Kenya: Is the corporate bond market rebounding?

The corporate bond market in Kenya has shown signs of a revival with the recent success of Family Bank's multi-currency Medium Term Note. The first tranche of this note received bids worth 4.4 billion Kenyan shillings, surpassing the advertised amount of 3 billion shillings by 147%. This impressive performance has sparked discussions about the potential awakening of the Kenyan corporate bond market, which has been relatively quiet in recent years. CNBC Africa spoke with George Bodo, the CEO of Callstreet Research and Analytics, to gain insight into the market dynamics. Bodo highlighted the impact of past corporate failures, such as those of GSBank and Imperial Bank, which had issued and defaulted on debt before collapsing. These incidents had instilled a sense of caution among investors and led to a decline in corporate bond activities. However, recent bond issuances by companies like Family Bank and Centum Real Estate have shown promise, attracting investor interest and oversubscriptions. Bodo attributed this renewed activity to the current market conditions, where investors are seeking higher returns than what government securities offer. With liquidity in the market and a search for premium yields, corporate bonds offering around 10% have been well received. The success of Family Bank's bond issue was also attributed to the bank's previous redemption of a medium-term note, demonstrating its ability to meet obligations and build investor confidence. Bodo emphasized the importance of timing and quality in bond issuances, noting that investors are now more selective and cautious in their choices. The market demand for alternative debt structures, such as partial guarantees and credit wrapping, has also been on the rise. Companies are exploring innovative ways to attract investors, including offering partial guarantees or credit wrapping to mitigate risks and enhance investor confidence. While the recent positive developments in the corporate bond market are encouraging, Bodo cautioned that the market has not fully recovered from the impact of past failures. The collapse of institutions like Imperial Bank and other corporate defaults had significantly reduced the number of listed corporate bonds in the market. Currently, there are only six papers left, totaling about 21 billion shillings, a fraction of what was available in previous years. Investors have been demanding more secure and structured debt offerings, leading to the introduction of enhanced structures that provide additional safeguards and seniority. Bodo highlighted the need for ongoing efforts to rebuild investor trust and confidence in the corporate bond market. This may involve further innovations in bond structures, such as increased guarantees or ring-fencing of project receivables, to reassure investors and attract more capital into the market. As the market continues to evolve, the successful bond issuances by companies like Family Bank serve as positive indicators of potential growth and recovery in Kenya's corporate bond market.