MOBILIZING CAPITAL FOR IMPLEMENTATION OF CAPITAL INVESTMENT PLANS

2019 Annual National Planners Convention –November 6, 2019 Diani Reef Beach Resort

and Spa, Kwale

Mr. David Kanyi

Team Leader, Market Deepening

Capital Markets Authority

November 6, 2019

O u tl i n e

Who is CMA

Roles and objectives of CMA

CMA Master Plan and the Big 4 Agenda

Financing opportunities in capital markets

Project finance examples

Who Are We?

Who We Are

Independent public agency set up in 1989

through an Act of Parliament Cap 485A Laws

of Kenya

Vision

"To be an innovative regulator of a robust

and globally competitive capital market"

Mission

"To make Kenya's capital market the premier

choice for investors and issuers through robust

regulation, supporting innovation and enhanced Investor

protection"

Financial Sector Contribution in Spurring Growth

Development Financial Institution

The National

Treasury

Central Bank

Of Kenya

Retirement

Benefits

Authority

Capital

Market

Authority

Insurance

Regulatory

Authority

SACCO Societies

Regulatory

Authority

• Commercial Banks

• Deposit taking MFIs

• Mortgage Finance co

• Forex Bureaus

• Credit Reference Bureaus

• Representative

Offices

• Building Societies

• Securities Exchanges

• Spot Commodities Exchanges

• Central Depositories

• Investment Banks

• Dealers

• Securities Dealers

• Venture Capital cos

• Stockbrokers

• Fund Managers

• Custodians• Credit Rating Agencies

• REITs

• RBS

• Pension Scheme

• NSSF

• Administrators

• FMs

• Custodians

• Deposit Taking SACCOs

• Insurance Companies

• Insurance Agents

• Insurance Brokers

• Assessors & Adjustors

• Health Management Companies

Role of the Capital Markets in Kenya

KENYA VISION 2030: Upper-Middle Income Economy

Link between savers

and investors

Encouragement to investment Promotion of

Economic Growth

Encouragement

to saving

Stability and

transparency

in security

prices Hedging

Capital MarketsMaster Plan

An MTP III Flagship

Centers of Excellence Pillars Building Blocks Focus Areas

Commodities Derivatives.

-Agriculture

-Energy

-Mineral/Metals

Financial Services.

-Asset Management.

-Islamic Finance

-Financial Dérivatives

Construction &

Real Estate DevelopmentTechnology services &

Financial inclusion

Infrastructure finance

(Physical)

01Support development and economic

transformation

02The Infrastructure of the

markets.

03The Legal and regulatory

environment

01

Domestic market accessibility and prosperity.

02

Gateway for regional and international capital flows.

03

Providing access to international financial markets.

Stimulate devolved domestic prosperity.

Address devolution funding needs.

Enhance consumer education and literacy.

Leverage East Africa as an integrated market.

Capital market financing for Kenya's core strengths.

Alignment with NIFC.

Advocate for an attractive business environment.

Establish and develop international linkages.

Enhance securities markets.

Develop commodities and derivatives market.

Enhance depository and settlement infrastructure.

Develop clearing house infrastructure.

Develop and retain professional talent.

Strengthen and streamline financial regulation.

Restructure legal framework for regulation.

Build capacity of capital market regulators.

Strengthen and enforce corporate governance standards.

Adhere to international reporting and disclosure standards.

Open access to market infrastructure.

Liberalise fee structure.

Involve the competition and consumer protection Authorities.

01

Deeper, more liquid domestic markets.

02

International-standard market infrastructure.

03

Institutional and capacity building initiatives.

01Sound, responsive regulation

and legal framework that inspire confidence.

02Improved corporate governance

and financial reporting .03

Innovative , open and competitive environment.

BIG 4AGENDA

STRATEGY

• Spot Commodities & Derivatives Exchanges

• Warehousing Receipt Systems

• Social Impact Investing

• Private Equity capital

raising• Green Bonds

• Blue Bonds

• Private Equity (Agri-Funds)

• Central Clearing

Counterparty (CCP)

• Housing Bonds

• Asset Backed Securities

• Real Estate Investment

Trust.

