Kenya’s First Green Bond Underperforms in Dry Corporate Market

(Bloomberg) -- Acorn Project (Two) LLP, a closely held property developer and manager, raised 85% of its note-program target in a debut Kenyan green-bond offering, amid record global issuance of sustainable debt securities.

Acorn received 4.26 billion shillings ($41 million) at a fixed rate of 12.25%, for the $50 million program. The senior secured notes are the first corporate offering since East African Breweries Ltd., the nation’s second-biggest company by market value, raised money in 2017.

Proceeds from Acorn’s five-year notes will be spent on the construction of “climate-resilient” student accommodation in the Kenyan capital, Nairobi, Acorn said in an emailed statement on Thursday. The notes are certified under the Climate Bonds Standard, which ensures the money genuinely contributes to reducing carbon emissions, it said. With a B1 rating by Moody’s Investors Service, Acorn’s bond is rated higher than Kenya’s sovereign, and is backed by a 50% guarantee from GuarantCo Ltd., a Mauritius-based private infrastructure development company.

“The market sentiment for corporate bonds has been very bearish so the fact that we have been able, in the first round, to raise 4.3 billion shillings has exceeded our expectations,” Acorn’s chief executive officer, Edward Kirathe, said by phone. The target was a minimum 2 billion shillings, he said.

Record Issuance

Acorn’s offer follows the highest global issuance of sustainable bonds with $267 billion raised in the first nine months of 2019, exceeding last year’s total of nearly $260 billion.

Stanbic Bank Kenya Ltd. was lead arranger.

The reception was “generally good” for a debut green bond and the subscription rate indicates there’s a future for the investment class, according to Barack Obatsa, chief investment officer at ICEA Lion Asset Management.

“The coupon offered was favorable in comparison to a number of corporate bonds issued in the past,” he said in an emailed response to questions. “Additionally, the bond was structured to offer bond holders collateral, unlike previous bonds issued in the market, reducing the risk of loss of capital.”

In the East African nation’s most recent corporate issuance, Diageo Plc’s Kenyan unit paid 14.17% yield for a five-year bond that was oversubscribed by 41% two years ago. Government bonds with similar tenure have an average yield of 10.87%, according to data compiled by Bloomberg.

“The fact that green bonds are being issued in Kenya and attracting some local support from investors shows just how far these instruments have spread geographically,” said Angus McCrone, chief editor of BloombergNEF.

Acorn Holdings Ltd., in which Helios Investment Partners LLP has a stake, owns 99% of Acorn Project (Two). The company already has student residences in Nairobi with capacity for about 1,600 people. Kenya’s 31 universities can house only 25% of the nation’s students, forcing thousands others to seek alternative shelter, Acorn said, citing official data.

Kenya requires some 2.4 trillion shillings of green investments if the nation is to transition into a sustainable economy, according to Nuru Mugambi, a Kenya Bankers Association director. Lenders are reluctant to issue green bonds because an existing interest-rate cap favors government securities over corporate bonds, she said by phone.

“If a bank was to come into the market to pick up any bond, it would need to compete with the government that’s picking up debt at 10%, 12%,” said Mugambi, who is also a sustainability lead at the Green Bond Programme.

To contact the reporters on this story: Bella Genga in Nairobi at bgenga2@bloomberg.net;Eric Ombok in Nairobi at eombok@bloomberg.net

To contact the editors responsible for this story: David Malingha at dmalingha@bloomberg.net, Helen Nyambura, Jacqueline Mackenzie

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