Business Desk 
KMRC will now extend long term loans to primary mortgage lenders to increase the availability of affordable housing finance in Kenya..[Photo/Courtesy]
Kenya Mortgage Refinance Company(KMRC) has issued Fixed Rate Senior Unsecured Medium Term Notes(MTN). The Issuer seeks to raise a maximum of KSh 10.5 billion under this Programme. The first tranche is sized at KSh 1.4 Billion. The minimum subscription level shall be set out in the relevant Pricing Supplement.
The MTN tenure is 7 years and this is aligned to KMRC weighted average mortgage book. The notes will have a coupon rate of 12.5% and the offer opens on February 4th 2022 and closes on 18th February 2022. Results will be announced on 22nd February 2022, settlement on 4th March 2022, issue date is 8th March 2022 while CDS crediting will be undertaken on 11th March 2022 and listing at the Nairobi Securities Exchange done on 14th March 2022.
The interest payments will be paid semi-annually, in arrears from September and March of each year up to and including the Maturity Date.
KMRC to use the bond proceeds for onward lending
KMRC will use proceeds from the bond issue for on lending by extending long term loans to Primary Mortgage Lenders in order to increase availability of affordable housing finance in Kenya including arid and semi-arid areas of northern Kenya, secured against eligible collateral.The bonds proceeds will be utilized alongside other concessionary funding at KMRC’s disposal.
Each medium term note will be priced off the relevant Kenya treasury bond yield curve plus a margin. The yield to maturity of the Kenya government treasury bond will match the duration left in the Tranche at the point of issue.
The Notes will be issued as Dematerialized Notes in denominations of KSh 100,000 and multiples of KSh 100,000 subject to a minimum subscription amount of KSh 100,000
The expenses of the offer and the listing which will be for the account of KMRC include Professional fees and related costs, Lead Arrangers / Financial Advisor Fees at KSh 48,750,000; Registrar and Fiscal Agent Fees KSh 754,000; Reporting Accountant & Auditor’s Fees at KSh 1,352,560; Note Trustee Fees KSh 580,000; Marketing Expenses KSh 2,200,000; CMA KSh 10,500,000 and NSE fees is pegged at KSh 1,312,500.
The CMA approval fees indicated assumes the issue and Listing of the entire Programme. The fee payable would be paid in tranches at the rate of 0.1% of the total amount listed for each Tranche of the Notes listed on the NSE.
The NSE fee indicated assumes the issue and Listing of the entire Programme. The fee payable would be paid in tranches at the rate of 0.0125% of the total amount listed for each Tranche of the Notes listed on the NSE.
The transaction advisors are NCBA as lead arranger and placing agent, Lion’s Head Global partners as financial advisors; Mazars as reporting accountants; Mboya Wangong’u & Waiyaki as legal advisors; KCB the receiving bank ;C&R Group as paying, registrar and fiscal agent; Ropat Trust Company as Note Trustee; Mediaedge Public Relations and GCR Ratings Agency.
The Central Bank of Kenya (CBK) has given a letter of no objection for the establishment of the Programme by KMRC.
Application has been made to the CMA for approval of this Information Memorandum and listing of the Securities on the Fixed Income Securities Market Segment (FISMS) at the NSE and the CMA has granted approval.
KMRC will only provide funds to its shareholding institutions. For financial institutions to access funds from KMRC, they will be required to buy into KMRC’s shareholding while
adhering to certain minimum requirements, which are both qualitative and quantitative in nature.
According to the 2015/16 Kenya Integrated Household Budget Survey (KIHBS), only 26.1% of Kenyans living in the urban areas own the houses they live in with the main factor being the high costs of the housing units in the market.
Investing in KMRC will therefore result in many social benefits associated with increased housing production and home ownership, including job creation, improving the asset base and providing formal sector homeowners a legal stake in their community.
According to the World Bank there is an estimated shortfall of 2 million units, and with an additional 500,000 new city dwellers every year, this is aggravating an already untenable situation where, 61 percent of urban households live in informal settlements.
Many Kenyans are living in slum dwellings, because of limited supply and lack of affordable housing. With such a massive supply gap, the private sector is expected to play a critical role in meeting the shortage.
Available figures indicate that of the 42 banking institutions (41 commercial banks and 1 mortgage finance company) in the Kenyan banking sector, only 35 offer mortgage loans. 89.1% of the commercial banks’ mortgage market was held by 10 institutions comprising of 7 banks from the large peer group (73.0%), 2 medium sized banks (14.5%) and 1 small sized bank (1.6%).
As at December 2020, the largest mortgage lender in Kenya was Kenya Commercial Bank Kenya Limited (KCB), which had a market share of 29.7%, followed by Stanbic Bank Kenya Limited with a market share of 13.1% and HFC Ltd with a market share of 11.2%.
Overall, the 3 largest lenders control 54% of the market and only 19 banks (8 large, 6 medium and 5 small banks) have a mortgage portfolio exceeding KSh 1 billion.
As of 31st December 2020, KMRC reported a profit after tax of KES 77.2 million and an increase in Interest income of 75.9% which is currently the main revenue stream for KMRC.
KMRC’s Revenue Reserves increased by 29.2% from KSh 264.5 million in December 2019 to KSh 341.7 million in December 2020.
The Issuer received financing from The Government of Kenya in 2020 to be utilized as a line credit for providing the mortgage refinancing to eligible financial institutions.
The Government charges interest on the principal amount of the facility at a simple interest rate of 4.5% per annum.
