AfDB to guarantee Kenya’s mortgage refinancer bond

Completed affordable housing project in Ngara, Nairobi on September 18, 2020. PHOTO | JEFF ANGOTE | NMG

By CONSTANT MUNDA
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Summary

• Kenya Mortgage Refinance Company (KMRC), the mortgage refinance firm formed through a partnership between the Treasury and private lenders, already has a credit line of more than Sh35 billion and plans to continually raise additional funds towards affordable home loans.
• Chief executive Johnson Oltetia said the state-backed lender will piggy-back on AfDB’s top credit rating (AAA) with a stable outlook in the debut cash call, and thereafter build its own reputation among investors.

Kenya Mortgage Refinance Company has reached a deal that will see the African Development Bank (AfDB) guarantee its debut bond issue, planned for the third quarter of next year.

Kenya Mortgage Refinance Company (KMRC), the mortgage refinance firm formed through a partnership between the Treasury and private lenders, already has a credit line of more than Sh35 billion and plans to continually raise additional funds towards affordable home loans.

Chief executive Johnson Oltetia said the state-backed lender will piggy-back on AfDB’s top credit rating (AAA) with a stable outlook in the debut cash call, and thereafter build its own reputation among investors.

“We will issue the bond when we are still drawing down the credit line from the World Bank and African Development Bank, but a new institution like KMRC doesn’t have a track record and that means you face a bit of challenge raising funds,” Mr Oltetia said, adding the quantum will be set at a future date informed by market conditions.

“We have worked out an arrangement with AfDB for a credit enhancement, and that means KMRC will be replaced by an AAA-rated institution like AfDB’s balance sheet to support that (bond issue).”

The World Bank extended about Sh25 billion to KMRC in form a concessional loan through the National Treasury, with AfDB injecting in a further Sh10 billion.

Additional funding has also come from 19 financial institutions – seven commercial banks, 11 saccos and one microfinancier (Kenya Women Microfinance Bank) – which bought shares and are participating in the programme.

The funds mobilised by KMRC for onward lending to banks and saccos to give home loans at single-digit interest to be repaid in 20 years will stimulate development of housing units, Mr Oltetia said.

The lender has backed the redevelopment of old estates in Nairobi such as Old Park Road Estate in Ngara, Jeevanjee/Bachelors Quarters, Ngong Road Phases I and II, Uhuru Estate and Suna Road Estates to help fill the gap in supply in the short-term.

“We are not too worried about supply (because) we have also been having a lot of feedback from private developers…who are aligning their projects to affordable housing concept,” the KMRC head said.

“We have started introducing them to institutions that are participating in KMRC … so they start showing their developments to the banks which can then start interesting their customers in those developments.”