The Kenyan Capital Markets Authority (CMA) has ushered in a new era for capital raising in East Africa with the introduction of regional bonds.
These innovative financial instruments allow Kenyan companies to cast a wider net, attracting investors from across the East African Community (EAC).
This move promises to be a game-changer, not only for Kenyan businesses seeking funding but also for the overall financial integration of the region.
Prior to this development, Kenyan companies issuing bonds were restricted to the domestic investor pool.
The CMA's new regulation, outlined in a special gazette notice, breaks down these barriers.
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"An issuer may raise funds in any jurisdiction in the region without restriction on the jurisdiction where proceeds are to be used subject to disclosure of that fact in the information memorandum and subject to obtaining the necessary exemptions on exchange controls if required," CMA stated in the gazette notice.
Companies can now issue bonds in any EAC member state, offering them immense flexibility.
They are not restricted on how they utilize the raised funds, as long as proper disclosure is made in the offering documents. This empowers businesses to strategically allocate capital based on regional opportunities.
The minimum size for a regional bond offering is set at the local currency equivalent of $850,000, allowing even smaller companies to participate. Issuers also have the freedom to choose the currency or currencies used in the offering, catering to diverse investor preferences.
Furthermore, the CMA allows for additional fundraising rounds within the region after the initial offering, providing companies with the option to expand their capital base over time.
This regional approach aligns perfectly with the EAC's vision of a more vibrant and integrated financial market.
The bloc aspires to create a seamless flow of capital within the region, attracting investors from both inside and outside the EAC. Companies that don't meet the traditional listing requirements are not left out.
"In all events, where a green shoe option is available, it shall be made to all countries where the offer has been made available," the authority said.
The CMA allows for issuing securities to qualified institutional investors, with trading taking place on regulated over-the-counter markets.
To ensure investor confidence, companies seeking to issue regional bonds must meet certain criteria.
They need to have a minimum paid-up share capital and net assets, both equivalent to the local currency value of $850,000 and $1.7 million respectively. Sovereign borrowers and similar entities are exempt from these capital requirements.
Additionally, companies must choose a primary jurisdiction to file their prospectus and simultaneously submit it to the regulators of other targeted EAC markets for approval. Maintaining a valid credit rating throughout the bond's existence is also mandatory.
However, for companies with limited track records or those relying on project-specific revenue streams, credit ratings may be based on project projections or anticipated cash flow.
The introduction of regional bonds marks a significant step towards a more robust and integrated financial ecosystem in East Africa.
By providing Kenyan businesses with access to a wider investor pool, these bonds have the potential to unlock significant growth opportunities and fuel regional economic development.
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