1. 1

2. PRESENTATION OUTLINE
 Capacity of the Market
 Scope of Funding Options
 Considerations
2

3. CAPITAL MARKETS ROLE IN THE ECONOMY
 Provide long-term capital through mobilization of savings
 Facilitates broader ownership of productive assets and
inclusivity
 Diffuses stresses on the banking system by matching long-term
investments with long term capital
 Promotes public-private partnerships: effective risk allocation
 Releases Government resources to support non-commercial
activities and socio-economic development
 Provides investment opportunities and supports domestic
savings to encourage capital formation over consumerism
 Improves efficiency of capital allocation through competitive
price discovery and valuation of entities
3

4. FINANCING ECONOMIC TRANSFORMATION
4
Government Banks Private sector
(Capital markets )
Economic
Transformation
Level of
Development

5. FUND RAISING CAPACITY OF THE MARKET
 Over the last 8 years, the capital market has
raised over Kshs 2.4 trillion through bonds
and equities domestically
 Over Kshs 800 billion has been raised in
the last 3 years notwithstanding the global
financial crisis
 The value of listed securities currently at
Kshs 2 trillion which is more than 50% of
Kenya’s GDP
The NSE index returns for 2013 amount to
49%
5

6. 6
Fund Raising Capacity Of Kenya’s Capital Markets – Kshs
Billion
*up to April 2014: Excluding Rights Issues and Additional Offers
2014* 2013 2012 2011 2010 2009 2008 2007 2006 TOTAL
Bonds 143.3 453.7 194.5 228.6 373.5 316.9 98.9 146.9 130.3 2,086.3
Equity
(IPOs) 0 0 0 3.6 0 0 271.4 10.5 35.6 321.1
Total 143.3 453.7 194.5 232.2 373.5 316.9 370.3 157.4 165.9 2,407.4

7. Collective Investment Structures
Diversification: access a broader range of securities
Liquidity: continuous opportunities for redemption
Professional Management: qualified full time
professionals
Risk appetite alignment: regular income plan,
growth plan, equity funds, debt funds and balanced
funds..
Tax Benefits: The CIS income is tax exempt, and this
can be extended to unit holders in form of better
returns.
Spreading the risk: don’t put all your eggs in one
basket, even with small investment can invest in a
variety of securities 7

8. Collective Investment Structures
Ensure diversification risk as well as ownership of
core infrastructure and cascading of ownership
CIS Units allow for substantial reduction of the
investment thresholds for participation
Retail and community participation through CIS
component of funding / ownership structures
Translates to national connection to key projects
requiring community support (oil exploration,
pipelines, dams. Ports)
Unit allocation may be based on future revenue
entitlements of affected communities to ensure
ownership even before production achieved
Transparent, subject to Effective Oversight and
where listed Liquid 8

9. CIS for Compensation Structures
Options to use Units in CIS that is investing in
pipeline, port etc for purposes of land compensation
Conversion ratio to take into account future value of
project as against speculative projections on current
land price
Reduce the absolute compensation rates
May be complemented with small cash payment to
individual upfront but majority can be translated into
value in the project
 Ensures ownership and support and manages upfront costs
9

10. Real Estate Investment Trusts
Designed with particular focus on existing needs and
environment by lowering investment threshold for
domestic participation
Two structures
Development REITS: Funding for construction of
real estate
Income REITS: pooling income generating properties
and unlocking value through sale to a REIT
Used for full spectrum of real estate funding globally
Allows existing real estate investors to recycle capital &
invest in new productive assets
10

11. REIT Investments
• Offices, Hotels
• Residences, Apartments, Serviced Accommodation
• Industrial – Factories, Warehouse, Logistics, Cold Storage
• Shopping malls - markets
• Hospitals – Clinics, Age Care Units – Disabled care
• Schools, Universities, Student accommodation
• Storage Units – Car Parks
• Ports, Airports
• Specialist property –Food/Horticulture Processing - Science Labs
• Theme Parks – Leisure – Stadiums – Convention Centres
• Mines, Communication Towers, Toll Roads, Water Treatment,
Power Stations
• Plantations, timber, vineyards
• REITS of REITS - Securities & Synthetic Property – Long & Short
Funds 11

12. 12
Promoter
REIT security
Holders - units
REIT Manager
May be investor
in REIT must be if
transfers land

