Nairobi July 26, 2016…The Board of the Capital Markets Authority (CMA), having received petitions for the review of the enforcement action taken against Peter Muthoka and Joseph Kivai, former directors of CMC Holdings Limited, in November 2015, and following due process hearings, has resolved to review aspects of the sanctions imposed.
The enforcement action taken in August 2012 imposed lifetime disqualification of the two individuals from holding directorships in CMC Holdings and imposed a lifetime ban disqualifying Mr. Muthoka from holding directorship position in any public listed company, or licensed or approved persons including securities exchange in the capital markets in Kenya.
Following the review of the petition filed by Mr Muthoka and Mr Kivai, the CMA Board determined that the disqualifications relating to CMC Holdings had lapsed following the de-listing of the company, and resolved to review the lifetime disqualification for Mr Muthoka to five years, effective August 3 2012 to August 3 2017.
In arriving at its decision, the CMA Board considered the grounds of the petition and submissions made, including the fact that neither petitioner had been involved in the maintenance of fraudulent offshore accounts drawn from shareholder funds. The petitions had requested for the setting aside, lifting and/or substitution of the Authority’s disqualification orders.
BACKROUND INFORMATION ON THE CAPITAL MARKETS AUTHORITY
The Capital Markets Authority (CMA) was set up in 1989 as a statutory agency under the Capital Markets Act Cap 485A. It is charged with the prime responsibility of both regulating and developing an orderly, fair and efficient capital markets in Kenya with the view to promoting market integrity and investor confidence.
REMARKS BY MR. PAUL M. MUTHAURA, CHIEF EXECUTIVE, CAPITAL MARKETS AUTHORITY, DURING THE BELL RINGING CEREMONY TO MARK THE DEBUT OF TRADING OF THE KENGEN RIGHTS ISSUE SHARES ON WEDNESDAY 6TH JULY, 2016, AT THE NAIROBI SECURITIES EXCHANGE
- Members of the Board and Management of KenGen Limited,
- Invited guests,
- Ladies and gentlemen,
- All protocols observed.
Today marks yet another milestone in an astounding decade of capital markets activity that KenGen has been at the centre of following its IPO on 17th May, 2006.
In that year, KenGen’s IPO attained a 333% subscription level- the 6th highest in Kenya’s history, as it raised over KES 7.45 billion shillings. Kengen's public offer also played a pivotal role in introducing an estimated 300,000 new formal investors in the capital markets translating to stronger secondary market performance in terms of traded turnover, market capitalization and share volume.
A few years later came the hugely successful KenGen Infrastructure Bond in 2009, a ten year bond, which raised over KES 25 billion. It is that bond offer that launched electronic trading in debt securitiesand generated unprecedented turnover volumes in secondary trading of corporate bonds at the Nairobi Securities Exchange.
Today, KenGen has come back to the market to list its rights issue shares and reassert its position as a blistering pace setter for issuers of securities in Kenya; and for that, the Authority strongly commends the Board and management of Kengen.
In maintaining its position as a market trail blazer, the Authority will continue to urge KenGen to lead other infrastructure providers and ultimately the county governments to take advantage of new structured products such as Asset Backed Securities (ABS) by establishing vehicles to finance infrastructural projects in transparent and sustainable ways off balance sheet. The Authority continues to work tirelessly with the National Treasury to ensure Asset backed securitization can be as attractive as possible through a number of fiscal incentives government has provided. As I hope you are all aware, the Cabinet Secretary to the National Treasury exempted all transfers of assets as part of structuring Real Estate Investment Trusts (REITs) and Asset Backed Securities (ABS) from Stamp Duty. In addition, the National Treasury is currently considering the extension of similar treatment to VAT to ensure structured transactions can achieve true tax neutrality.
In this context, I wish to confirm that a number of potential issuers are in engagement with the Authority with a view to exploiting the enormous potential presented by the Asset Backed Securities solutions to fund infrastructure within various sectors of our economy. As highlighted by the Cabinet Secretary in his 2016 Budget Statement, a program to enable all Kenyans to have universal access to safe water and sanitation by 2030 through the Kenya Innovative Financing Facility for water is among the issuers we are in engagement with a view to rolling out ABS. I would like to confirm that several other potential issuers are also in consultation with the Authority with a view to rolling out ABSs in Kenya. In support of this, with the assistance of the World Bank/IFC, the Authority is nearing the completion of a complete overhaul of the ABS legal framework in Kenya to ensure that it can be sufficiently flexible and responsive to the different funding needs of the economy. The key statutory amendments to facilitate this transition are already under consideration by the National Treasury and we look forward to their early passage to support a conducive environment for infrastructure funding in line with the Capital Markets 10 year Master Plan.
