In late 2020, KN Law LLP acted for Centum Real Estate (Centum RE) as advisor in its issue and listing of a first-of-its-kind corporate bond. We counselled Centum RE on the structuring of medium-term zero-coupon notes, which have several unique features. The notes’ structure allows investors to participate in the upside in the event that Centum RE achieves its target return from projects financed by the bond. Additionally, investors have the option to convert their bond holdings to residential units in Centum RE’s portfolio. The Bond was subsequently listed on the Restricted Fixed Income Market Segment.
Right to Buy
Each noteholder gets a Right to Buy proportional to their investment in the bond. The Right to Buy gives its holder the right to purchase housing units from Centum RE at discounted prices. This right is detachable and transferable from one person to another.
Conversion and Put Options
Noteholders can exercise their Right to Buy by converting their holdings of notes into housing units in the Centum RE portfolio. In case of default in payment, investors can require Centum RE to convert their investments into housing units.
Greenshoe Option
The issue targeted raising KES 4 billion from the market, but with an option to offer additional notes of up to KES 2 billion depending on market appetite. This greenshoe option allows Centum RE to increase its offering to match demand.
Secured Issue
The bond was secured through a sinking fund, which is an account through which the Issuer sets aside funds for the sole purpose of settling debt. The notes were also secured by a debenture, a floating charge over receivables, a lien by way of deposit of title documents, and a fixed charge over proceeds held in the sinking fund.
Variable Return
Noteholders who invested in the Zero-Coupon Equity Linked Notes have the opportunity of earning an additional return of 2% if at least two of the projects financed by the notes achieved a 20% internal rate of return. The Variable Return is also detachable and transferable from one person to another.
Listing on the Nairobi Securities Exchange (NSE)
The notes are listed on the Restricted Fixed Income Market Segment of the NSE. This is a direct advantage to investors because they can undertake secondary trading should they wish to. In this way, the notes are liquid in the sense that investors can trade their holding of notes on the NSE.
The Centum RE bond marks a turning point in tradeable securities in Kenya. And now with the rollout of Day Trading at the NSE underway, the future of the debt market looks ever so bright. If you would like assistance with your debt issue or are looking for legal advice on debt markets and corporate commercial law, get in touch with our Partner Doreen Onwong’a or contact us on info@kn.co.ke.
