UAP pays maturing Sh2bn corporate bond today

Insurance firm UAP Holdings will today pay back investors of its maturing Sh2 billion five year corporate bond.

The firm had earlier stated in its annual report for 2018 that it was planning to take up new loans to raise funds to settle the bond principal and a Sh3.1 billion loan from South Africa-based lender Nedbank.

The insurer issued the bond in July 2014 at an annual fixed interest rate of 13 percent to finance its expansion and working capital requirements.

The medium term note stopped trading at the Nairobi Securities Exchange (NSE) #ticker:NSE last Wednesday in preparation for the repayment and eventual delisting from the exchange.

“The amount will be disbursed to the noteholders registered in the register as at Wednesday, July 17 when the notes stopped trading,” said UAP in a notice on Friday.

The rate cap on customer loans (currently at a maximum of 13 percent) means that firms refinancing bonds find it cheaper to take up bank loans rather than issue new bonds.

Given the heightened risk attached to corporate bonds after the Chase and Imperial Bank collapses a few years ago, firms fear that investors would demand a heavy premium before committing their funds to a corporate paper.

Taking a local loan roll over the bond would also work out to lower financing costs, since the interest is charged on a reducing balance.

Companies looking to borrow are also finding capital from private equity and venture capital firms that have been attracted to the region by attractive returns, especially in the financial, ICT and health sectors.

The result is that there has been a dearth of corporate bond issues in recent years at the NSE.

Since 2015, only EABL has come to the market to issue a corporate bond—the April 2017, Sh6 billion, second tranche of its Sh11 billion medium term paper programme.