• Mortgage Refinance Bonds.

• County Bonds.

• Social Impact Investing.

• Asset Backed Securities

• FinTech..

• Real Estate Investment

Trust.

• County Bonds.

• Initial Public Offers /Offers for Sale

• Project Bonds..

• Private Equity.

• FinTech.

• Green Bonds, Sukuk.

Food Security

Housing

Healthcare

Manufacturing

2018-2020

2019-20232019-2021

2018-2023

OUTCOME

-Sufficient supply of quality & affordable food and water.

-Stable food prices

-Empowered farmers / producers.

-Guaranteed payments.

-Low Cost Housing.

-Higher quality of life.

-Home –equity ownership.

-Clean Energy.

-Clean Water.

-Clean Air.

-Better health

-Savings, Trade and Investments.

-Growth and Industrial growth.

-Employment.

-GDP Growth

Opportunity Presented Through Capital Markets To Counties

County Governments Funding Needs

Potential Funders

Over Kshs2.5 trillion investible funds

(Capital Market)

County Governments Funding needs

Kshs 1.4 Trillion(First Generation CIDPs)

Potential Funders Potential Funders

Pension Schemes 1,300

Insurance Companies 584

SACCOs 442

CIS 70

Diaspora 280

Private Equity 270

Hedge Funds/NBFI N/A

Money Markets (bank loans) may finance early feasibility studies , construction costs

4,528

1,643

4,111

168

1,045

23

11,518

0 4,000 8,000 12,000

Foundations for NationalTransformation

Economic Pillar

Social Pillar

Political Pillar

Thematic Areas

Implementation Framework

TOTAL COST

TOTAL INDICATIVE COSTS OF MTP III PROJECTS (KSHS BILLION) 2018-2022

Funding options: Direct borrowing/concessionalloans, equity/debt financing, PPPs

Source: Medium Term Debt Mgt Strategy - 2018/19 - 2020/21, Budget Policy Framework 2019/2020 and MTPIII

KENYA’S MARKET BASED FINANCING/INVESTMENT OPPORTUNITIES 2018-2022

SUMMARY

AMOUNT IN KSHS

BNS

Cost of MTP III 11,518.00

Cost of Development Projects by Counties

1,413.00

Total (National +County)

12,931.00

Estimated GovernmentRevenue Receipts 2018/19 -2021/22

9,120.4

Funding/Investment Opportunity

3,811.57

Capital MarketsMaster Plan

An MTP III Flagship

A market-based financial structure primarily Channels savings directly to investors through

markets.

Green - Regulation launched but no issuance Black- Product launched and In useRed - In the pipeline

EQUITY

MARKETDEBT MARKET

Commodities &

Derivative Market

• Ordinary Shares

• Collective Investment Schemes

• (REITS, Unit Trusts)

• Islamic Products

• Exchange Traded Funds

• Treasury Bonds

• Corporative Bonds

• Asset Backed Securities

• CIS(Fixed Income Funds)

• Preference Shares

• Infrastructure Bonds

• Commercial Papers

• Sukuk

• County Bonds

• Swaps

• Option

• Futures

• Online Forex Trading

• Swaptions

• Spot Commodities

Exchange• Spot Commodities

Exchange

Opportunities For Urban Infrastructure Financing

Product Regulatory Framework

Revenue Bonds: These are a special type of bond that is repaid solely from the revenue of a specific project

Green Bonds: These are bonds, often with tax-exemption, issued by county governments or other institution to fund projects that have a positive environmental and/or

climate impact.

Securitization (or asset backed securities):

Transformation of existing liquid income stream

(i.e. loans, leases, other receivables) into

marketable securities. In practice, such liquid

income streams are sold to a special purpose

vehicle which issues the asset backed security.

Policy Guidance Note on ABS.

The Capital Markets Act.

Key Provisions.

• Green Bonds guidelines by NSE.

• PGN for Green Bonds.

The Capital Markets Act.

Public Offers(Securities)(Public

Offers,Listings & Disclosers) Regulations.

