Corporate bond defaults alarm investors

A staff at the Nairobi Securities Exchange monitors online trading through a digital screen. Lenders are hesitant to explore corporate bonds due to defaults and governance-related issues. PHOTO | FILE 

In Summary

• While the corporate bond market in Kenya has been choked by massive defaults by issuers Uganda, Rwanda and Tanzanian markets are struggling to attract companies to issue the... debt instruments.

By JAMES ANYANZWA
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East African companies are facing hard times in raising capital from the regional markets as lenders are hesitant to explore corporate bonds due to defaults and governance-related issues.

The EastAfrican has established that while the corporate bond market in Kenya has been choked by massive defaults by issuers Uganda, Rwanda and Tanzanian markets are struggling to attract companies to issue the debt instruments.

“The regional corporate bond market will continue to shrink unless targeted reforms are pursued but overall, the market will continue to grow because fiscal deficits are likely to remain wide so it will grow on account of government borrowing,” said Edwin Chui, head of research & strategy at Dyer & Blair Investment Bank.

According to data from the Nairobi Securities Exchange (NSE), Kenya has 16 corporate bonds listed on bourse, among them Centum, Consolidated Bank, Shelter Afrique, Housing Finance, Britam, UAP Holdings, NIC Bank, CIC Insurance and East African Breweries Ltd (EABL).

The Uganda Securities Exchange (USE) has only recorded one corporate bond since 2013 — sugar manufacturer, Kakira Sugar Ltd’s Ush76 billion ($20 million) paper.

According to the Capital Markets Authority of Uganda, the country has not witnessed any new corporate debt issuance, despite the rising cost of bank debt, a factor that would be expected to drive businesses to consider alternative financing options.

So far, only nine corporate bonds have been issued in the country, raising Ush289 billion ($77 million), with majority of the issuers being financial institutions.

Last year, CMA-Uganda engaged a consultant with support from Financial Sector Deepening Africa to review the Corporate Bond Guidelines, 2003, with the aim of making it easier and faster for more private companies as well as local governments to raise alternative non-bank financing for business growth and project development.

Across the border, two bonds listed on the Rwanda Stock Exchange (RSE), among them an eight-year corporate bond worth Rwf10 billion ($10 million) issued in 2010 by I&M Bank that matured in 2018 and a five-year bond worth Rwf15 billion ($15 million) floated by the International Finance Corporation in 2014.

In Tanzania, the Dar es Salaam Stock Exchange (DSE) has only witnessed nine companies issuing 13 corporate bonds worth about Tsh173 billion ($74 million).

According to DSE, by August 2019, the bourse had six listed outstanding corporate bonds valued at Tsh176 billion ($75 million).

Market analysts reckon that investors are now shifting preference to the risk-free government bonds largely due to their relatively better returns and uncertainties surrounding debt repayment in the corporate bond market.