Fund managers raise stake in debt market segment

Ministry of Finance investment secretary Esther Koimett (centre) with Consolidated Bank chairperson Eunice Kagane, and CEO David Wachira when the bank unveiled its corporate bond trading at the Nairobi Securities Exchange last August. Photo/Diana Ngila 

By GEOFFREY IRUNGU

In Summary

• Between 2010 and last year, fund managers were the only category of investors that raised their stake in the debt market segment.
• Data from CMA shows that as at December 2012 some floating corporate bonds were entirely held by fund managers.
• For the period 2010-2012, while fund managers grew their corporate bond holdings by about 1.6 per cent, bankers saw theirs shrink by 6.4 per cent.

Pension funds firmed their grip on the corporate bond market as other market players, especially banks and investment companies, saw their holdings fall in the past three years.

Between 2010 and last year, fund managers were the only category of investors that raised their stake in the debt market segment. Last year, the average holdings by pension funds stood at about 70 per cent having grown by an average of 1.6 per cent during the three-year period.

Data from the Capital Markets Authority (CMA) shows that as at December 2012 some floating corporate bonds — such as Safaricom’s first and second tranches as well as Housing Finance’s second tranche — were entirely held by fund managers.

Corporate bonds, which are more than 70 per cent held by pension funds, include Consolidated Bank’s 2012 Sh2 billion paper, KenGen’s Sh25 billion and CFC Stanbic Bank second tranche floating bond issued in December 2010. Others are Mabati Rolling Mills fixed-coupon bond of 2008, PTA Bank paper of 2007 and Barclays two tranches.

Corporate bonds fit the profile of pension fund obligations as they only need to repay pensioners when they retire and therefore do not need to liquidate them mid-term. On the other hand, analysts say, government securities are held for speculative purposes and tend to be dominated by banks, rather than by pension funds.

“While government securities are held for speculative purposes, investment in corporate bonds should ideally be long term as they’re not actively traded on the secondary market,” said Dyer and Blair Investment Bank report.

(Read: Retirement funds’ assets rise to half a trillion shillings)

For the period 2010-2012, while fund managers grew their corporate bond holdings by about 1.6 per cent, bankers saw theirs shrink by 6.4 per cent.

Investment firms and institutions cut their holdings by 7.1 per cent. Insurers and individuals reduced their stakes by 1.2 and 2.2 per cent, respectively in the three-year period (2010-2012).

One glaring fact is that the pension funds are basically Kenyan and not from other East African countries or foreigners. The data shows local corporate funds held nearly 91.5 per cent of the corporate bonds as at end of December while individuals held nearly seven per cent, leaving the rest to foreigners and east African (non-Kenyan) individuals.

Last year, the National Social Security Fund (NSSF) of Uganda is reported to have shown interest in the Kenyan stock market having enlisted three brokers for trading namely African Alliance, Equity Stockbrokers and Crested Stocks and Securities.

However, NSSF Uganda does not yet seem to have made a mark in the fixed income market as seen in the paltry amount that is held by East African corporate and individual investors at only 0.33 per cent by the end of last December.

Analysts say the pattern of large holdings of bonds is also reflected in the longer-term government paper where pension funds tend to dominate. This allows pension funds to match the maturity of the long-term bonds with the time that obligations fall due for repayment.

In the latest Central Bank of Kenya data, banks held 50.9 per cent of securities while pension funds had 22.4 per cent, insurers 11.4 per cent, parastatals 4.6 per cent and other investors 10.7 per cent.

Analysts say the dropping of banks was influenced by the fact that they had focused on the long end of yield curve. “Bank holdings likely dropped due to a majority of the short-dated bonds issued in early 2012 being matured in the first quarter of 2013.

 “Toward the end of 2012 Treasury started to issue longer term bonds which were picked up by the fund managers who had been starved for duration…although bank holdings may have dropped they were also more active in the T-bill and repo market,” said Alexander Muiruri, a fixed-income trader at African Alliance Investment Bank.

Kamati ya Bunge yahoji manufaa NSSF katika uwekezaji

Kwa ufupi

“NSSF mmekuwa mkiendesha miradi mkubwa  ambayo ni mizuri, lakini mmeweka wazi kwa wanachama wenu jinsi wanavyonufaika na miradi hii mnayoianzisha kupitia fedha zao?” alihoji Mbunge wa Ileje, Aliko Kibona

Dar es Salaam.
Wajumbe wa Kamati ya Bunge ya Miundombinu wamechachamaa na kuhoji faida wanazozipata wanachama wa Shirika la Mfuko wa Hifadhi ya Jamii (NSSF), kutokana na uwekezaji unaofanya kwenye miradi mikubwa. 