13. Debt Financing
Where performance is already well established
(balance sheet based) or future prospects are more
assured:
•Corporate Bonds (balance sheet based)
•Convertible Bonds (B/S plus participation in future
corporate performance)
•Infrastructure bonds/ project bonds (ring-fenced revenue)
•Asset backed securities/ Securitization (wholly segregated
revenue based / off balance sheet financing)

14. Convertible Bond
Convertibility to equity at option of Bondholders at
future date
Conversion ration fixed at time of bond issuance
Given future prospect of participation in profits
beyond fixed return bond rates substantially
reduced
Investors have opportunity for short to medium term
fixed principal and interest payments and equity
upside once investment begins performing by
converting outstanding balance
Convertibility provides “sweetener” to reduce
demands on additional collateral or guarantees
14

15. Infrastructure / Project Bonds
Debt serviced by revenues from specified
infrastructure / project
Assets are ring-fenced through applicable contracts
but still form part of borrowers balance sheet
Lower structuring costs due to absence of asset
transfers and payment of intermediaries involved in
full securitization
Margin Paid potentially higher than for
securitization as not as high a level of certainty on
proper use and management of ring-fenced revenues
Risk of breaches of contract or recourse to assets in
case of insolvency of borrower dependent on terms
15

16. Securitization
Outright transfer of underlying assets off borrowers
(originators) balance sheet to SPV
No recourse by originator to the transferred assets
(quality of valuations and future flow projections is
key)
Securitization may be of existing performing assets
or entitlements to receipt of future revenues
In the case of loans/ mortgage/ leasing assets allows
originator to realize the value of future receivables
immediately freeing space on balance sheets and
provides capital to commit to new business
Involvement of additional intermediaries creates
greater certainty for investors
16

17. 17
Arranger
(of securitization transaction)
Securitization Vehicle
Assets
Pool of
collateral
assets
Originator(s) (of
assets)
Investor(s)
(in securities)
Assets
Cash
Cash
Securities
Other participants (as needed):
+ Credit rating agencies
+ Quality control firms
+ Servicer
+ Trustee
+ Lawyers
+ Collateral Providers / Guarantors
+ Asset Managers
+ Custodian

18. International Demand
2014 Eurobond provides strong indicators for Kenyan
debt:
Up to USD $6.8 Billion offered
KSH equivalent: 585 billion
Demand evident despite current macro and political
environment
Sovereign rates were globally competitive with
potential to come down further
Project based borrowing has potential to attract
infrastructure focused funds as distinct from sovereign
funds
18

19. Incentivize Domestic Retail Savings
Uganda Kenya Tanzania Rwanda Total
GDP 21.2 40.7 28.5 7.1 97.5
Domestic Market Cap (US$ Billion)
1.2 22.0 3.8 0.9 27.9
Domestic Market Cap as a % of GDP
(Equity) 6% 54% 13% 12% 29%
Market Cap as a % of GDP (Bonds) 0.3% 1.8% 0.3% - 0.9%
Domestic Listed Companies
8 60 12 2 82
Average Market Cap (US$ Million) 151 367 317 440 340
Equity Turnover (USD billion)
0.10 1.84 0.16 0.08 2.18
Liquidity (%)
1.2% 8.3% 1.5% 3.3% 5.1%
Corporate Bonds (US$ Million) 58 750 94 - 902
Domestic Savings as % of GDP 14.7 9.6 19.2 10.8 13.6
2012 figures – for illustrative purposes only. IMF Statistics

20. Comparison with similar sized market cap countries
outside EAC
Kenya Bangladesh
Viet
Nam
Sri
Lanka Morocco
GDP 40.7 123 155 59.4 96
Domestic Market Cap (US$ Billion) 22.0 52 38 17 53
Domestic Market Cap as a % of
GDP 54% 42% 24% 29% 55%
Domestic Listed Companies 60 453 704 287 77
Average Market Cap (US$ Million) 367 115 54 59 685
Equity Turnover 1.84 21 15.8 1.7 5.8
Liquidity (%) 8.3% 40% 41% 10% 11%
Domestic Savings as % of GDP
9.6% 29% 33% 24% 26%
2012 figures – for illustrative purposes only. IMF statistics

21. 21
QUESTIONS