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Discussion Points for Mr Kung’u Gatabaki, Chairman, Capital Markets Authority, During the Listing of the Shelter Afrique - Medium Term Note Tranche 1 at The Nairobi Securities Exchange, 24th October 2013

The Cabinet Secretary, Ministry of Lands, Housing & Urban Development Hon. Charity Ngilu;

Chairman, Nairobi Securities Exchange, Mr Eddy Njoroge;

Other board members of the Nairobi Securities Exchange present;

The Acting Chief Executive, Capital Markets Authority, Mr Paul Muthaura;

The Chief Executive, Nairobi Securities Exchange, Mr Peter Mwangi;

The Shelter Afrique Managing Director Mr.Alassanne Ba;

Board Members of Shelter Afrique and the transaction team for the Shelter Afrique Bond Issue present;

Invited Guests;

Ladies and Gentlemen;

The listing by Shelter Afrique of the medium term note tranche 1 at the Nairobi Securities Exchange is a significant step in our continuing journey to establish a vibrant international securities market in Kenya aligned to CMA’s mandate to foster increased participation among investors.

This comes in the wake of the Cabinet Secretary, Mr Henry Rotich, facilitation of the amendments to the Capital Markets Act to enable the Authority deepen its regulatory oversight role in a potentially robust securities hub.

One of the major amendments in the CMA Act aims to facilitate the ongoing reforms in the bond markets sector, particularly to allow for the introduction of a hybrid bond market in Kenya. An operational framework for implementing the hybrid bonds market has been designed with the Nairobi Securities Exchange and this is expected to provide the reporting infrastructure that will facilitate the operationalization of an Over the Counter Market. 

As a result, Authorized Securities Dealers (ASDs) will now be licensed to trade just like members of the NSE. Additionally, regulations for the regional bond issuance were also gazetted. The Bond Market Steering Committee is expected to facilitate the supply of a bond instruments and reporting system to kick start the Over-The-Counter bond market.

I believe we have reason so far to pride ourselves in the success of bond issuance. Over the last 10 years, the capital market has raised over KES1.4 trillion through bond and equity issues. Over KES.1trillion has been raised post the Global Financial Crisis. The over subscription of most of these offers were instructive as they suggest that the market can finance many more viable infrastructural projects. 

Capital Markets provides equity and infrastructure development capital that has strong socio-economic benefits in areas covering; roads, water and sewer systems, housing, energy, telecommunications, and public transport.

In providing such an alternative source of long-term finance for investments the Capital Markets helps in diffusing stresses in the banking system by matching long-term investments with long-term capital. 

Ladies and Gentlemen

Iam happy to have been associated with the transformation of Shelter Afrique from a semi NGO/talking forum for Representatives and Ministries of Housing from Member states of AU into a profitable Pan African Housing institution.

Since the year 2000, Shelter Afrique has issued bonds amounting to KES 12.85 billion and successfully raised KES 8.35 billion. The KES 4.5 billion outstanding is part of the latest approved issue.

On 9th September 2013, Shelter Afrique, launched Ksh.3.5 billion five year bond with a green-shoe option of up to Ksh1. 5 billion. The issue was the first tranche of Ksh.8 billion medium term note issue, which will be used to fund a number of housing projects across the country.

The success of Shelter Afrique in their capital raising initiatives in the bond market demonstrates the latent capacity of Kenya’s capital markets. The potential to raise additional capital is linked to the ambition of transforming Nairobi into the financial hub in the region and an International Financial Centre. This is aligned to our commitment as an Authority to facilitate raising of funds, which is key to deepening our capital markets by.

I would like to appeal to other regional bodies such as the Africa Reinsurance Corporation to consider raising funds through the capital markets rather than through development financial institutions.

There are opportunities accruing to county governments in accessing capital markets for long term funding of their development needs. We are aware of the constitutional requirements for the county government to seek National Government clearance or guarantee for borrowing. There may be justifiable scope to further interrogate this provision with the aim of easing the environment for capital raising initiatives at the county level so long as counties can demonstrate sustainable budgets clear revenue generation strategies, as well as identify viable development projects.

But as we encourage capital raising, there is need to expand to scope of products. The products’ scope currently includes; County Bonds, Asset Backed Securities and REIT’s.

One of the quickest avenues of creating additional investment opportunites in the capital markets and diversifying ownership of national assets is privitisation. Safaricom and KenGen are good examples of how sale of shares to the public through an Initial Public Offering has enabled Kenyans to own shares in national assets and benefit from the good performance of such corporates.

I would like to encourage the government to privatise the National Oil Corporation of Kenya, which would enable Kenyans to participate in the oil sector through ownership in the marketing and distribution infrastructure. This could be done through ownership in County Development and Investment Agencies. The latter would be good vehicles to enable ownership in assets such as oil in Turkana or coal in the Kitui County. Privatisation should also be extended to other agencies such as Kenya Pipeline to open up additional investment opportunities for Kenyans.

We are gathered here this morning to wish Shelter Afrique success in their efforts to facilitate supply of additional housing units through long term funds raised from the bond market in Kenya. I see Shelter Afrique has retained the services of Naval Sood as their Transaction Advisor in this process and it’s only fair to listen to Naval.