Corporate bonds

Kenya to ban directors on corporate bonds

By JAMES ANYANZWA

Kenya has introduced new measures to penalize and ban business leaders who misuse corporate bond proceeds following a series of defaults that undermined investor confidence.

The new Capital Markets Authority (CMA) policy requires company directors to file quarterly reports with the authority on the use of borrowed funds to ensure that bond proceeds are used only for the purposes prescribed in the prospectus.

Individuals found guilty of embezzlement will be barred from holding a position with a listed entity.

“This time we are acting on individuals, not the company,” said the authority’s chief executive, Wycliffe Shamiah. East Africa in an interview last week.

“When we walk you through the application process, which is carried out by an independent committee, you will see that they have taken action prohibiting you from holding a position in a listed company, in an issuer or an approved entity” , he added.

The AMC says companies will not be allowed to use bond proceeds for any purpose other than those prescribed in the prospectus and if they wish to divert funds for other purposes, they must seek approval from the regulator.

Advertising

East Africa learned that under the authority’s new corporate debt oversight framework, company directors are also required to provide the regulator with bank statements showing the progress of bondholder funds.

“What we decided to do is track how the money is spent.

“So we’re getting feedback and confirming that if you said you wanted to use the money for working capital, that money should be channeled for that purpose,” Shamiah said.

Regulatory body scrutiny

Proceeds from bonds issued by large companies will be subject to scrutiny by the regulator, while small and medium-sized companies will need to seek approval from the authority to spend their bond funds.

Small businesses will be required to retain the services of professionals who will certify the amount required by a business and detail how the funds will be spent.

“Anyone who raises a bond must make returns to show where the money is and share their bank statements with us so that we can confirm with the bank. They will also do quarterly statements to show us the expenses,” Shamiah said.

“We won’t allow small businesses to withdraw the money unless we know the money is being used for good,” Shamiah said.

Other requirements are that companies with weak balance sheets that seek to issue bonds obtain bank guarantees to protect investors’ funds in the event of default, and that companies issuing asset-backed securities undergo a credit rating of credit so that their risk positions are properly taken into account.