KMRC chief executive Johnstone Oltetia. PHOTO | DIANA NGILA | NMG The Kenya Mortgage Refinancing Company (KMRC)’s Sh1.4 billion bond is paying a premium of one percentage point over government bonds with a similar life.
Analysis of the mortgage refinancer’s debut bond issue by Sterling Capital says that the 12.5 percent interest the company is paying is well above the average of 11.5 percent on government bonds with the same years to maturity.
KMRC’s bond is a seven-year paper. But with the company taking the rare step of paying back part of the principal every year instead of bullet payment at the life of the bond, the average time the debt will be outstanding is 4.5 years.
“Treasury bonds with this tenor currently have an average yield of 11.5 percent, equivalent to 100 basis points below the KMRC coupon. The 12.5 percent yield would be equivalent of a Treasury bond with a term to maturity of 7.5 years,” said Sterling Capital.
The sale of the KMRC bond, which kicked off on February 4, closes on Friday.
The mortgage refinancier’s bond will also pay a premium to the five-year medium-term note issued by listed brewer EABL , which carried a coupon of 12.25 percent upon issuance in October last year.
The brewer’s bond currently has an average yield to maturity of 11.43 percent.
The Sterling analysts added that the relatively low amount on offer in the sale should KMRC achieve a good subscription rate, despite the fact that the paper is unsecured and does not carry any guarantee from the State.
They also pointed at the stability of the company’s shareholders who include the National Treasury, the International Finance Corporation (IFC), and Shelter Afrique and tier one Kenyan banks.
KMRC is planning to use the proceeds of the bond to add to its existing capital that is borrowed from the World Bank Group and African Development Bank (AfDB) via the National Treasury.
The funds are then on-lent to banks and other financial institutions at five percent interest, allowing them to offer their customers long-term mortgages at single-digit, stable interest rates. cmwaniki@ke.nationmedia.com