Pia, wabunge hao wameichachamalia Serikali kwa kuendelea kuwalipa fidia kidogo kwa kutumia Sheria ya Ardhi namba 4 ya mwaka 1999, wananchi wanaohamishwa kwenye makazi yao kupisha ujenzi.

Hayo yalijiri jana wakati kamati hiyo ilipofanya ziara kukagua miundombinu mbalimbali, likiwamo daraja kubwa la kisasa linalojengwa eneo la Kigamboni na Kurasini.

“NSSF mmekuwa mkiendesha miradi mkubwa  ambayo ni mizuri, lakini mmeweka wazi kwa wanachama wenu jinsi wanavyonufaika na miradi hii mnayoianzisha kupitia fedha zao?” alihoji Mbunge wa Ileje, Aliko Kibona na kuongeza:

“Daraja kubwa kama hili linalokatiza baharini, kuna miradi ya nyumba, je wananufaika vipi?”.

Mkurugenzi wa NSSF, Ramadhan Dau alisema wanachama wananufaika khasa kupitia mafao saba ambayo hulipwa, ikiwamo matibabu, pensheni kwa wastaafu.

Mwenyekiti wa kamati hiyo, Peter Serukamba alisema kuna haja NSSF ikawaelimisha wanachama wake jinsi wanavyonufaika na miradi hiyo.

This is the problem with our pensions

 

Tanzania’s pension funds are facing a bleak future as premature withdrawal of members’ contributions rises.

While the existing legal framework and the schemes’ design do not provide for untimely withdrawal from the pension system, the practice is becoming more prevalent in all schemes as more Tanzanians opt out of retirement savings once they lose their jobs.

A study by the National Social Security Fund, the public pension manager, shows that from 2007 to 2011 withdrawals across all pension funds soared from Tsh46.6 billion ($29.125 million) to Tsh119.66 billion ($74.788 million), equivalent to 29.7 per cent of total benefits paid, hurting the schemes’ long-term plans.

Such a pace of withdrawals could create social insecurity and place a higher burden on the working generation, analysts said.

Sadi Shemliwa, the chief actuarial and risk manager at NSSF, said the number of members withdrawing their contributions surged from 45,239 in 2007 to 85,760 in 2011.

“Although withdrawals have no long-term impact on schemes’ pension liability, it is worth noting that the schemes lose liquid funds needed for investment that is meant to increase the value of their reserve funds,” said Mr Shemliwa.

Players said some of the members withdrawing from pension funds were using the cash to meet basic financial obligations, like paying school fees for their children, in the wake of high inflation.

Inflation in Tanzania stood at 10.9 per cent in January, said the National Bureau of Statistics. The headline rate was unchanged at 12.1 per cent in December, ending an 11-month run of falling inflation.

Problems abound

“Most of the victims of retrenchments and job losses lack alternative benefits. Difficulty in accessing credit from banks and financial institutions make social security savings an easy target for capital needs, contrary to its objective of life insurance contingencies,” said Zitto Kabwe, the shadow finance minister.

“The public views social security funds as savings institutions that are supposed to refund their contributions with interest at any time when they lose employment, regardless of their age,” he added.

Fund managers who handle retirement money said withdrawals would affect the performance of their investment portfolios.

“By allowing members to withdraw a total of Tsh119.66 billion ($74.788 million) in 2011, schemes were denied the opportunity to increase pensions in payment by five per cent to the detriment of pensioners,” Mr Shemliwa said.

This amount of money is equivalent to five per cent of pension paid in 2011. Tanzania is grappling with a problem Kenya found itself in two years ago, after it allowed workers early access to their own retirement contributions plus half of their employers’ and any accrued profits.

Data shows Kenyan workers withdrew a total of Ksh1.3 billion ($15 million) from their retirement savings in 2011 following new regulations.

Ihucha is a special correspondent for The East African

Kigamboni Bridge brilliant, but will the pensioners paying for it make a dime?

 

By Victor Karega
The Citizen Correspondent

Dar es Salaam. 

Although the construction of the multi-billion-shilling Kigamboni Bridge project is expected to have a huge impact on the economy, there are concerns as to whether there will be any benefits for the members of the National Social Security Fund (NSSF), which is the financier.

Members of the Parliamentary Standing Committee on Infrastructure raised this same question just recently. The MP for Ileje, Mr Aliko Kibona, said NSSF has spent a lot of money on this big project and it should be transparent and let members know how they will benefit.

According to chairman of the Parliamentary Standing Committee on Infrastructure, Mr Peter Serukamba, it is high time NSSF came clean and told its members the truth and explained how they will benefit from projects such as the Kigamboni Bridge.

The Sh214 billion bridge, which is considered an engineering masterpiece, is being constructed by China Railway Engineering Company and will be ready in 2015.

