Pension funds likely to shun corporate bonds over Chase , Imperial saga

Zamara Group chief executive Sundeep Raichura. FILE PHOTO | NMG 

By JAMES NGUNJIRI

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Summary

• Zamara says pension schemes have become more cautious of the risk in corporate bonds and are likely to limit their fixed income activity to government paper.
• The administrators said the corporate bond market is on the verge of dying unless the regulators act decisively.
• Pension funds are generally conservative investors who have an eye on long term stability of investment as opposed to quick gains.

Pension funds are likely to shun future corporate bond issues if regulators do not handle recovery of lost funds from Chase and Imperial banks properly, fund administrators have warned.

Zamara has said that pension schemes whose funds are held up in the Sh4.8 billion Chase and Sh2 billion Imperial Banks corporate bonds have become more cautious of the risk in corporate bonds and are likely to limit their fixed income activity to government paper.

The administrators said the corporate bond market is on the verge of dying unless the regulators act decisively.

“We are saying to the regulators that how Chase Bank and Imperial Bank cases are handled will have a big impact on whether institutional investors such as pension funds will continue to participate in corporate bond investments,” said Zamara Group chief executive Sundeep Raichura on Friday in Nairobi.

Pension funds are generally conservative investors who have an eye on long term stability of investment as opposed to quick gains. As such, they have nearly 70 per cent of their investments in fixed income, largely government bonds.

READ: Retirement schemes seek law change after Chase loss

Zamara’s annual financial report shows that most trustees have booked full impairment of the Chase Bank corporate bond, indicating they are not expecting future cash flows from it. Mauritius-based lender SBM Holdings has since taken over operations of Chase Bank, paving the way for depositors to start recovering their funds.

Bondholders are however likely to lose out since they have been placed at the back of the compensation queue. Meanwhile, the CBK is yet to find a buyer for Imperial Bank, whose bond was yet to list by the time the lender collapsed in 2015.