Kenya's Housing Finance to raise new capital by 2016

NAIROBI, July 17 Thu Jul 17, 2014 12:53pm EDT

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NAIROBI, July 17 (Reuters) - Kenyan mortgage firm Housing Finance will raise additional capital in the next two years after it delayed its plans to issue a corporate bond due to high interest rates on offer, its chief executive said on Thursday.

Housing Finance said this week it was forced to postpone its planned offering of a 20 billion shillings ($228.18 million) corporate bond after the yield on Kenya's benchmark 91-day Treasury bills rose to 11.438 percent at the end of June.

Interest rates went up on the back of increased borrowing by the government last month, dashing hopes that Kenya's debut Eurobond - which offers a yield of less than 7 percent - would lead to an overall fall in borrowing rates for Kenyan companies.

"The bond is not the only form (of capital-raising) and we are not constrained. We are comfortably funded," CEO Frank Ireri told journalists.

The company, which held a successful cash call in 2010, sought shareholder approval in April to increase its authorised share capital, a possible hint as to how it plans to raise money next. Ireri, however, said the firm would look at all options.

"We will definitely be raising capital in one way or the other," he said, adding this would follow an increase in capital requirements for lenders by the central bank, which will kick in at the start of next year.

In 2012, the central bank raised core capital requirements for banks to 10.5 percent of assets from 8 percent, and total capital to 14.5 percent from 12 percent, giving them two years to comply.

Ireri said Housing Finance was also counting on its drive to boost its retail banking operation to mobilise deposits that can be used to lend to customers.

The company is opening five new outlets and working on two new products. It started offering current accounts and savings accounts two years ago, diversifying from its focus on mortgage financing.

Ireri said non-interest income, which surged 241 percent in the first half to 506 million shillings, was likely to grow to account for a bigger share of profit, thanks to demand for insurance products and for new houses.

Housing Finance's non-interest income mainly comes from its property development subsidiary and its insurance agency. ($1 = 87.6500 Kenyan Shillings) (Reporting by Duncan Miriri; editing by Drazen Jorgic and Mark Trevelyan)

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