Masterclass, designed for public and private sector capital market specialists from across Africa. It is part of a series of training organised by the Africa investor Academy. The course will be from 31 May-1 June in Sandton, Johannesburg.
Trainer Michael Preiss is founder and Chief Investment Strategist of African Asset Management Ltd (www.africanassetmanagement.com) and advisor on a Global Board of Standards on Wealth Management and Private Banking curriculum for the Middle-East and Asia with the International Academy of Financial Management (website a bit confusing).
Those who could attend include: capital market regulators; debt management offices; heads of municipal Treasury; chief financial officers from listed companies; central banks; securities brokers; life insurance companies; pension funds and issuers of corporate bonds.
The agenda includes investment and bond market dynamics, valuations, techniques and case studies to give understanding of market size; getting high enough trading volumes to create a sufficiently liquid market; measures against speculative attacks; the balance between a market-driven rate and an affordable rate; promoting local interest and investment in bond programmes.
Attendees will also learn: how to develop a bond market; valuation of fixed-income securities; understanding yield spreads; municipal and corporate bond programmes; improving liquidity; working towards a more stable currency market; and learning about the global environment and international transfer of knowledge.
The cost for the Africa investor Bond Markets Masterclass is £1,199 ($1,834). Contact esayers@africa-investor.com.

Angola cuts back on May $4 bln bond

Tom Minney — Thu, 15 Apr 2010 18:47:33 +0000

Angola has cut back its plans to raise as much as $4 billion in a sale of bonds without credit ratings, according to a report on Bloomberg. It cites Finance Minister Carlos Lopes speaking to reporters in Luanda and says it aims instead to issue $1 billion to $2 billion in May, after finalizing the amount by the end of April.
The country competes with Nigeria as Africa’s biggest oil producer. The bonds are aimed to help pay for government expenditure after oil’s decline from record prices of July 2008 andt is reduced Government incomes, of which 80% comes from crude exports. According to a previous report, JP Morgan Chase and Co. is handling the placement.
David Aserkoff, a strategist at Exotix Holdings Ltd, was quoted as saying: “It’s good that the Finance Ministry is talking about a more sensible issue size, given current market conditions and the fact that Angola has no rating from any of the major agencies… Given the increase in oil prices, it’s likely that Angola’s funding needs aren’t as high as they originally anticipated.”

Kenya aims for 25-year Treasury bond

Tom Minney — Mon, 05 Apr 2010 10:38:07 +0000

Kenya’s Government says it will float the first 25-year bond since the 1960s, as part an initiative to help financial institutions offer long-term debt products such as mortgages and project finance. Previously Nairobi City Council offered a municipal bond, which was redeemed in the 1980s. Since then, the longest bond floated has been 20 years, according to the Business Daily (www.businessdailyafrica.com) newspaper.
The first 20-year bond in 2007 was largely ignored but the second one was taken up and even reopened in 2009. Currently 20 years is the longest home loan on offer. Lengthening the maturity of government debt can also be beneficial.
Governor of the Central Bank of Kenya (www.centralbank.go.ke), Prof Njuguna Ndung’u, reportedly told journalists in Nairobi that the bond could be floated in the next fiscal year, starting in July. “The existence of exit options at the secondary market [the Nairobi Stock Exchange -www.nse.co.ke] after buying the bond at the primary market should make it more attractive,” said Prof Ndung’u while addressing the press on the 23 March Monetary Policy Committee decision which cut the Central Bank Rate by 25 basis points (0.25 percentage points) to 6.75%.
He said the bond helps influence expectations on inflation and making the yield curve more useful by removing discontinuities.
According to the newspaper, in an earlier interview in February, Bond Traders Association chairman Mr Fred Mweni said that the market was keen about having long-term bonds and it would be in order for the CBK to introduce such. He said the bond market was maturing and it was clear that the longer-dated bonds were attracting relatively higher yields.
Prof Ndung’u reportedly said that a vibrant treasury bond market would encourage corporates to also issue bonds noting that the yield curve could serve as a much better guide than was previously the case. Another source said corporate bonds could prove more popular than syndicated bank debt, because of pricing.
The paper says the yield (return) of the 20-year bond, for example, is down from over 14% in 2008 and early 2009 to about 11%. The most recent 15-year bond, for example, the offered interest rate was 10.25%, down 225 basis points on the previous similar bond. It reportedly achieved an average interest rate of about 9.9%. The CBK Governor said during the press conference that “fear of exclusion” is driving institutions not to quote unrealistic rates when they participate at the auction markets for government paper.