Ladies and gentlemen, the Kenyan Government has consistently supported the Authority in development of capital markets through an enabling policy and regulatory framework and its keen interest in the development of the capital markets is a clear testimony of how important the capital markets in Kenya is viewed at the highest level of policy making. As such, we request more listed companies to follow in the footsteps of KenGen Limited to source for funding from the public markets and further urge more private companies to come on board in a bid to raise more capital from the domestic, regional and international public markets.
Noting the central link between the attainment of our Vision 2030 aspirations and the success of devolution, the Authority is working with the National Treasury towards the unveiling of a policy sensitization paper to be distributed to County governments on avenues for them to use project based financing to leverage capital markets financing. This is being supported through an extensive targeted investor education and public awareness program that has seen the Authority facilitate forums, media campaigns, road shows, round tables targeting county leadership, the youth, women, investment groups, community based organizations and learning institutions in thirty four counties since 2013;
Ladies and gentlemen, I wish to reaffirm the Authority’s commitment, with the support of the Government, to providing a facilitative environment for issuers, investors, and market players to participate and prosper in the capital markets industry. The Authority remains focused and committed to ensuring the capital markets play their cardinal role in facilitating the realization of the Vision 2030 objectives through the delivery, in conjunction with industry, of the Capital Markets 10 year Master Plan.
In closing, on behalf of the Authority’s Board, Management, and Staff and the entire Capital Markets fraternity, we wish KenGen Limited success in their expansion and future development plans..
Secretary General UNCTAD, Dr. Mukhisa Kituyi
Mr. James Zhan, Director, UNCTAD
Ms. Ligia Noronha, Director UNEP
Sean Kidney, CEO and Co-Founder, Climate Bonds Initiative
Ladies and Gentlemen
Allow me to begin by conveying the apologies of the Cabinet Secretary to the National Treasury, Mr. Henry Rotich who was unfortunately unable to join us for this event. Further allow me to also extend my appreciation to the organisers for requesting me to deliver this key note address given the extremely timely subject of this Executive Dialogue.
It is a pleasure and an honour for Kenya to be hosting UNCTAD 14 and the World Investment Forum 2016. The UNCTAD 14 theme of “From Decisions to Actions” following from the 2030 Agenda for Sustainable Development and the COP 21 commitments on climate change speaks volumes of the challenge we face in aligning the financial markets to sustainable development. Nairobi, given our national Vision 2030 goal of emerging as an International Financial Centre is all the more proud to follow in the footsteps of Accra Ghana, Xiamen China, Doha Qatar and Geneva Switzerland in hosting this World Investment Forum.
Ladies and gentlemen, building on the World Investment Forum 2015 theme of “Reforming International Investment Governance,” our Executive Dialogue today will no doubt have to deliberate on what we actually mean by “Green.” Noting the massive gap in funding needed to support climate change, infrastructure development, economic growth and renewable energy to name but a few, we are faced with the very real tensions over how narrowly or widely to set the definition of what is “green” and by extension what is eligible to be classed as green finance. As a case in point, in a year where China is very much leading from the front as an issuing jurisdiction for Green bonds (accounting for 26% of issuance YTD) there remains division over their inclusion of clean coal and energy efficiency improvements in fossil fuels in their list of green project categories.
Furthermore, 2016 being the biggest year for Green Bond issuance on record, the challenge presented to members of the Sustainable Exchange Initiative (SSE) with regard to the promotion of sustainability reporting, the harmonization of reporting format and the design of sustainability indices appears set to grow exponentially as against the size of the green finance products and issuances. To place this in context, Green bond issuances YTD are up 40% as against 2015 with the market for Green Bonds projected to reach between USD $72 and 75 bln by year end. The proceeds of this financing is currently being put towards renewable energy (47%), buildings (10%), transportation (10%) and energy efficiency (8%). There is therefore little question of the alignment of green finance to the needs of emerging market economies that are engaged in significant investment in energy, commercial and residential real estate and transportation. As the host jurisdiction, in Kenya, the Kenya Electricity Generating Company has just concluded raising a USD $270 million rights issue to support further geothermal and wind energy expansion; we have an ongoing Development Real Estate Investment Trust seeking to raise USD $30 million for a commercial mixed use complex (to say nothing of the myriad cranes you find on every corner of this city), and the Standard Gauge Railway is projected to cost USD $5 billion. In this regard there is certainly no shortage of ongoing investment in sectors that are very amenable to green finance.
