Kenyan-based lender Family Bank Limited has officially rang the bell to mark the listing and the commencement of trading of its corporate bond at the Nairobi Securities Exchange (NSE).
The country’s Capital Markets Authority gave a nod to list the first tranche of its Medium Term Note under the Fixed Income Market Segment at the NSE after a successful offer that raised a total of US$40.6 million against a US27.8 million target, marking a subscription of 147.3 percent.
Early in June, the Authority allowed the mid-tier lender to issue an US$74.1 million multicurrency Medium Term Note (MTN) programme in tranches.
“The response that this bond has generated demonstrates the confidence the market has in the Family Bank brand despite constrained liquidity in the money market as evidenced by the tough economic environment due to the COVID-19 pandemic,” said Family Bank Chief Executive Officer Rebecca Mbithi.
“The capital raised will definitely strengthen our business position and competitiveness as we seek to strengthen our capital base to support future balance sheet growth and onward lending to MSMEs and also anchor our next phase of investments in technology,” she added.
In April 2021, the Bank redeemed its five-and-half year (5 and 1⁄2 year) Medium Term Notes (MTN) worth Sh2.0188 billion that was issued in 2016 and listed on the NSE.
“We are eternally grateful for the support accorded by all the investors who put their trust in the bank and invested with us five years ago and have once again supported the Group’s capital raising plans,” added Mbithi.
Speaking during the bell ringing ceremony at the NSE trading floor, Kiprono Kittony, the NSE Chairman noted, “This oversubscription of the initial bond demonstrates the confidence investors have in Family Bank and affirms the importance of the corporate bond market as a key source of business financing.”
“The success of this bond supplements the growth of NSE’s corporate bond market that has witnessed a total capital raise of Sh13.6 billion in the last two years,” he added.
Geoffrey Odundo, Chief Executive, NSE congratulated Family Bank on their tremendous growth over the past few years and welcomed them back to the market.
“We are delighted that Family Bank are returning for another listing of their corporate bond. This is an indication of the potential recovery of the corporate bond market and an acknowledgement of the rising investor appetite in our market for debt securities.”
The Bank raised US$40.6 million from local fund managers, banks, retail investors, insurance companies and other institutional investors. The Note will bear interest at a fixed annual rate of 13 percent until maturity on December 17, 2026.
The lead transaction advisors are NCBA Investment Bank and Genghis Capital, PricewaterhouseCoopers (PwC)as the reporting accountants, MTC Trust and Corporate Services Limited as the Note Trustees, Mboya Wangong’u & Waiyaki Advocates as the legal advisors and Tim-Sky Media Services as the Media and Public Relations consultants.
The funds raised from the bond are expected to be used to strengthen the bank’s capital base to support growth, investment in IT infrastructure, new product initiatives and onward lending.
The MTN programme will be issued as both Fixed Rate Notes and Floating Rate Notes.
According to CMA, the notes will have a maturity period of not less than five years. The Floating Rate Notes will bear fixed interest payable on dates to be specified in the Pricing Supplement, while the Floating Rate Notes will bear interest benchmarked against the prevailing Treasury Bill rate.
The Kenya Shillings denominated notes will be listed on the Fixed Income Securities Market Segment of the Nairobi Securities Exchange.
Data buy Capital Markets Authority indicates that there were only six outstanding commercial papers valued at US$177 million, as of December 2020.
According to the Authority, this was a drop from 20 commercial papers valued at Sh61.9 billion as at the end of 2018.
It further notes that corporate bond turnover as a percentage of the Nairobi Security Exchange’s total bond turnover stands at only 0.08 percent compared to 99.92 percent for Treasury bonds.
Experts define a corporate bond as a type of debt security that is issued by a firm and sold to investors.
According to Investopedia, the company gets the capital it needs and in return the investor is paid a pre-established number of interest payments at either a fixed or variable interest rate. When the bond expires, or “reaches maturity,” the payments cease and the original investment is returned.