Corporate bond trading recovers on increased supply
Tuesday, January 31, 2023
Trading in the secondary market for corporate bonds recovered in the fourth quarter of last year, reflecting an improved supply of issues in the market and sales by holders seeking higher yields on government securities offerings.
Corporate bond turnover, while still a small fraction of government paper transactions, rose to 150.8 million shillings in the three months to December 2022, against 11.8 million shillings in the previous quarter of the year, according to data from the Capital Markets Authority (CMA). watch.
Over the past two years, there has been an improvement in the number of new issues launched in the corporate bond market, including those from Family Bank, Centum Real Estate, EABL, Acorn Holdings and the Kenya Mortgage Refinance Company.
Read: KMRC seeks 1.4 billion shillings from first corporate bond
At the end of last year, the value of outstanding issues stood at 29.6 billion shillings, having recovered from a low of 19.1 billion shillings seen in December 2020, when there had real concerns about the future of this market segment following past defaults and fraud. .
“In the fourth quarter of 2022, corporate bond turnover was 150.8 million shillings, a drastic increase from the turnover recorded in the second and third quarters… the authority expects more ‘corporate bond issuance in 2023,’ the CMA said in its Q4 2022 Market Strength report.
“With the successful issuance of KMRC and Centum Real Estate bond issues this year (2022), domestic investors are increasingly interested in corporate bonds.”
Secondary market transactions in this segment have traditionally been low, in part due to the higher interest rates offered on corporate bonds compared to government issues.
Over the past six months, however, government paper rates have risen to highs of 14% on tax-exempt infrastructure bonds, eclipsing the 12.5-13% averages available on corporate bonds.
Analysts said this prompted some commercial bondholders to liquidate their positions and put funds into higher-yielding, risk-free government bonds.
The increased adoption of corporate bonds, in both primary and secondary markets, also indicates that investors are increasingly aware of the potential of fixed income assets as an alternative to other categories such as equities. and real estate, which offer moderate returns.
According to CMA data, there are 1,910 corporate bond investors on the Nairobi Stock Exchange, of which 98% or 1,874 are local individuals or retail investors.
These investors hold corporate paper worth 28.33 billion shillings, or 95.6% of the value of all outstanding issues.
Read: KMRC sets 12.5% interest on first corporate bond
Turnover is still far from the averages of four or five years ago, when the segment’s annual sales would reach 3 billion shillings.
The collapse of Imperial and Chase Banks in 2015 and 2016 shortly after issuing corporate bonds, and the collapse of the Nakumatt distribution chain with billions of shillings outstanding in commercial paper damaged confidence among investors. investors in the segment and pushed issuers towards other alternatives such as private equity. capital injections.
→ [email protected]