New Kenya Bond Exchange Sees Opportunity in Budding Debt Market

  • Exchange to complete its capital raising in the first quarter
  • EABX will compete with existing Nairobi Securities Exchange

The new East African Bond Exchange, a would-be competitor for the Nairobi Securities Exchange, sees the prospect for exponential growth in Kenya’s bond market as it prepares to start operating in the first half of this year.

While Kenya has the third-biggest economy in sub-Saharan Africa, the value of corporate debt issued is barely 0.2% of its gross domestic product, compared with an average of 20% to 30% Of GDP in Asian nations, according to Terrence Adembesa, chief executive officer of EABX.

Meanwhile, he said the potential for trading the government’s domestic debt is three to four times the 5 trillion shillings ($31 billion) of outstanding liabilities, instead of just the 600 billion shillings traded in 2023.

“For an economy of our size, the debt market should be much deeper than it is and much more developed,” Adembesa said in an interview. “What you expect to see is enhanced liquidity, enhanced transparency and the provision of transparent pricing.”

Kenya sold $14.9 billion worth of bonds in 2023, compared with $14.6 billion a year earlier, according to Bloomberg calculations using official data. There were eight outstanding corporate bond issuers at the end of September, with a total outstanding amount of 28.4 billion shillings, according to data from the markets regulator.

EABX intends to enable issuers to better price their securities, while investors are expected “to have much more visibility around pricing,” Adembesa said. “You also expect to see a cost saving in terms of trading fees and issuing costs.”

Capital Raise

The exchange, which received its operating license earlier this month, also plans to complete its capital raising in the first quarter of this year. The company received bids totaling about 2.6 billion shillings, above its target of 2 billion shillings, Adembesa said.

About 52% of exchange is owned by the Kenya Bankers Association an UK-backed development agency FSD Africa, he said.

“From a system perspective, we are now doing the testing,” Adembesa said. “We are able to see some trades occurring.”

EABX traces its roots back to 2009, when the Bond Market Association, a lobby group for fund managers, stockbrokers, investment bankers and lenders, decided to establish a self-regulatory organization for the fixed-income market.

EABX will ultimately enable trading of fixed-income securities in almost all of the East African Community member nations. Apart from Kenya, these comprise Tanzania, Uganda, Rwanda, Burundi, Democratic Republic of Congo, South Sudan and Somalia.

— With assistance from Bella Genga

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