This would have been a delightful festive season for the bondholders of Imperial Bank.
Five years after investing in the bank’s Sh2 billion corporate bond, they would now be counting down to pay day. Read More
Unfortunately, this won’t be that kind of Christmas for these investors. Imperial Bank, whose bond was issued in August 2015, is still stuck in insolvency.
The lender’s failure, along with that of other corporate bond issuers, including Chase Bank, cement manufacturer Athi River Mining (ARM) and microfinance company Real People, has devastated the local corporate bond market.
Confidence in corporate bonds and commercial papers, which are among the most lucrative sources of finances for companies seeking to expand, has hit rock bottom.
The Capital Markets Authority (CMA) in its 2017-18 annual report blamed the development on the slow process of solving the insolvencies of Imperial and Chase banks, noting that the delays had negatively affected the corporate bond market.
As a result, explained the regulator, there has been little interest in corporate bonds as a debt financing instrument.
It added that there is a need for “clear settlement finality and insolvency-netting carve-outs in the law across the full scope of capital market products”.
Low uptake
The regulator insisted that the green bond listing by real estate firm Acorn provided much-needed impetus to the corporate bond market.
In 2018 in a study on the low uptake of capital products, CMA noted that while the Central Bank of Kenya (CBK), in conjunction with key stakeholders, had worked at resolving issues surrounding the Chase Bank and Imperial Bank bond issuances, the market had taken a back step.Only East African Breweries Ltd (EABL), CMA noted, had braved the storm to issue and list a successful medium-term note in March 2017.“To a less extent but also worthy of note, commercial banks and financial institutions, which have traditionally been the most popular issuers of corporate bonds, have been able to comply with Base II financial resource requirements,” said the regulator.CMA noted that a number of financial institutions had previously indicated that they would apply their issue proceeds towards meeting core capital requirements as prescribed by CBK. But it looks like the market has moved on. Banks, which had regularly tapped the corporate bond market, have sought different ways of recapitalising their businesses.In extreme cases where they have not been able to issue corporate bonds or tap into other sources of finances, there have been […]