As we deliberate on how to create a conducive environment for green finance we must remain conscious that is does not end with green bonds and social & sustainability bonds but extends to greening banking practices, promoting inclusive insurance and leveraging technology to support inclusion, efficiency, transparency and reliability to ensure sustainability of the financial system. This spectrum therefore calls for a great deal of innovation to promote sustainable business practices and responsible investment. Once again turning to Kenya, it is noteworthy that the Kenya Bankers Association, in conjunction with the Central Bank of Kenya has developed Sustainable Banking Principles while the KBA has joined the Sustainable Banking Network. On the other hand, the Nairobi Securities Exchange has become a Sustainable Stock Exchanges Initiative member and has committed to promoting sustainability in the scope of products it introduces as well as raising standards for listed entities on sustainability reporting. The Capital Markets Authority in its own regard took a further step forward with the publication of the Corporate Governance Code for Issuers of Securities to the Public in March of this year which not only sets down clear principles and guidelines around ESG reporting but catered for the development of a Stewardship Code for institutional investors to take on greater responsibility for urging issuers to adopt sustainable business practices and a platform for those institutional investors to make clear public statements on their commitments to responsible investment. It is expected this new Stewardship Code, which received very strong industry support, will come into force in the near future.
With Kenya being at the forefront of innovation and evolution of mobile based financing solutions, we have the opportunity to move beyond the simple pursuit of inclusion with regard to the storage and transmission of money by phone to linking these solutions to facilitating the achievement of the Sustainable Development Goals.
Noting the very rich deliberations that are ahead of us and considering the excellent panel that has been brought together for this Executive Dialogue, I would seek to close my remarks by reemphasizing that the potential to fully leverage green finance is heavily reliant on the effective development and deepening of the capital markets and wider financial sector. To this end, the capital markets industry in Kenya launched a 10 year Capital Markets Master Plan in 2014 which has set down aggressive milestones for market transformation running to the year 2023. It is only through the timely achievement of the reforms relating to market infrastructure; product diversification; the legal, governance and reporting environment and the overall connectivity of the Kenyan markets to the regional and global financial system, that we will be able to reap the fruits of green finance and ensure the markets can play their proper role in funding the Sustainable Development Goals and climate change.
Thank you and once again and as I am sure you have heard many times this week, Karibu Kenya.
Chief Guest, Cabinet Secretary, Ministry of Land, Housing and Urban Development, Prof. Jacob Kaimenyi
Dr. Philip Goodwin, Chairman, Fusion Capital Limited
Mr. Luke Kinoti, Group Chief Executive, Fusion Capital Limited
Member of the Board and Management of Fusion Capital Limited present,
Invited Guests, Ladies and Gentlemen:
All protocols observed
1. Today is the culmination of a truly historic journey. The launch of the first Development REIT in Kenya is a
significant milestone in the delivery of the 10 Year Capital Markets Master Plan and the Vision 2030. The Development REIT
is a product that was born out of Kenyan innovation and our capital market industry's commitment to the identification of
products that can have a transformative impact on promoting economic development while being wholly relevant to the
realities of our economy. Whereas globally, Income REITs such as the Stanlib Fahari REIT launched in late November 2015
have been well established since the mid-eighties, the Development REIT was conceptualized in Kenya in 2012 to ensure we
could channel public investment into real estate development and not only established income generating property. This
product offers a genuine opportunity to democratize participation in the lucrative real estate development sector that is
otherwise subject to extremely high barriers due to the costs of traditional financing for project development. It is
particularly appropriate that the Cabinet Secretary for Lands is officiating this occasion as the proper embracing of
Development REITS and Income REITS can have a catalytic effect on funding the challenges of housing at all levels as well
as urban development.
2. The D-REIT we are launching today targets to raise KES 2.3 billion but I believe that this is only the beginning and we
can look forward to more and larger real estate investment trust funds as we build our familiarity with this product.
3. Ladies and Gentlemen: Join me in congratulating Fusion Capital Limited for this bold move of being the first to test
the market with this product. Being the first to launch a product requires determination, courage and above all,
pragmatism. I trust that the successful launch and listing of this D-REIT on the Restricted Main Investment Market segment
of the NSE will stimulate interest from other capital market participants to bring to the market more similar products.
The structure in place was designed to ensure the highest level of transparency on the value and performance of the
underlying real estate assets so investors can rest assured by the quality of the assets invested in. This being the first
that has been a long journey of learning for all parties involved and I would like to appreciate Fusion for their patience
and commitment in seeing this day coming to fruition.
4. We note that through this offer, FRED – Commercial will add value to both the investors in this D-REIT as well as
bridge the gap in the real estate supply within the country. As most of you may be aware, it is the objective of the
Capital Markets Master Plan to make Kenya a center of excellence for real estate investments, and indeed today’s launch
marks a key milestone towards achieving that dream. This is in line with the objectives of the country’s blue print, the
Kenya Vision 2030 of making Kenya a Globally Competitive and Prosperous Nation with a High Quality of life by 2030. Making
Kenya a center of excellence for real estate has the potential of promoting Nairobi as an international financial center
since many savers and investors will converge in Nairobi looking for business opportunities to raise funds to finance real
estate as well as investors who will be looking for investment returns from real estate.