It is financed to the tune of 60 per cent by NSSF, with the government funding the balance. NSSF Director-General Ramadhan Dau says members of the fund enjoy seven benefits, including medical cover and pensions.

The 600-metre bridge will be the main crossing for residents of Kigamboni in Temeke district and reduce traffic jams at the ferry crossing. It is an important development at a time when the government intends to build Kigamboni satellite city, which will eventually accommodate 450,000 people—up from the present 45,000. It will also create many opportunities in real estate and the service sector, given the anticipated new residents.

When the bridge is completed, it will also enhance the free movement of goods and people and create more than 2,000 jobs, says Mr Dau.

Minister for Works John Magufuli says Kigamboni Bridge will boost communication, ease transportation and create employment opportunities for city residents and those living in the neighbourhood.

Workers in the formal and informal sectors are bound to benefit too from the massive development of a residential complex and business hub—and it will also hopefully divert some of the city traffic by offering an alternative route into the suburbs.

Transport experts reckon that the bridge has the potential to reduce transport problems, cost and time as well as customs administrative formalities between the two sides.

It will also enhance the potential for trade, thereby contributing to poverty reduction and socio-economic empowerment of communities in the commercial capital of Dar es Salaam.

The head of communication in the ministry of Works, Mr Martin Mtemo, says it is a good move coming at the right time and it will benefit both residents and the city in general.

Motorists will pay a road toll when crossing and pedestrians and cyclists will go free, according to Tanroads Chief Executive Patrick Mfugale.

BoT earns Sh70bn from 10-year bond as risk-wary, cash-rich pension funds chase value

 

By Vainess Mollel
The Citizen Reporter

Dar es Salaam. 

The appetite for the Bank of Tanzania’s ten-year Treasury bond last week was high as investors craved for the risk-free debt instruments, according to market data.

The central bank offered the Treasury bond at the total value of Sh55 billion, but the high enthusiasm displayed by investors pushed the bank to increase the value tendered to Sh72 billion.

“High liquidity among investors including pension funds and commercial banks led to an oversubscription,” the Rasilimali Limited general manager, Mr Arphaxad Masambu, told The Citizen in Dar es Salaam.

The BoT summary report for last week’s auction showed that the ten-year bond was oversubscribed by Sh17 billion at the weighted average yield to maturity of 14.2758 per cent.

According to Mr Masambu, the absence of an initial public offering in the market means that every serious investor is eyeing the risk-free securities in which to inject their money – the Treasury bond seems to provide the answer, thus resulting in oversubscription.

He also said there were no corporate bonds on offer yet, whose yields could compete with the one of the government bonds, and because of this fact, there was oversubscription.

Investors were left with only one choice there was of injecting their money.

HomeNewsPolitics Politics White House, UN boss praise Uhuru poll win

 Outgoing premier has painted a larger-than-life picture



The White House on Saturday congratulated President-Elect Uhuru Kenyatta “on behalf of the president and the people of the United States.”

US President Barack Obama’s spokesman also congratulated the Kenyan people for “the peaceful conduct of the election” and commended Prime Minister Raila Odinga for “accepting the Supreme Court’s decision.”

“We urge all Kenyans to peacefully accept the results of the election,” said the statement by President

Obama’s press secretary. “The electoral process and the peaceful adjudication of disputes in the Kenyan legal system are testaments to the progress Kenya has made in strengthening its democratic institutions, and the desire of the Kenyan people to move their country forward.”

Although the White House placed emphasis on the US wish to continue close relations with Kenya, the statement also underscored “the importance of Kenya’s commitment to uphold its international obligations, including those with respect to international justice”, an indirect reference to the charges that Mr Kenyatta and Deputy President-elect William Ruto are facing at the International Criminal Court at The Hague.

There was no mention in the statement of the negative “consequences” for US-Kenya relations that the State Department’s top Africa diplomat, Mr Johnnie Carson, had suggested as a possibility in event of a victory by Mr Kenyatta.

The UN Secretary-General, Mr Ban Ki-moon, also sent his congratulatory messages to Mr Kenyatta in a telephone call on Saturday.

Mr Ban also spoke with Mr Odinga. According to a UN spokesman, Mr Ban commended Mr Odinga for accepting the Supreme Court’s ruling that confirmed Mr Kenyatta victory in the March 4 election.

“The secretary-general wishes the newly-elected government and people of Kenya every success in meeting the many challenges and opportunities facing Kenya,” the UN spokesman said in a written statement. “The United Nations pledges its strong support.”

Family on holiday

In Nairobi, Mr Kenyatta said he remained behind as his immediate family proceeded on a holiday while he awaited the judgment of the Supreme Court on Saturday evening.

On Sunday, the President-elect told a congregation at St Austin’s Parish in Nairobi that he let his family members to proceed for Easter holiday without him due to uncertainties over whether the court would have allowed or disallowed his election as the fourth President of Kenya.

