@emlyn. Got some stats on trading of corporate bonds trading at the NSE in 2010.

KenGen is the most vibrant off course. Traded about 4.8 billion since the start of 2010 and it's yields have dropped from 12.58% last year to 8%-9% now.
FXD (CFC Stanbic) 2009/7Yr made 2 trades at 8.5% and 11.9% for 82 million each.
Barclays FXD (MTN)2008/7Yr traded 300,000 at at 11.5% (1 trade).
FXD (Safaricom) 2009/5Yr 5 traded 200 million at 9% (1 trade).

There seems to be an issue of liquidity. I heard Nakumatt have some sort of MTN for 11%, though I can't confirm it. But it would be nice if one could get a hold of CFC's senior notes especially considering how useless the bank is. I wouldn't want to hold anything else in it.

@scooby. No mention of bond valuation in the BD article below:

http://www.businessdaily.../-/9iu47fz/-/index.html

They just mention one-off disposals in bond portfolios. We discussed this in an earlier post. Are they missing something? Looking at the corporate banks NIC, DTBK, CFC and even I&M shows a large bulk of bonds under tradable assets by Q1. Are these classified under unrealized gains if they're based on valuation?

@emlyn. Sorry but I assume that the senior tranche has some sort of security. But given the changes in the group, restructuring, is the senior tranche secured against the assets of the bank or the group?

Great discussion guys. A lot of info to digest.

About a week ago, I was in an impromptu discourse with a politician who is targeting a Senate seat. The guy is a highly training Finance expert and he implied that should he win that seat, he would try and orchestrate Kenya's first municipal. I chuckled at the thought but then it dawned on me how such a municipal would benefit the county of interest. But then, would it have any takers? With the current aversion to politics, can Kenyans trust a politician with their money?

South Africa and India have a booming market for municipals. Many US states and scandinavian cities have been built using municipals. Can Kenya?

kwanza how much infrustructure growth has been funded by the various IFBS issued by CBK? apart from 1bn on thika road(IFB1) anyone know?

@emlyn. That concept of the tranches for bonds is interesting because credit rating agencies in international markets had a hard time assigning a credit rating on them b4 the financial crisis, non? Did CFC ever get a credit rating cos that's would have helped? But if it's unsecured paper, one would be buying on the strength of the group but now that they're no longer married, it's a whole new dynamic, non? Is it less riskier now than b4? (you don't have to answer all the questions, I'm just thinking out loud).

Ta. very much scoobs. So if they could use the Chinese model it would be great for the deepening of the market (our greedy stockbrokers-a lot of captive business). Incidentally research shows that intermediaries are a cheaper option to bank syndications. But like kizee mentioned a municipal bond would be backed by the municipality (not GOK gauranteed right). So we're trusting kanjo to pay us back?

By the way is there an implicit agreement between Kenya and Chinese on what happens when they finish a road. These guys are not going home! Here illegally like them Ethiopian dudes (only they have money). I hear they're buying up land in places like Karen (and have malizad most of the stray guwi in Nai already, whoa).

But if we look at the four IFRB and their projects. They specifically mention three sectors (1) Roads (23.3 bn so far expected 6.1 bn more), (2) Energy (15.9 bn already;expected 17.2 bn more) and (3) Water&Sewage (12 bn so far;expected 8.4 bn more). So from all four bonds they'd raise say 84.7 bn and the average interest rate (considering the tax exemptions) is about 9.75%, so we're looking at interest payments of say 8.2 bn pa. But like you said some of these projects may not result in tangible revenue (unless it's implied in higher revenue, e.g., KEnTRaco & GDA investments boosting KenGen's revenues). So quantifying gains on infrastructure seems difficult; A private sector player would be asked for a payback period?

The only road project mentioned is Thika. The only water projects were 229 water supply systems and 200 boreholes and only energy project were KenTraco & GDA activities. The rest was kind vague, with no particular timeline. I don't even think they have to stick to any promise, because funding is funding. If Safcom wants to issue a bond to part-finance dividends then it's all just funding; the govt can do the same.

@scubidu and Sasha

Ideally I do agree that local authorities should guarantee their local debts as is the case in other countries.

But the reality in Kenya is something totally different. That's the reason why the central government has to step in to guarantee the bond.

Am thinking that the new constitutional order will ensure more professionalism and accountability in the management of local authorities, or in this case counties.

The question is whether we all think that will be the case. So far, no one thinks that will ever happen.

Kenya’s capital markets is set for a jolt as the Government floats a Sh10 billion university bond early next year to help higher learning institutions raise much needed funds to admit more students.

Higher Education Minister William Ruto said that the university bond whose details are being finalised by Treasury will be guaranteed by the government, opening a new financing avenue for public universities.

“We are finalising deliberations with the treasury in enabling public universities raise capital through a university bond at between six and eight per cent rather than the market rates of 18 per cent,” said the minister.

Read more:

http://www.businessdaily.../0/-/2glfsi/-/index.html

@scooby. Unfortunately no. Will ask my contacts. I suppose it'll be long term, 25 perhaps, 200bp premium?

Do you know anything about the new CBK rules on the bond bidding system....I heard that it was rejected jana. I don't understand what was going on. You know how it works?

@scooby. What did you think of the 2 year auction? Well look at what the bidding has done to the other 2 year papers. Haven't they messed up secondary liquidity?.

Results for the auction:

http://www.centralbank.g...onds/manualresults.aspx

Yeah was looking at the HF IM jana. Noticed how generous the arrangers were in giving a 300bp premium but considering they're raising 175% their core capital, it's reasonable. Plus SCBK is one of the arrangers.

Interesting scenario though. They had 2 billion in lines of credit by H1 and leveraging further to 7 billion. Whereas equity is just over 4 billion. Have we been presented with this scenario before where debt is almost 50% of customer deposits?

Curious is that it's also unsubordinate debt. I had a debate on this forum once on the impact subordinate debt had on supplementary capital. What are the rules that apply to unsubordinate debt?

Yup I agree the risk premium is inadequate and the issue with the cut-off rate...the dividend yield on an index linked fund would give you more or less the same as a two year.

I'm guessing Treasury will fill up it's quota of borrowing for this budget before the end of the year then stay out of primaries next year. But it's taking a tole if the recent 91D undersub is anything to go by.

As for HF, yup it's not targeting retailers, but it won't be liquid enuf for secondary. The only coupon that makes any sense in the primaries is the fixed one (much like CFC in 2009), but what about the greater impact on finance costs? But the valuation on the fixed coupon is far more attractive than it's equity counterpart.

I thot sub debt contribution to capital also depended on a bank's debt to tier 1 capital ratio? Or else wouldn't all banks be tempted to raise capital this way?