Kenya was considering a proposal to allow foreign currency denominated financial instruments such as bonds in order to expand capital markets, financial market regulator said on Thursday.
Paul Muthaura, CEO of the Capital Markets Authority (CMA), told journalists in Nairobi that the move was aimed at increasing the liquidity of the capital market by attracting more foreign and domestic investors.
"We have recommended to the National Treasury to issue a policy pronouncement that emphasizes that securities issuance and trading in Kenya may be in currencies other than the Kenya shilling with equivalent amendments being made to the National Payment Systems Act," Muthaura said during the policy roundtable forum.
He said that the attractiveness of a bond is influenced by the currency of issue.
"Investors are attracted to currencies that are very liquid, freely traded and less volatile relative to the major currencies, that is the U.S. dollar and euros. Borrowing with these major currencies makes it easier to place a bond with international investors," Muthaura said.
According to the financial market regulator, there are numerous benefits of issuing foreign currency bonds to issuers including the fact that foreign currency denominated debt serves as a hedging instrument for both issuing firms and investors.
Muthaura said that foreign currency bonds also enhances financing of domestic investment which otherwise may not be possible if there is a low level of domestic demand for bonds or if domestic saving is low.
He observed that foreign currency bonds will boost capital flows and also reinforce Kenya's position as an International financial center.
The CMA chief added that globally, capital markets play a critical role in driving long-term resource mobilization, raising savings and investment levels and overall financial sector stability for economic growth and development.
He added that the National Treasury had identified well developed and properly functioning financial markets as a priority because they will play an important role in helping Kenya achieve its target of transforming itself into a newly industrialized, middle-income country, both by generating wealth and safeguarding it.
The capital markets regulator said that the revival of the privatization program could stimulate the capital markets through new listings of state owned enterprises which could also have a multiplier effect on listing of private sector entities.
