The downward trend in interest rates is bound to be a major reprieve for Centum as the quoted investment firm considers the possibility of issuing a Sh5 billion bond to finance major private equity acquisitions in East Africa.
Higher interest rates has seen the Government defer an ambitious $200 million (Sh17 billion) bond plan meant to upgrade the Nairobi Commuter Rail System. Barclays Bank also suspended plans to raise the final Sh2 billion of a medium-term note partly because of unfavourable market conditions.
Centum is looking for up to $100 million (Sh8.4 billion) to bolster its private equity portfolio as the firm moves to cut back its investments in listed firms. These firms have consistently choked its earnings and threatened its presence in the profit territory.
Apart from the proceeds of the bond issue, Centum is planning to use its burgeoning internal reserves, which have accumulated after the firm stopped paying dividends to shareholders four years ago, including revenues from the sale of its shares in listed firms to realign its investment basket.
James Mworia, the firm’s Managing Director said 55 per cent of the planned equity acquisitions would be executed in Uganda, Tanzania and Rwanda, while 45 per cent would be in Kenya.
“We will be adding Sh5 billion from the capital markets where we are listed through a bond issue. We have a very high debt capacity,” Mworia told Weekend Business.
Central Bank has maintained its key interest rate, Central Bank Rate at 18 per cent for six consecutive months in an effort to control huge borrowing costs and rising commodity prices.
Consequently overall month-on-month inflation has continued to decline dropping from 13.06 per cent in April to 12.22 per cent in May, while 91-Day Treasury Bill rates have fallen to around 11 per cent, from 15.1 per cent by end of October last year.
Commercial banks lending rates stand at 20.22 per cent, according to Central Bank statistics.
With high interest rate borrowing from the capital markets through bond issuance becomes very expensive. No corporate bond has been issued since interest rates started surging in the fourth quarter of last year.
The Government has also gone slow in issuing new long-term bonds, instead preferring to use short-term paper, such as the 91-day and one-year Treasury Bills.