Rising Interest Rates Cause Shift from Equities to Bonds, Dampening IPO Market
By JAMES ANYANZWA
The Capital Markets Authority (CMA) revealed that rising interest rates have led to investors moving to high yielding government bonds, affecting potential companies looking to raise capital through IPOs. The environment for initial public offerings has been convoluted by lucrative bond yields, anti-finance bill protests by Kenyan youth, and favorable borrowing options from banks.
As a result, some firms in the financial, food processing, and mining sectors have postponed their plans to list on the Nairobi Securities Exchange (NSE) due to concerns about share pricing. The increased turnover in bonds compared to corporate bonds is further dimming the prospects of new IPOs. The flight to safety by equity investors seeking better returns in fixed income markets has contributed to this trend.
Challenges and Outlook
Despite challenges, the CMA is optimistic about future listings and market vibrancy. Transparency, economic conditions, and government policies play a crucial role in shaping the IPO landscape. Currently, the bond market, particularly government bonds, remains active while corporate bonds struggle to attract investors.
Efforts to revive IPO activities on the NSE, including promises from government officials, are yet to materialize fully. The future of IPOs in Kenya remains uncertain, with companies cautiously evaluating their funding options amidst shifting market dynamics.