5. Ladies and Gentlemen: Successful offering and subsequent listing of FRED-Commercial will bring the total funding raised
through the Real Estate Investment Trusts in Kenya slightly below KES 6 billion. You will all agree with me that real
estate worth KES 6 billion has enormous positive externalities in terms of; Employment creation particularly for the
youth; spurring other business activities; revenue generation to the exchequer through taxable activities among other
6. We note that implementation of devolution has come with more resource requirements that can hardly be met through
traditional tax revenue collections. Innovative vehicles such as REITs will therefore go a long way in supplementing the
government’s efforts in meeting county government infrastructural requirements. The Authority therefore calls upon the
national and county government to entrench REITs as well as other innovative products such as Asset Backed Securities as a
key components in channeling lower cost long term financing into housing and commercial real estate development to support
accelerated urban development and the provision of adequate real estate infrastructure within the counties.
7. Ladies and Gentlemen: The Capital Markets Authority (Kenya) was last year recognized as the most innovative regulator
on the continent. This award was achieved through collaborative efforts between the Authority and all stakeholders. But in
the face of such recognition, the fundamental question continue to ask is what is there for Kenyans in this award. How do
we ensure our efforts towards innovation are translating to the improvement of quality of life for wananchi. The country’s
cumulative diaspora inflows in the 12 months to April 2016 was in excess of KES 160 billion. These are funds that we
should be targeting as we roll out innovative products such as REITs. We have to put in place consultative measures to
ensure that a chunk of these inflows find a home in the newly created Restricted Main Market segment at the NSE.
8. Allow me at this juncture to take this opportunity to laud the Ministry of Lands for their very constructive and
supportive manner they engaged with us in the development of the REIT framework, all the stakeholders who provided
critical inputs, the RBA for its responsiveness and facilitation to promote access by pensions and the Nairobi Securities
Exchange who have ensured the creation of an appropriate listing segment for this and other more complex yet impactful
9. Ladies and Gentlemen: As we introduce new products we cannot lose sight of the need for the highest levels of market
integrity in terms of good corporate governance, transparent financial reporting as well as continuing reporting practices
which are all key prerequisites for attracting the requisite capital. The National Treasury has been particularly
supportive on this front as witnessed with the recent gazettement of the Code of Corporate Governance Practices for
Issuers of Securities to the Public, 2016 and Guidelines on the Prevention of Money Laundering and Terrorism Financing in
the Capital Markets, 2016. These reforms are informed by the need to respond to the changing business environment and the
desire to align local standards to global best practice to promote institutional strengthening for listed companies.
10. Let me take this opportunity to convey my gratitude to the Government through the National Treasury for its consistent
support to the development of capital markets through an enabling policy and regulatory framework and further reiterate
our appreciation for its keen interest in the development of the capital markets. I just wish to underscore the following
key reforms implemented by the National Treasury that has brought forth the benefits we are witnessing today:
a). Removal of stamp duty on all transfers of assets during structuring of REITs as well as Asset Backed Securities;
b). Preferential corporate tax rate of 25 percent for companies listing on the Exchange by introduction;
c). Removal of 75 percent capping for foreign ownership in listed companies;
d). Exemption of listed securities from Capital Gains Tax;
e). Allowing private equity and venture funds to access up to 10 percent of pension funds; and
f). Amending and re-casting the investment guidelines for the pension funds to cater for Private Equity and Venture
Capital; REITs – both D-REIT and I-REIT; as well as the emerging global depository notes and receipts; Exchange
traded funds; Exchange derivative contracts all approved by CMA.
11. Ladies and Gentlemen: in this context, we note there are still important reforms to be implemented to support real
estate Investment products. Of particular importance is the strengthening of the systems to ensure sanctity and
reliability of title. Through the Capital Markets Master Plan implementation process we have identified key reforms to
complement market development and look forward to communicating those to the Ministry of Lands through the National
12. On our part as Capital Markets Authority, I wish to reaffirm our commitment, with the support of the Government, to
providing a facilitative environment for issuers, investors, and market players to participate and thrive in the capital
markets industry. The Authority remains focused and committed to ensuring the capital markets play their rightful role in
facilitating the realization of the Vision 2030 objectives.
13. On behalf of the Authority’s Board, Management, and the entire capital markets fraternity, I wish Fusion Real Estate
Development Trust aka the FRED – Commercial success in their business expansion plans. In conclusion, let me take this
opportunity to thank everyone in this room here today for taking the time to witness this great moment. This is just the
beginning of great things to come.