CMA seeks bondholder insurance

CMA Chief executive Paul Muthaura. FILE PHOTO | NMG 

By PATRICK ALUSHULA

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Summary

• CMA says the reduced momentum in the corporate bond market due to defaulted payment in bonds such as those of Chase and Imperial banks require fixing of laws to protect investor interests.

The Capital Markets Authority (CMA) is in talks with banks’ cash underwriter Kenya Deposit Insurance Corporation (KDIC) to address exposure of bondholders under the compensation laws.

Chief executive Paul Muthaura said on Monday the reduced momentum in the corporate bond market due to defaulted payment in bonds such as those of Chase and Imperial banks require fixing of laws to protect investor interests.

“It is an issue of interpretation and we are engaging the KDIC on that. If there will be a need to review the laws safeguarding investors so that they rank at the same level as other stakeholders, then we will consider it,” he said.

Mr Muthaura said engaging the KDIC on how best to interpret the clause on compensation without plunging investors into losses or longer period of waiting than other parties would boost confidence in the bond market.

Currently, the KDIC mandate puts more emphasis on recovering the money of depositors (in the case for banks) before thinking about the interests of creditors such as bondholders, leaving them exposed.

Those who bought into Sh4.8 billion Chase Bank and Sh2 billion Imperial bond have been left exposed after it emerged that depositors’ rights were ranked higher than bondholders’.

The authority further wants to ride on the enhanced whistleblowing platform to take a proactive rather than reactive style in resolving corporate governance issues.

“The CMA now has a budget for compensating whistleblowers and we have seen a big increase in the number of intelligent reports we receive.

“This will enhance our ability to detect corporate governance issues earlier before costing investors,” said Mr Muthaura.

Companies such as Uchumi, Mumias Sugar and CMC Motors have all in the recent past experienced governance lapses but the reactive nature of the CMA left investors hit by reduced share prices and no dividends.

Mr Muthaura was speaking at the authority’s head office during the launch of the second edition of World Investor Week, an event marked by over 80 countries spread in six continents to market capital market products to potential investors.

The regulator will use the week-long event to educate the public on the various capital markets products as a vehicle to funding investments at a gain.