The Kenya Mortgage Refinance Company (KMRC) will repay the principal on its Sh1.4 billion corporate bond each year in a rare strategy that will reduce interest earnings for investors while fast-tracking the redemption of the debt.
It will also lower the investment risk of the debt –which is unsecured and not guaranteed— unlike most corporate bonds that pay investors their principal at the end.
The mortgage refinancer will release the first batch of the principal repayments on March 3 next year. The final redemption of the seven-year bond will be February 23, 2029 but nearly half of the debt will have been repaid by February 27, 2026.
The annual repayment of principal amount will be preceded by interest payouts which will come every six months, according to the repayment schedule approved by the Capital Markets Authority (CMA).
KMRC is offering a fixed interest of 12.5 percent on the bond, which is the first tranche of the Sh10.5 billion medium-term note programme. The debut bond is on sale until February 18.
“When you are amortising a bond, you start by paying interest. So we will start paying interest in September then start paying up the principal effective March 2023,” KMRC chief executive Johnson Oltetia said.
“That’s why the weighted average life of the bond (the average time the debt will be outstanding) is four and a half years.”
He added that KMRC will be a frequent issuer of bonds in the market.
The firm, formed to de-risk the home loans market by raising and lending long-term funds to mortgage providers, is 25.3 percent owned by the National Treasury with the remainder of the stake controlled by private lenders.
The fixed return that KMRC is offering investors is same as that given by Centum Investments on its Sh3 billion debt issue in December 2020 and slightly lower than Family Bank’s 13 percent on the Sh4.42 billion it raised in June 2021.
KMRC lends long-term funds to participating banks and saccos —which are also shareholders— at five percent interest.The lenders are, in turn, expected to offer home loans to borrowers earning less than Sh150,000 a month at single-digit interest rates.KMRC plans to raise money from capital markets to blend with concessional funds borrowed from the World Bank Group and African Development Bank (AfDB).