NHC asks Treasury to guarantee bond issue
By James Anyanzwa
The National Housing Corporation (NHC) has petitioned the Government to reconsider its decision not to support the corporation’s proposed Sh5 billion bond issue.
The State-owned corporation instead wants Treasury to provide guarantee for the bond issue meant for the construction of cheaper houses to bridge a housing deficit. Treasury has previously snubbed attempts by the parastatal to have it guarantee the housing bond, saying the corporation’s financial standing was questionable, and could not be guaranteed by the Government.
Mr James Ruitha, the corporation’s Managing Director said failure by the Government to guarantee the bond would raise the price of the bond through credit enhancement and rating.
"We have already written to the Treasury and we are waiting for a response from their side. Our ministry is actually helping us in that particular area," Mr Ruitha told reporters at the corporation’s offices in Nairobi yesterday.
Cost of floatation
"In the event that there will be no Government guarantee, we have to mark up the cost of floatation by about four or five points, which will be significant amount when you look at volumes in terms of finance."
Kenya’s capital markets regulations require both private and public institutions seeking to raise funds through the market to get the issue guaranteed to protect investors against risks of default.
But the bond issuance process has been hanging in the balance for over five years, after the corporation’s bid to secure a guaranteeing institution faltered due to its weak balance sheet.
The NHC’s weak balance sheet has been of grave concern to the Government, acting as setback to its efforts of meeting the increasing housing requirements for urban dwellers.
Ruitha said the corporation has already procured a consortium of consultants to advise on the process. They include Kenya Commercial Bank (KCB), CFCStanbic and Suntra Investment Bank.
Ruitha is, however, positive the Government will guarantee the issue and make the bond more attractive to ensure full subscription.
"Without a guarantor, we have to go through all the processes of credit enhancement, which increases the cost of the bond," he said.
Market analysts, however, observe that the pricing of new bond issues would be more critical in determining their demand by the fund managers, insurance companies and commercial banks.
Contrary to private institutions, the listing of NHC’s bond not only requires approval from the Capital Markets Authority (CMA), but also from the Treasury.
While the Government had essentially approved the bond, issues to do with financial guarantees have always bogged down the bond’s listing process.
Apart from the bond issue, NHC plans to sustain its housing financing through partnerships with developers, while the corporation provides land and technical know-how in designing the houses.
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