National Treasury was on Wednesday at pains to explain how rogue traders in the bond market are able to collude and engage in unethical practices, right under its nose.
Treasury chief Henry Rotich
In an elaborate scheme, dealers in the bond market collude in a sell-buyback plan, making huge capital gains, which are then shared between all players involved. To curb malpractices within the bond market, the Central Bank of Kenya (CBK) has insisted that all deals in the bond market must be captured in its systems, through form MT599.
“We have now sorted out the challenges that have been within the automated system at the CBK and the CMA,” said Henry Rotich, National Treasury Cabinet Secretary.
He made these remarks during a briefing on the upcoming high level conference on Kenya’s economic successes, prospects and challenges, set to take place in Nairobi between September 17 and 18, 2013.
The primary goal of the bond market is to provide a mechanism for long term funding of public and private expenditures.
While Treasury appeared to calm the market, questions are being raised on why the Government with tacit support from the International Monetary Fund (IMF), has been pushing for an Over the Counter (OTC) bond market.
“We are opposed to this segment because it cuts out stockbrokers and other intermediaries from the bond market, leaving on the big banks,” said John Kirimi, Managing Director, Sterling Investment Bank.
Big banks
Bond trading at the Nairobi Securities Exchange (NSE) is now automated with trading dominated by the big banks with stock brokerage firms acting as intermediaries.
But it is the sell-buyback concept that has brought out issues of collusion and malpractices within the bond trading business as unscrupulous dealers exploit loopholes within the system.
Integrity issues are coming up within the bond market even as Kenya prepares to hold its high-level conference- an event that will highlight the country’s achievements as it prepares to join the ranks of emerging economies.
Kenya will use the conference to market its $ 2 billion sovereign bond, expected to hit the international capital markets before close of this year.
“We are in the process of securing a legal team and transaction advisors and then do all the remaining documentation. We will then come to the market when conditions are right,” said Rotich.
Kenya hopes to raise between $1.5 billion and $ 2 billion from the international capital markets through the sovereign bond.
Kenya will use he international conference to tell the international community that it is ready for a take off.
The IMF is set to complete a review of Kenya’s Extended Credit Facility in October this year, with commitments to Kenya standing at $ 2.5 billion at the moment.
The Sovereign bond is being drafted at a time when the country’s top leadership is due for hearings at the ICC.
By Jackson Okoth, The Standard
