Enhancing Investor Confidence in Kenya's Corporate Debt Market

Enhancing Investor Confidence in Kenya's Corporate Debt Market

To enhance investor confidence in the Kenyan corporate debt market, financial institutions seeking to raise capital must meet stricter requirements. This includes undergoing mandatory credit ratings and providing financial guarantees from credible institutions like banks or insurers. These measures aim to prevent defaults and corporate failures that have plagued the market in recent years.

The Capital Markets Authority (CMA) has implemented these regulations through a special issue of the Kenya gazette. The provisions are intended to safeguard bondholders from potential losses. Companies intending to issue bonds must have a minimum of five years in operation, demonstrate profitability, and maintain acceptable debt-to-equity ratios.

For issuers who fail to meet these requirements, a credit enhancement option is available. This involves obtaining a guarantee from a bank, insurance company, or an entity with sufficient financial capacity. The guarantee document must be approved by the CMA. Additionally, the minimum bond issue size has been set at Sh400 million, with a minimum subscription of Sh10,000.

Investors are advised to exercise due diligence before investing in bonds. Credit ratings should be considered cautiously as they do not guarantee performance or the security of the investment. Issuers and their directors must uphold high ethical standards and avoid any legal or financial irregularities within the past two years.