Pension funds cut investment in securities by Sh1.4bn in six weeks

Money Markets

Britam MD Benson Wairegi (R) during the listing of the Britam bond at the NSE in August. Corporate bonds are becoming more attractive to fund managers. PHOTO | FILE 

By GEOFFREY IRUNGU, girungu@ke.nationmedia.com

In Summary

• At the end of October, pension funds held Sh317.5 billion, but this went down to Sh316.1 billion by December 11.

Pension funds reduced investment in government securities by Sh1.4 billion in the past six weeks as they increasingly went for the higher yielding corporate bond offerings.

At the end of October, pension funds held Sh317.5 billion, but this went down to Sh316.1 billion by December 11.

Through taking up new government bonds on offer during the period, commercial banks, however, increased theirs by the largest margin at Sh38 billion to stand at Sh698.5 billion.

Insurers raised holdings by Sh771 million to Sh128.8 billion while parastatals share only rose by Sh28 million to stand at Sh36.4 billion.

Market players said the large number of corporate bonds seeking more than Sh30 billion were favoured by pension fund managers. The corporate instruments were offering between 12.5 and 13.5 per cent in coupon or interest rates to investors.

“Some fund managers were asking why they should invest in government securities at a time when the corporate bonds were offering higher returns,” said Crispus Otieno, a fixed-income dealer at Nairobi-based Afrika Investment Bank.

Banks deposits also had an impact as some pension fund managers preferred them to taking more bonds as the year concluded. Analysts said that some banks were giving as much as 13.5 per cent to large depositors.

The banks are keen on the large deposits because they are targeting to grow their lending business in the new year.

While the average deposit rates currently stand at 6.64 per cent, some of the large institutions with excess liquidity are able to bargain for rates with the banks.

Among the corporate bonds in the market were the CfC Stanbic Bank seeking Sh5 billion to fund expansion plans at a coupon rate of 12.5 per cent.

It was targeting Sh4 billion in the first tranche of the seven-year bond. CfC Stanbic is yet to publicly reveal the results of the fund raising exercise.

Commercial Bank of Africa raised Sh7 billion, exceeding the Sh5 billion target, and announced that it would exercise the green-shoe option— allowing absorbing more than initially programmed—by taking up the extra Sh2 billion.

Real-estate firm Home Afrika listed on the Growth and Enterprise Market Segment (GEMS) of the Nairobi Securities Exchange, has sought Sh900 million. The firm offered 13.5 per cent return to investors.

The bond, which went on sale from November 27 and closed on December 10, is a fixed-rate type with a tenor of five years.

Alexander Muiruri, head of fixed-income sales at Kestrel Capital, said besides corporate bonds being attractive in the past one month, bonds that some of the pensions funds held could also have matured.