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1
PRESENTATION OUTLINE
 Capacity of the Market
 Scope of Funding Options
 Considerations
2
CAPITAL MARKETS ROLE IN THE ECONOMY
 Provide long-term capital through mobilization of savings
 Facilitates broader owne...
FINANCING ECONOMIC TRANSFORMATION
4
Government Banks Private sector
(Capital markets )
Economic
Transformation
Level of
De...
FUND RAISING CAPACITY OF THE MARKET
 Over the last 8 years, the capital market has
raised over Kshs 2.4 trillion through ...
6
Fund Raising Capacity Of Kenya’s Capital Markets – Kshs
Billion
*up to April 2014: Excluding Rights Issues and Additiona...
Collective Investment Structures
Diversification: access a broader range of securities
Liquidity: continuous opportunities...
Collective Investment Structures
Ensure diversification risk as well as ownership of
core infrastructure and cascading of...
CIS for Compensation Structures
Options to use Units in CIS that is investing in
pipeline, port etc for purposes of land ...
Real Estate Investment Trusts
Designed with particular focus on existing needs and
environment by lowering investment thr...
REIT Investments
• Offices, Hotels
• Residences, Apartments, Serviced Accommodation
• Industrial – Factories, Warehouse, L...
12
Promoter
REIT security
Holders - units
REIT Manager
May be investor
in REIT must be if
transfers land
Debt Financing
Where performance is already well established
(balance sheet based) or future prospects are more
assured:
•...
Convertible Bond
Convertibility to equity at option of Bondholders at
future date
Conversion ration fixed at time of bon...
Infrastructure / Project Bonds
Debt serviced by revenues from specified
infrastructure / project
Assets are ring-fenced ...
Securitization
Outright transfer of underlying assets off borrowers
(originators) balance sheet to SPV
No recourse by or...
17
Arranger
(of securitization transaction)
Securitization Vehicle
Assets
Pool of
collateral
assets
Originator(s) (of
asse...
International Demand
2014 Eurobond provides strong indicators for Kenyan
debt:
Up to USD $6.8 Billion offered
KSH equiv...
Incentivize Domestic Retail Savings
Uganda Kenya Tanzania Rwanda Total
GDP 21.2 40.7 28.5 7.1 97.5
Domestic Market Cap (US...
Comparison with similar sized market cap countries
outside EAC
Kenya Bangladesh
Viet
Nam
Sri
Lanka Morocco
GDP 40.7 123 15...
21
QUESTIONS
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Entrepreneurship Forum:Mr. Paul Muthaura, acting Chief Executive of the Capital Markets Authority

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Entrepreneurship Forum:Mr. Paul Muthaura, acting Chief Executive of the Capital Markets Authority

  1. 1. 1
  2. 2. PRESENTATION OUTLINE  Capacity of the Market  Scope of Funding Options  Considerations 2
  3. 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
  4. 4. FINANCING ECONOMIC TRANSFORMATION 4 Government Banks Private sector (Capital markets ) Economic Transformation Level of Development
  5. 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. 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. 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. 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. 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. 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. 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
  12. 12. 12 Promoter REIT security Holders - units REIT Manager May be investor in REIT must be if transfers land
  13. 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. 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. 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. 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
  17. 17. 17 Arranger (of securitization transaction) Securitization Vehicle Assets Pool of collateral assets Originator(s) (of assets) Investor(s) (in securities) Assets Cash Cash Securities Other participants (as needed): + Credit rating agencies + Quality control firms + Servicer + Trustee + Lawyers + Collateral Providers / Guarantors + Asset Managers + Custodian
  18. 18. International Demand 2014 Eurobond provides strong indicators for Kenyan debt: Up to USD $6.8 Billion offered KSH equivalent: 585 billion Demand evident despite current macro and political environment Sovereign rates were globally competitive with potential to come down further Project based borrowing has potential to attract infrastructure focused funds as distinct from sovereign funds 18
  19. 19. Incentivize Domestic Retail Savings Uganda Kenya Tanzania Rwanda Total GDP 21.2 40.7 28.5 7.1 97.5 Domestic Market Cap (US$ 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. 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
  21. 21. 21 QUESTIONS

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