“As of yesterday I was not sure whether I would have been your president. I couldn’t join my family on holiday to wait for the court verdict,” Mr Kenyatta said. He urged Kenyans to remain peaceful promising to do his best to deliver on the promises he made during his campaign.

“I and my team will do all we can to improve the living standards for Kenyans and make life better as much as we can,” he said.

In Mombasa, Catholic Archbishop Boniface Lele yesterday praised Mr Odinga’s acceptance of the Supreme Court’s judgement, saying it showed he was a statesman.

While celebrating Easter Sunday Mass at the Holy Ghost Cathedral, Archbishop Lele told Christians to emulate the PM by abiding by the rule of law and making Kenya a peaceful country.

“Countries that follow the rule of law progress and develop but those that lack it wallow in poverty and backwardness,” he said.

And in Homa Bay, Catholic Bishop Philip Anyolo welcomed Mr Odinga’s decision to accept the judgment of the Supreme Court, saying it would ensure stability in the country.

“I want to say that I am very grateful and was very impressed by the position the PM took after the ruling by the Supreme Court which clearly demonstrated that he is true statesman,” said Bishop Anyolo.

 Meanwhile, Konoin MP Sammy Koech on Sunday welcomed the Supreme Court judgment in favour of Mr Kenyatta and Mr Ruto, saying it confirmed the will of the people of Kenya.

He said the judgment was an indication that Independent Electoral and Boundaries Commission did a good job despite the many challenges it faced during the election process.

He also commended Mr Odinga for accepting the verdict and wishing Mr Kenyatta and Mr Ruto well in their new responsibilities.

Reported by Kevin J. Kelly, Mwakera Mwajefa, Isaaac Ongiri, Geoffrey Rono and Maurice Kaluoch

Falling market hits pension industry hard

National Social Security Fund Building in Nairobi. RBA has set limits allowing pensions to invest in bonds, shares and property. Photo Stafford Ondego/Standard

By Jackson Okoth

With activity at the Nairobi Stock Exchange (NSE) maintaining a downward trend, the local pension industry is among the worst hit.

"A falling market has affected asset value and returns on most funds, especially those invested on fixed income and equities," says Mr Dominic Kiarie, the Managing Director British American Asset Manager 

Figures indicate that performance for the pension sector was not strong last year, with the rate of return averaging between ten per cent and 12 per cent.

Although providers are yet to release last year’s results, among the worst performing funds are those invested in equities.

"For those who invested in equity funds in 2005, returns have fallen on average by about 14.5 per cent," says Kiarie. The NSE dropped by more than 30 per cent last year and is still sluggish. "We expect the market to pick up in the fourth quarter or the first quarter of next year," he says.

In the past, investments by pension funds were mainly in the property sector, with equities being secondary.

Presently, industry regulator Retirement Benefits Authority (RBA) has set limits allowing pensions to invest in bonds, shares and property. "There is need for more diversification into other asset classes, including private equity and venture capital," says Kiarie.

Although RBA rules allow investment in ‘other’ asset classes, it is a blanket provision.

There is lack of knowledge and awareness among trustees on alternative avenues.

While the local financial market has been on a decline, a global recession has made offshore markets a hostile ground for most fund managers.

At present, there is massive correction in markets such as India and Brazil, while the sub prime has been doing poorly. Local pension funds are not allowed to invest more than 10 per cent of their funds offshore.

Off-shore exposure

"Our exposure offshore is between five and seven per cent. We are not overweight in the offshore market," says Kiarie.

But he adds that the market is attractive because prices are low compared to fundamentals.

With returns on equity investments on the decline, fund managers are offering some reprieve. "This is the best time to top up or switch to money market funds," he says. Among safe havens are cash or near cash investments, including fixed deposits and call accounts.

Fund managers can also realign their equity portfolio by selectively picking only those strong stocks that will take off when the market rebounds.

Apart from a fall in the market, the local pension faces the challenge of lack of alternative investment avenues and low coverage, especially in the SME sector.

Quarterly reports submitted to RBA indicate that pension sector investment in quoted equities as at December 2007 stood at Sh95.2 billion. The entire pension industry has had more than 1,066 schemes during this period. There were 16 registered managers, with some of the notable including African Alliance, AIG Global, British American Asset Managers, Zimele, Old Mutual, ICEA and CFC financial services.

The investment portfolio of retirement benefits schemes as at this period stood at 182.4 billion, invested as cash, fixed income or deposits, Government securities, quoted and unquoted equity, offshore, immovable property and guaranteed funds.

An estimated Sh71 was in Government securities, Sh9 billion invested offshore and Sh7.4 billion in immovable property. Growth of the pension industry has been rapid and is now projected to reach Sh300 billion in asset value over the next two years.