Kenya: Banks, Telcos Favourites to Raise Funds in Region

Credit rating agency Moody's has singled out banks and telecommunications companies as the likely beneficiaries of the nascent regional bonds market which promises access to a larger pool of capital for East African firms. The Kenyan, Ugandan, Rwandese and Tanzanian governments will, however, be expected to kickstart the cross-border sales by floating the first Treasury bond issues, Moody's said in an interview with the Business Daily.

"In the immediate term, we are anticipating companies involved in banking, telecommunications and especially infrastructure, who are already active in their respective domestic bond markets, to be the main beneficiaries of an expanded regional bond market in East Africa," said Weyinmi Omamuli, vice president and senior analyst with Moody's Investor Service. The five East African Community member countries have opened up their stock markets to investors wishing to trade across borders, but the sale of government and corporate bonds remains localised.
Offers such as the Safaricom IPO, Stanbic Bank Uganda sale, Bralirwa and most recently the Bank de Kigali have all been marketed across the region.
Patrick Mweheire, the Renaissance Capital Kenya chief executive singled out Equity Bank, KCB, Athi River Mining, East African Breweries and Nation Media Group as firms that are ripe for the regional bond market based on their regional operations.
Ms Omamuli said in the longer term, the firm expects firms involved in fast-growing consumer facing sectors such as hospitality, education and housing to also become active in the regional bond market.
"However, like any other cross-border issuances, corporate bodies may be looking to their own governments to take the lead," she said, adding that this would help set a benchmark for pricing debt in the region.
The East African Securities Regulatory Authority through the Kenyan Capital Markets Authority (CMA) has this week issued draft regulations that set the stage for companies and institutions willing to raise funds in Kenya, Tanzania Uganda and Rwanda through regional bonds.
Experts Wednesday said that as international financial markets tighten pushing up the cost of raising capital, companies planning to raise large amounts of money for big projects and expansion will have access to the large pool of investors in the region.
"Companies and institutions operating in East African countries with relatively small domestic markets will be able to take advantage of the availability of a larger pool of funds on the regional market," said Ms Omamuli.
A more liquid market also lowers yields that issuers will have to pay.
"The challenge has been that many companies have been required to get bank guarantees and banks take this as an opportunity to syndicate the financing," said Sam Omukoko, the managing director of Metropol East Africa.
Metropol East Africa has a strategic partnership with Global Credit Rating Company, a South Africa-based ratings agency that has a CMA licence to operate in Kenya.
Forgone productivity
"A company can attract capital at a discounted rate especially if they get favourable ratings," said Mr Omukoko.

Sub-Saharan countries which include those in the East African region have been struggling to plug an infrastructure deficit that causes transportation and energy challenges but which if resolved could spur faster economic growth.
Renaissance Capital in a research note on Sub-Saharan African countries last month said the region is under-supplied in terms of rail, road and water.
The investment bank said that lack of power, for instance, has a direct impact on economic productivity because of the need to install back-up generators and foregone productivity time during blackouts.