Hostel developer now retires Sh800 million of Sh5.7 billion bond

Acorn Holdings, which develops hostels for university students in Kenya has announced early retirement of Sh800 million which is part of its Sh5.7 billion green bond, that debuted on the Nairobi Securities Exchange (NSE) in October 2019.

“The redemption will be effected before October 31 2022 ,” Acorn said in a statement posted on the NSE portal. The firm sold these bonds and hoped to attract the average person to serve as one of many investors in a real estate investment or development project.

Experts however told Business Hub yesterday that the primary circumstances under which a bond issuer redeems a callable bond is a drop in the interest rates.

“When the rates fall, it makes no sense for the bond issuer to continue paying higher than average rates to investors when a provision in the bond allow for redemption before its maturity,” said Albert Onyango, a Finance lecturer at USIU-Africa.

“Interest rates have gone up so I don’t see the motivation.”

Analysts also reckoned that it was possible Acorn had excess liquidity, which it could use to invest in its projects, a decision which could have prompted the retirement of Sh800 million.

“If you have excess cash, why should you keep paying interest? You would rather activate the recall clause rather than pay interest on the Sh800 million,” said an analyst who declined to be named because of sensitivity of his work.

The developer said the redemption will be done before the end of October 2022 and the Notes will the be delisted from the bourse’s Fixed Income Securities Market Segment.

The property developer gave the Note holders an option to exercise early redemption of a portion of the outstanding Notes issued under the programme with redemption amounts equal to the nominal value of the notes, together with accrued, but unpaid interest from the preceding interest payment date.

Proceeds from the Acorn bond have been rated B1Global by Moody’s Investor Service. They are deployed towards construction of environmentally purpose-built student accommodation (PBSA) properties in Nairobi.

Acorn develops student’s hostels and markets them under the Qwetu and Qejani brands. The premium Qwetu brand charges between Sh15000 and Sh16500 per room, while Qejani rooms are rented at between Sh7500 and Sh12500.

The buildings are benchmarked against the International Finance Corporation’s (IFC) Edge Green building standards for water, energy and materials use, with the aim of achieving low operation costs and low carbon impact in the long term.

The first tranche of the Green bond was issued in October 2019, raising Sh4.3 billion against a target of Sh5 billion. It was re-opened and upsized to Sh5.7 billion, raising a further Sh2.1 billion against a target of Sh1.4 billion.

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