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PRESENTATION OUTLINE

Capacity of the Market

Scope of Funding Options

Considerations

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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

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FINANCING ECONOMIC TRANSFORMATION

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Government Banks Private sector (Capital markets )

Economic

Transformation

Level of Development

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%

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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

Collective Investment StructuresDiversification: access a broader range of securitiesLiquidity: continuous opportunities for redemptionProfessional Management: qualified full time professionalsRisk 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

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Collective Investment StructuresEnsure diversification risk as well as ownership

of core infrastructure and cascading of ownership

CIS Units allow for substantial reduction of the investment thresholds for participationRetail and community participation through CIS

component of funding / ownership structuresTranslates 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

CIS for Compensation StructuresOptions to use Units in CIS that is investing in

pipeline, port etc for purposes of land compensationConversion ratio to take into account future

value of project as against speculative projections on current land price

Reduce the absolute compensation ratesMay 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

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Real Estate Investment TrustsDesigned with particular focus on existing needs

and environment by lowering investment threshold for domestic participation

Two structuresDevelopment REITS: Funding for

construction of real estateIncome 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

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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

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Promoter

REIT securityHolders - units

REIT Manager

May be investor in REIT must be if transfers land

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)

Convertible BondConvertibility to equity at option of

Bondholders at future dateConversion 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

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Infrastructure / Project BondsDebt serviced by revenues from specified

infrastructure / projectAssets are ring-fenced through applicable contracts

but still form part of borrowers balance sheetLower 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

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SecuritizationOutright transfer of underlying assets off

borrowers (originators) balance sheet to SPVNo 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

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Arranger(of securitization transaction)

Securitization VehicleAssetsPool of collateral assets

Originator(s) (of assets)

Investor(s)(in securities)

Assets

CashCash

Securities

Other participants (as needed):+ Credit rating agencies+ Quality control firms+ Servicer+ Trustee+ Lawyers+ Collateral Providers / Guarantors+ Asset Managers+ Custodian

International Demand2014 Eurobond provides strong indicators for

Kenyan debt:Up to USD $6.8 Billion offeredKSH 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

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Incentivize Domestic Retail SavingsUgand

a KenyaTanzani

aRwand

a TotalGDP 21.2 40.7 28.5 7.1 97.5Domestic Market Cap (US$ Billion) 1.2 22.0 3.8 0.9 27.9Domestic 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 82Average 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 - 902Domestic Savings as % of GDP 14.7 9.6 19.2 10.8 13.6

2012 figures – for illustrative purposes only. IMF Statistics

Comparison with similar sized market cap countries outside EAC

Kenya Banglade

shViet Nam

Sri Lanka Morocco

GDP 40.7 123 155 59.4 96Domestic Market Cap (US$ Billion) 22.0 52 38 17 53Domestic 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

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QUESTIONS