Government extends M-Akiba bond offer

 

National Treasury Cabinet Secretary Henry Rotich (centre) and other officials during the launching of the Sh1 billion M-Akiba bond on June 30. It has not attracted the same interest as the debut bond in March. [File, Standard]

The National Treasury has extended the sale of the mobile phone-based M-Akiba bond by two months following lacklustre participation by investors, raising questions about the bond’s special treatment by regulators.

The issue saw the Government miss the targeted Sh1 billion by over 80 per cent as of Friday, when the bond sale was expected to close.

This was a far cry from the success of the first issue launched in March that made Kenya the first country to issue a mobile phone-based bond that allows participation by phone users without requiring them to have a bank account.

The latest issue, launched on June 30, targeted to raise Sh1 billion with a green shoe option of Sh3.8 billion as Treasury had hoped the issue would be over-subscribed.

A green shoe is a special provision in an initial public offering or bond prospectus that allows underwriters to sell investors more shares than originally planned by the issuer.

As of Saturday afternoon, the bond had raised only Sh140.8 million or about 14 per cent of the Sh1 billion that Treasury had targeted at Friday’s close of the offer period.

The extension of the sale period brings into focus the governance of issuing securities in the capital markets, particularly the hasty manner in which the new prospectus for the bond was approved. Ideally, investors should have been accorded time to study the amended prospectus.

The Capital Markets Authority (CMA) has previously penalised private sector players, albeit governed by a different set of rules as opposed to the Government issue, for altering prospectuses while the sale of their bond was still open.

The extension will also disadvantage investors who may have wanted to exit as soon as the bond starts trading in the secondary market, but will now have to wait until September.

In a statement issued on Saturday, Treasury said investors would have another seven weeks to buy into the new offer, which will now close on September 11 and start trading on September 12.

A total of 235,672 investors had registered to participate in the M-Akiba bond.

Pro rata basis

To appease investors who had already committed funds, Treasury offered them special interest over the two extra months that the sale of the bond will remain open.

“The National Treasury’s M-Akiba bond sale has been extended by seven weeks to September 11, 2017. To ensure that all investors who bought the bond to the date of July 21, 2017 are not disadvantaged by this extension, any interest accruing to them over the extension period will be paid on a pro rata basis,” said Treasury in the statement.

It noted that there had been a surge in demand since Thursday, which was taken to mean that Kenyans still had an interest in investing in the bond.

Other than altering the prospectus while the sale of the bond was still open, other actions that the authorities and investors might find fault with include the offer to pay interest to investors who had already put their money in the bond. Some of the new investors may also want the same benefits.

However, the special treatment of the M-Akiba bond issue contradicts previous ones.

Among the firms that were found to be at fault during the issuance of a corporate bond include Home Africa, which altered the interest rate for its bond in 2014 from 13.5 per cent to 17 per cent.