3. CAPITAL MARKETS ROLE IN THE ECONOMY
Provide long-term capital through mobilization of savings
Facilitates broader ownership of productive assets and
inclusivity
Diffuses stresses on the banking system by matching long-term
investments with long term capital
Promotes public-private partnerships: effective risk allocation
Releases Government resources to support non-commercial
activities and socio-economic development
Provides investment opportunities and supports domestic
savings to encourage capital formation over consumerism
Improves efficiency of capital allocation through competitive
price discovery and valuation of entities
3
5. FUND RAISING CAPACITY OF THE MARKET
Over the last 8 years, the capital market has
raised over Kshs 2.4 trillion through bonds
and equities domestically
Over Kshs 800 billion has been raised in
the last 3 years notwithstanding the global
financial crisis
The value of listed securities currently at
Kshs 2 trillion which is more than 50% of
Kenya’s GDP
The NSE index returns for 2013 amount to
49%
5
6. 6
Fund Raising Capacity Of Kenya’s Capital Markets – Kshs
Billion
*up to April 2014: Excluding Rights Issues and Additional Offers
2014* 2013 2012 2011 2010 2009 2008 2007 2006 TOTAL
Bonds 143.3 453.7 194.5 228.6 373.5 316.9 98.9 146.9 130.3 2,086.3
Equity
(IPOs) 0 0 0 3.6 0 0 271.4 10.5 35.6 321.1
Total 143.3 453.7 194.5 232.2 373.5 316.9 370.3 157.4 165.9 2,407.4
7. Collective Investment Structures
Diversification: access a broader range of securities
Liquidity: continuous opportunities for redemption
Professional Management: qualified full time
professionals
Risk appetite alignment: regular income plan,
growth plan, equity funds, debt funds and balanced
funds..
Tax Benefits: The CIS income is tax exempt, and this
can be extended to unit holders in form of better
returns.
Spreading the risk: don’t put all your eggs in one
basket, even with small investment can invest in a
variety of securities 7
8. Collective Investment Structures
Ensure diversification risk as well as ownership of
core infrastructure and cascading of ownership
CIS Units allow for substantial reduction of the
investment thresholds for participation
Retail and community participation through CIS
component of funding / ownership structures
Translates to national connection to key projects
requiring community support (oil exploration,
pipelines, dams. Ports)
Unit allocation may be based on future revenue
entitlements of affected communities to ensure
ownership even before production achieved
Transparent, subject to Effective Oversight and
where listed Liquid 8
9. CIS for Compensation Structures
Options to use Units in CIS that is investing in
pipeline, port etc for purposes of land compensation
Conversion ratio to take into account future value of
project as against speculative projections on current
land price
Reduce the absolute compensation rates
May be complemented with small cash payment to
individual upfront but majority can be translated into
value in the project
Ensures ownership and support and manages upfront costs
9
10. Real Estate Investment Trusts
Designed with particular focus on existing needs and
environment by lowering investment threshold for
domestic participation
Two structures
Development REITS: Funding for construction of
real estate
Income REITS: pooling income generating properties
and unlocking value through sale to a REIT
Used for full spectrum of real estate funding globally
Allows existing real estate investors to recycle capital &
invest in new productive assets
10
11. REIT Investments
• Offices, Hotels
• Residences, Apartments, Serviced Accommodation
• Industrial – Factories, Warehouse, Logistics, Cold Storage
• Shopping malls - markets
• Hospitals – Clinics, Age Care Units – Disabled care
• Schools, Universities, Student accommodation
• Storage Units – Car Parks
• Ports, Airports
• Specialist property –Food/Horticulture Processing - Science Labs
• Theme Parks – Leisure – Stadiums – Convention Centres
• Mines, Communication Towers, Toll Roads, Water Treatment,
Power Stations
• Plantations, timber, vineyards
• REITS of REITS - Securities & Synthetic Property – Long & Short
Funds 11
13. Debt Financing
Where performance is already well established
(balance sheet based) or future prospects are more
assured:
•Corporate Bonds (balance sheet based)
•Convertible Bonds (B/S plus participation in future
corporate performance)
•Infrastructure bonds/ project bonds (ring-fenced revenue)
•Asset backed securities/ Securitization (wholly segregated
revenue based / off balance sheet financing)
14. Convertible Bond
Convertibility to equity at option of Bondholders at
future date
Conversion ration fixed at time of bond issuance
Given future prospect of participation in profits
beyond fixed return bond rates substantially
reduced
Investors have opportunity for short to medium term
fixed principal and interest payments and equity
upside once investment begins performing by
converting outstanding balance
Convertibility provides “sweetener” to reduce
demands on additional collateral or guarantees
14
15. Infrastructure / Project Bonds
Debt serviced by revenues from specified
infrastructure / project
Assets are ring-fenced through applicable contracts
but still form part of borrowers balance sheet
Lower structuring costs due to absence of asset
transfers and payment of intermediaries involved in
full securitization
Margin Paid potentially higher than for
securitization as not as high a level of certainty on
proper use and management of ring-fenced revenues
Risk of breaches of contract or recourse to assets in
case of insolvency of borrower dependent on terms
15
16. Securitization
Outright transfer of underlying assets off borrowers
(originators) balance sheet to SPV
No recourse by originator to the transferred assets
(quality of valuations and future flow projections is
key)
Securitization may be of existing performing assets
or entitlements to receipt of future revenues
In the case of loans/ mortgage/ leasing assets allows
originator to realize the value of future receivables
immediately freeing space on balance sheets and
provides capital to commit to new business
Involvement of additional intermediaries creates
greater certainty for investors
16
18. International Demand
2014 Eurobond provides strong indicators for Kenyan
debt:
Up to USD $6.8 Billion offered
KSH equivalent: 585 billion
Demand evident despite current macro and political
environment
Sovereign rates were globally competitive with
potential to come down further
Project based borrowing has potential to attract
infrastructure focused funds as distinct from sovereign
funds
18
19. Incentivize Domestic Retail Savings
Uganda Kenya Tanzania Rwanda Total
GDP 21.2 40.7 28.5 7.1 97.5
Domestic Market Cap (US$ Billion)
1.2 22.0 3.8 0.9 27.9
Domestic Market Cap as a % of GDP
(Equity) 6% 54% 13% 12% 29%
Market Cap as a % of GDP (Bonds) 0.3% 1.8% 0.3% - 0.9%
Domestic Listed Companies
8 60 12 2 82
Average Market Cap (US$ Million) 151 367 317 440 340
Equity Turnover (USD billion)
0.10 1.84 0.16 0.08 2.18
Liquidity (%)
1.2% 8.3% 1.5% 3.3% 5.1%
Corporate Bonds (US$ Million) 58 750 94 - 902
Domestic Savings as % of GDP 14.7 9.6 19.2 10.8 13.6
2012 figures – for illustrative purposes only. IMF Statistics
20. Comparison with similar sized market cap countries
outside EAC
Kenya Bangladesh
Viet
Nam
Sri
Lanka Morocco
GDP 40.7 123 155 59.4 96
Domestic Market Cap (US$ Billion) 22.0 52 38 17 53
Domestic Market Cap as a % of
GDP 54% 42% 24% 29% 55%
Domestic Listed Companies 60 453 704 287 77
Average Market Cap (US$ Million) 367 115 54 59 685
Equity Turnover 1.84 21 15.8 1.7 5.8
Liquidity (%) 8.3% 40% 41% 10% 11%
Domestic Savings as % of GDP
9.6% 29% 33% 24% 26%
2012 figures – for illustrative purposes only. IMF statistics