By THEDISPATCH.DIGITAL CORRESPONDENT
Kenya’s moribund corporate bond market risked a fresh setback from authorities as planned for a withholding tax on green bonds had the Finance Bill 2024, which contained a package of other measures designed to cut the country’s budget deficit.
The wider Bill, which sparked nationwide protests, was reportedly rejected by President William Ruto yesterday. Had it passed, local investors would have become liable for a 5% tax on interest earned from infrastructure and green bonds, which could was not seen as helpful given the country’s history of company collapses.
“The proposed taxes will totally dampen that growth of corporate bonds,” Terrence Adembesa, chief executive officer of East African Bond Exchange, which received its operating license in February and has been hoping to lure new listings, told Bloomberg. “Issuance is still very low and is actually a concern for us.”
Adembesa added that while Kenya is the third-biggest economy in sub-Saharan Africa, the value of corporate debt issued is barely 0.2% of its gross domestic product. Kenya also lags African nations on the issuance of sustainability-linked securities, he added.
The market faces other headwinds too, including the high yields on government debt — one-year Treasury bills yield about 16% and three-year bonds pay 18%. But the struggle to grow the market has intensified since 2015, when the collapse of Chase Bank Kenya Ltd. and the now-liquidated Imperial Bank Ltd saddled bondholders with losses.
Since then, only five companies have sold debt, according to Nairobi Securities Exchange data, the last being a 2022 issue from Kenya Mortgage Refinance Co. There have been just two green bonds — one in 2019 from student accommodation developer Acorn Holdings Ltd., and one from Burn Manufacturing last year, to expand clean stove-making operations.
Churchill Ogutu, an economist at IC Asset Managers, reckons a revival of the corporate bond market hinges also on greater protection for investors. When Chase and Imperial folded, depositors in both banks were partially compensated, but bondholders lost all their money, he said, adding that Kenya needs a law clarifying how bondholders are treated, relative to other creditors.
‘If you don’t ascertain that fixed income debt is secure, then investors will be shy to participate,” Ogutu told Bloomberg.