Real Estate Investment Trusts: These are entities

that issue securities based on the real estate

portfolio that they own or will develop. As such

they can be used to assist with the development

of residential and commercial properties in

counties.

I-REIT: Package income generating real estate.

D-REIT: Proceeds used for Development and

Construction.

Product Regulatory Framework

The Capital Markets (Real Estate

Investment Trusts) (Collective

Investment Schemes) Regulations.

Securitization (or asset backed securities):Products that do not contravene Shari’ah principles and requirements.

-Islamic bonds/Sukuk.

-Islamic Unit Trusts.

-Islamic ETFs.

-Islamic REITs.

• The Capital Markets Act.

• Regulations currently

underdevelopment.

Forms of County Financing/Savings

Capital Markets Solutions to County Financing

Product Regulatory Framework

Corporate Bonds: TMDAs can issues bonds because

interest rates which they will pay investors are lower

than rates of Borrowing because holders can sell /

Liquidate the bonds to someone else before they are

due. E.g Kengen

Blue Bonds: to finance marine and ocean-based projects that have positive environmental, and climate benefit

To be considered.

Public Offers (Securities) ( Public Offers, Listings

and Disclosures) Regulations.

Social Impact Bonds: Allow for the raising of sustainable

investments that have a focus on supporting socially

impactful initiatives even where they may not present

significant commercial profitability.

Green Bonds Policy Guidance Notes

and NSE Green Bond listing Rules.

Examples of projects thatcould use Capital Markets

Kenya Roads Board (KRB): Plans to raise at least US$400 million in local

currency to help reduce roads maintenance funding gap through a Medium Term Note

Program.

Kenya Wildlife Services (KWS): Initially planned to raise up to US$70

million in local currency to fund conservation related initiatives including housing for

rangers within the national parks- development impact bond (DIB).

National Housing Corporation (NHC): Plans to raise about US$100 million, in local currency, to support housing development and increase the Kenya’s housing stock.

Kenya Pooled Water Fund: Provide Water Utilities access to capital

market long tenor local currency finance through securitization of receivables.

Solid Waste Management Infrastructure for Counties: Solid waste separation at source;

solid waste treatment plant; collection network infrastructure improvement;

collection capacity improvement; transfer stations development; intermediate

treatment; final disposal.

Manufacture of Renewable Energy and Green Products: Expansion of green energy generation from

geothermal, solar, wind, biomass, small hydro plants, biogas, and solid waste.

Ketraco: Approximately 5,000km of power transmission lines and 65 high voltage substations to be constructed (2017 – 2022)..

Examples of projects thatcould use Capital Markets II

Kenya Ports Authority (KPA): To raise funds to finance acquisition of marine

technologies.

Kenya Pipeline Company (KPC): Commercialization of oil and gas discoveries;

Construction of Lokichar-Lamu Crude Oil Pipeline

Kenya Airports Authority (KAA): Construction of the second runway.

Higher Education Loans Board (HELB): To expand the loan book.

Infrastructure debt funds: Closed-end collective investment schemes, that must

invest at least 2/3rd of their proceeds into assets or securities of productive

projects.

Kenya Power: Electricity distribution network expansion and improvement.

Development of Isiolo, Turkana and Lamu Resort Cities.

Mortgage Refinancing Company: To raise capital to acquire housing mortgages to facilitate

access to affordable housing.

Establishment of World Trade Centre and International Exhibition and Convention

Centre

Development of KonzaTechnopolis.

CITIES FINANCING

“Enhancing Private Sector participation in City Public Infrastructure”

FIVE KENYA CITIES

Kenya cities

NakuruMombasa

Kisumu

Uasin Gishu

Nairobi

Thematic areas to address

The urban city challenges that have to be addressed.

Water supply 34%

Sanitation services 18%

Storm Water Drainage 4%

Solid Waste Management 6%

Urban Mass Transport ?

Informal Settlements 60%

Housing 5M deficit

01

02

03

04

05

06

07

City infrastructure funding gap

Kshs. 186Billion

Urban Development and Housing

Kshs. 100 Billion

THANKYOU