Bond market coming to Ethiopia, and experts review T-Bills

Tom Minney — Thu, 25 Mar 2010 14:37:02 +0000

Ethiopia may soon have corporate bonds, paving the way to a bond market, according to a press conference last week by Prime Minister Meles Zenawi. According to a report in the respected Fortune (www.addisfortune.com) weekly newspaper, the Prime Minister told media on 18 March that state-owned enterprises would start issuing bonds within weeks.
State enterprises such as the Ethiopian Electrical Power Company (EEPCO), the Ethiopian Telecommunications Corporation, Ethiopian Shipping Lines and Ethiopian Petroleum Enterprise are to offer bonds with nominal values of over Birr 100 million (US$7.4 million) and the interest rates could be higher than bank deposit rates. The proposal was tabled by authorities at the central National Bank of Ethiopia (www.nbe.gov.et) and is hoped to spur competition in the banking sector, according to its proponents.
Prime Minister Meles Zenawi is quoted by editor Tamrat Giorgis as saying: “Priority was given to controlling inflation, not in checking real interest rates [on deposits].” Inflation was very high in the past but was now down to 8%.
Tamrat wrote: “With inflation driven to record high double-digit figures last year and borrowers accessing money from the banks on negative real interest rates, savers are believed to be on the losing end. Banks hardly pay over 4% interest on deposits. This is the minimum bank deposit rate imposed by the central bank, although commercial banks are allowed to pay higher than that. On the other hand, commercial banks in the country charge as high as 16% interest on their advances and loans.
“Macroeconomic policymakers in the Federal Government have not been much concerned with the impact of this imbalance due to a negative real interest rate, which could discourage national savings. Their priority was, however, laid in keeping inflation at bay.
“Now inflation is down to a single digit (8%), the Federal Government is contemplating pushing real interest rates on lending to the positive, pressuring banks to create a competitive market. Even when the Federal Government cut down on its domestic borrowing in order to ease the cap imposed on banks so that they lend more following a robust performance of tax collections this year, the banks remained paying the minimum interest rate on deposits.”
He cites some commentators who warn that the high value of the bonds mean they are unlikely to have much impact on the retail market and only a few will be able to invest in them.
Last Sunday Capital newspaper (www.capitalethiopia.com) reported that experts of Ethiopia’s Ministry of Finance and Economic Development, the World Bank and the International Monetary Fund were meeting in Addis Ababa to discuss mechanisms for a regular fortnightly auction of treasury bills in a bid to regulate the money supply.

COMMENTARY FROM AFRICAN CAPITAL MARKETS NEWS:
Research by local investment house Access Capital www.accesscapitalsc.com the year average inflation rate peaked at 46% in February 2009 and year-on-year inflation at 64% in July 2008. The rate since fell quickly, as predicted accurately by the Access Capital report.
The debt market in Ethiopia has long been limited to Treasury Bills and some exchanges between banks. Recently there were only 28‐day, 91 day and 182‐day Treasury Bills available and the yield is described as “minimal”, reflecting the lack of investment alternatives. (Unfortunately the NBE website appears to be out of order to give present statistics).
A few years ago, when this author discussed issuing bonds with one local parastatal with massive multi-billion investment programmes, they said this was a good idea but it turned out more advantageous to finance their with loans including at low interest rates from the Government-owned Commercial Bank of Ethiopia (CBE).
According to the national Plan for Accelerated and Sustained Development to End Poverty (PASDEP) 2005/6-2009/10: “Regarding future plans on the development of capital markets, the pre-conditions that are critical for the establishment of capital market are not yet ready. The accounting and auditing practices are rudimentary in Ethiopia, and the minimum requirements to establish effective supervisory and regulatory institutions are not yet well in place. It is therefore, believed that the establishment of a corporate bond market which involves less risk both to participants of the market and the stability of the business environment should come first. The latter will help create some of the necessary conditions for the establishment of a capital market. To this end, the NBE has conducted a study on the feasibility of establishing a corporate bond market in Ethiopia and follow up studies are planned to be undertaken in 2006/07.”
The NBE underwrote the the EEPCO Millennium Bond, a first diaspora bond issued in 2008 just after the year 2000 in the Ethiopian calendar, by the state-owned power company and marketed by CBE, making the Government the borrower. Interest rates were set at 4%, 4.5% and 5% respectively for 5, 7 and 10 years bonds. The nominal was US$ 100 and minimum investment $500 or its equivalent in selected convertible currencies. Eligible investors are holders of the Ethiopian passport who are residents outside of Ethiopia, and citizens of foreign countries who can trace their origin back to Ethiopia.
Some work would be needed to develop a efficient bond market, and it could take some time.

Kenya’s bond trading developing fast

Tom Minney — Tue, 16 Mar 2010 14:24:54 +0000

Andre DeSimone, Kestrel Capital stockbroker, Nairobi
The Nairobi capital market has seen a lot of volatility and many local institutions pulled out. At one point, foreigners made up 80% of trading volume. Local retail investors were out and have not yet come back, the local institutions were out and only came back last month. It has been an emotional response, the cash flow on companies did not change.
The bond market has come to the Nairobi SE and trading has been growing. There have been some teething problems, it will take several months to get all smooth, but we already seen a 5-fold increase in trading. We expect this to grow, in last 3-4 months have seen lots of interest from London and SA investment banks into Kenyan bonds, also for the local currency debt markets.
In order to manage risk, foreign investors are looking for liquidity and only a few markets can provide the right size of deals.