Kenya Mortgage Refinance Company sets 12.5% interest for debut corporate bond

The Kenya Mortgage Refinance Company (KMRC) will pay investors a maximum fixed interest rate of 12.5% for the first tranche of its Sh10.5 billion medium-term corporate bond which it plans to open on Friday.

The mortgage refinancer, which is owned by the National Treasury and private lenders, is set to borrow Sh1.4 billion in the first phase of the bond whose offer will close on February 18.

The security has a tenor of seven years but investors will be receiving both interest and part of their principal every six months. This means that the bond will on average remain outstanding for four-and-a-half years.

KMRC was on Wednesday awaiting the Capital Markets Authority (CMA) to approve the proposed pricing for the bond of between 12.25 and 12.5 percent fixed interest for the debt issue ahead of opening tomorrow.

“We expect to receive approval on the pricing supplement today (yesterday) or latest tomorrow (today),” chief executive Johnson Oltetia said in an interview.

“We expect a very successful offer which will, in fact, be oversubscribed.”

The KMRC chief said a large number of participating banks and saccos (shareholders), pension funds and other investors were keen to invest in the bond, raising hopes of the debt issue being snapped up.

The mortgage refinancing firm got a credit rating of AA- from South African agency GCR last August and is banking on support from the Treasury, the World Bank Group, African Development Bank (AfDB) and a majority of tier-one banks to pull in other investors.

Proceeds from the bond will be added to the firm’s credit line of about Sh30 billion —comprising about Sh18 billion from the World Bank, Sh10 billion from AfDB and equity capital of more than Sh2 billion.

KMRC was formed to derisk the mortgage market by advancing long-term funds to participating banks and saccos at five percent interest.

The participating lenders are, in turn, expected to offer home loans to borrowers earning less than Sh150,000 a month at single-digit interest rates.

Mr Oltetia said the mix of predominantly cheap concessional funds and a small portion of relatively expensive money from the capital markets will enable it continue on-lending financial institutions at about five percent interest.

“When we do the blending, we achieve a weighted average cost of money of about five percent. So KMRC is not going to lose because we have huge concessional resources,” the KMRC chief said.

“We are just going to add a small margin to that and then we lend at 5.6 percent. We achieve profitability with that scenario.”