Kenya’s third largest cement firm Athi River Mining’s five-year equity-linked bond for KES1.2bn (Euro1208m) was oversubscribed by more than half, the transaction team said, marking the successful sale of the country’s first equity-linked bond. The company had opted for a greenshoe option of a further KES400m (Euro4.02m) in the event of excess demand.
Investors for the issue, which was sold through a private placement, offered KES1.9bn.
"The return was very good. In the current trend of dropping interest rates the rate which was offered was very attractive," said James Macharia, managing director on NIC Bank, whose investment arm handled the bond.
An equity-linked note offers investors higher returns in the event the firm’s shares perform well. Athi River’s note offered a 12 per cent coupon with a rise in the share price of the company envisaged to raise the yield to a total of 16 per cent.
Macharia also attributed the success of the issue to a favourable outlook for the cement industry on the back of a boom in construction in the region. The market was also awash with liquidity, he said.
"There is too much money chasing very few projects," he said, adding other firms would be encouraged by the results of the Athi River bond to raise funds through innovative instruments like the equity-linked note, which is the first of its kind in Kenya.
Funds raised will be used to complete a US$100m cement plant in Tanga, Tanzania, due for completion in early 2011.
Surendra Bhatia, Athi River’s deputy managing director, said the firm would raise its total production capacity in Kenya and Tanzania to 2.2Mta once all expansion projects in the region are completed.
"Cement demand in east Africa has grown by, on average, double digits, which is very positive, during this year. I would expect the trend to maintain itself," he said.
Athi River has other business divisions producing fertiliser, chemicals and industrial minerals.
Cement, whose consumption is sometimes used as a measure of economic activity in Africa where there is scarce economic data, accounts for more than half of its business.