An East African lending drive is prompting Real People Investment Holdings to sell its first bond in Kenya as the South African company seeks to counter slowing growth at home.
The lender might raise as much as 2 billion Kenyan shillings (R244 million) in two- to four-year securities, chief executive Neil Grobbelaar said last week. Real People sold rand debt due in March 2015 pegged to interbank rates in March with a 7.81 percent coupon. That compares with 12.75 percent on debt due in September 2018 for Nairobi-based housing finance company Shelter Afrique.
Real People, which provides loans for homes and small businesses, is expanding in Kenya, Uganda and Tanzania as South Africa risks falling into a recession amid rising unemployment and interest rates. The company had invested R300m in Kenya and wanted to avoid currency fluctuations by raising local funding for the Nairobi division, Grobbelaar said.
“The management of Real People’s debt and its liquidity profile is quite sophisticated,” said Gareth Bern, a money manager at Prudential Investment Managers. “The business is well-capitalised.”
East Africa’s growth prospects are attracting companies such as Real People even as incidents of terrorism increase. Almost 250 people have died in attacks across Kenya since September last year, when al-Qaeda-linked militants raided the Westgate Mall in Nairobi.
The violence had not raised risks for bond issuers, with the fallout limited to tourism, said Peter Njuguna, the head of fixed income and money markets at Kenya Commercial Bank. British-American Investments, Kenya’s biggest fund manager, cancelled a planned second bond after raising all the money it sought in a sale last week.
Tourism, Kenya’s biggest source of foreign exchange after tea, has suffered, with arrivals slumping 18 percent to 1.4 million last year, partly because of terrorism.
“We haven’t experienced an impact on our business” because of the attacks, Grobbelaar said.
Real People has sold 30 rand-denominated bonds and Swedish and Norwegian securities since 2011, data compiled by Bloomberg shows. Moody’s Investors Service downgraded the company’s long-term local rating one step to Ba1.za on June 11, with a negative outlook, as it slid to a loss in the fiscal year through March because of charges linked to discontinued businesses and increasing impairments. Higher sales in east Africa would be offset by new business costs, Moody’s said.
“Our Kenyan business is operating in a high growth region with consumers who are under-indebted and coming off a low base,” Grobbelaar said. “It’s a good opportunity.”
East Africa’s economic growth will probably accelerate to 6.3 percent this year from 5.6 percent last year, according to International Monetary Fund (IMF) estimates. South Africa’s economy may expand 2.3 percent this year from 1.9 percent last year, the IMF forecasts.
Real People’s Kenyan business accounts for about 20 percent of profit. Grobbelaar said it did not have immediate plans to raise debt in Uganda and Tanzania, where the company focused on lending to small business.
The rand has weakened 1 percent against the dollar this year, compared with a 1.7 percent decline in the shilling. The rand was bid at R10.6411 to the dollar at 5pm yesterday, 1.93c stronger than at 5pm on Friday.
“We think there is appetite for a bond,” Grobbelaar said. “We’re in the process of appointing arrangers.” – Bloomberg