NSE: State's new platform to raise billions

A few years ago, when the Kenyan market was struggling to access dollars as inflation surged, hitting 9.6 per cent in October 2022, the interest rate regime was the preferred capital mop-up tool for the government that was drowning in debt.

The base lending rate shot to 13.0 per cent in February 2024. As some investors hoarded dollars, others moved their cash into government securities whose returns were as high as 18 per cent. 

President William Ruto then announced that Kenya would make payments towards the Sh260 billion ($2 billion) Eurobond by December 2023, ahead of the June 2024 maturity date, and the dynamics changed. 

The shilling, that exchanged at Sh160 to the dollar, strengthened against the greenback, and inflation likewise eased as rains resumed to cushion food inflation. 

Today, inflation stands at 4.4 per cent, and the Central Bank Rate (CBR) has eased to 8.75 per cent - pointing to a market that is quite stable. 

To match this stability, the government has changed tact with the capital markets seemingly being the new (capital) mop-up tool.

In the recent past, a lot of emphasis has shifted to the capital markets. This has been informed by a global boon that has seen market capitalisation hit over Sh3 trillion.

This is from Sh1.2 trillion in 2022. The Sh3 trillion is the highest ever in the 70-year history of the Nairobi Securities Exchange (NSE).

It is an impressive performance for a stock market that has not seen a major listing in almost 20 years. Safaricom was the last major listing in 2008, with NSE self-listing later in 2014.

Kenya Pipeline Company (KPC), a State-owned business, will be listed in March this year. 

Cognisant of this renewed interest in the stock markets, the government is embracing innovations and reforms to the capital markets to capitalise on this boom.

Safaricom and the East African Breweries are some of the listed entities that have taken advantage of this boon through bonds. 

"If there was a time to risk capital on the NSE, this is the time," said NSE Chief Executive Frank Mwiti during a session with business leaders under the ambit of the Kenya Private Sector Alliance (Kepsa).

He listed stable inflation figures and a well-balanced investor profile between retailers, institutional, foreign and local, as some of the reasons NSE is now thriving. 

"Globally, we have entered a new phase. Inflation has eased, interest rates are stabilising, and capital is no longer in panic mode but allocation (mode)," he said. "And when capital reallocates, it does not chase headlines but systems." 

Mwiti said capital looks for markets that can absorb scale, with depth, predicability, incredible exits, well-priced risks and real liquidity. 

"That is why emerging markets like ours with functioning capital markets are back into focus," he said. "If there was ever a time to risk capital on the NSE, this is it."

He further revealed that the NSE, in partnership with Kepsa, would be reviving the conversation around the floor cap on allocation of pension assets to different investment instruments to expand the market. 

"Working with Kepsa, hopefully in 2026, we can have these ideas, curate them and push them so that there are policy and regulatory directives," he said. 

This boon has also attracted private players in the capital markets space. Last week, Safaricom unveiled Ziidi Trader, a platform where retail investors can get their feet into the murky waters of capital markets without the onboarding bottlenecks such as opening a CDS account and broker engagement. 

From the comfort of their phones, they can buy and sell shares through M-Pesa. 

"This is a good innovation," said KenGen Managing Director Peter Njenga. "Even us as KenGen, we are looking at innovations that can help improve value for shareholders and perhaps have people access the shares much easier."

For businesses in the capital raising space, such as Lofty-Corban Investments Ltd, the boon has paved the way for a new instrument - a private debt special fund. Chief Executive Stanley Mutuku noted that there is a credit gap of Sh2.4 trillion in the market. 

The fund is structured as a unique collective investment scheme that will primarily focus on investing in commercial paper as hand-picked growth-oriented financing opportunities for Saccos, NGOs, churches, endowments, trusts, and foundations.

“The Lofty Corban Private Debt Special Fund will pool investor capital to finance carefully selected credit opportunities, supported by rigorous credit assessment, portfolio diversification, and ongoing risk monitoring,” explained Mutuku.

He added that private debt funds have become a core financing channel for mid-sized companies, infrastructure projects, and real estate developments, with annual growth in assets under management exceeding 20 per cent.   

“While returns depend on market conditions and credit performance, private debt special funds have demonstrated in other jurisdictions that they can deliver competitive risk-adjusted returns over the medium to long term,” he noted.

While unveiling the Ziidi Trader platform, President Ruto revealed that more reforms are needed in the capital markets. Already today, one can trade a single share in the market, unlike before when 100 was the base. 

He said some of the proposed reforms are being overseen by the National Treasury Cabinet Secretary John Mbadi. 

The purpose is to encourage businesses to utilise capital markets for their financial needs and to avoid crowding out other borrowers in the mainstream credit market. 

He pointed out that last year alone, total market capitalisation expanded by about 48 per cent, rising from Sh1.968 trillion to Sh3 trillion.

"This impressive performance reflects improving macroeconomic fundamentals, including lower interest rates, a more stable currency environment, stronger growth prospects, and better coordination between fiscal and monetary policy," he said.

"More importantly, it signals renewed investor confidence in the long-term direction of Kenya’s economy."