Kakira Sugar Works UGX 76bn Bond to Boost Capital Markets Top story

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In short
For the first time since 2006, a non-listed company is going to borrow from the public using an instrument known as the Medium Term Note (MTN) a type of corporate bond.

After Kakira Sugar Works acquired the approval to borrow money by issuing bond, analysts have indicated this could attract more companies use this as an alternative to raise capital. For the first time since 2006, a non-listed company is going to borrow from the public using an instrument known as the Medium Term Note (MTN) a type of corporate bond.
 
Sarah Arapta, the Head Investment Banking at Stanbic Bank Uganda said this was milestone for Uganda’s capital markets, which have always played fiddle to commercial bank lending.
 
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MTN is a debt instrument or corporate bond issued by companies for investors – including individuals – to provide the money as they are paid with interest over a period of 5-10years. Kakira Sugar is one of the largest sugar producers in Uganda is to raise Ushs76bn, starting December 2013, for expansion.
 
The sugar factory produced about 157,000 tons of sugar in 2012, according to the Uganda Sugarcane Technologists Association. In 2013, the company directors opted to increase production capacity to 7,500 tons per day at a cost of Ushs191bn. Of this amount, Shs114bn has been secured through a syndicated loan from Stanbic Bank, Standard Chartered Bank and East African Development Bank. The balance, Shs76bn, will be through the issuance of a MTN. 

Ugandan companies and entrepreneurs have often cried foul over the high interest rate environment in Uganda – at an average of 22percent – yet there are cheaper alternatives, like the capital markets.
 
Details of the pricing of Kakira’s bond are yet to be revealed but according to Arapta, the interest rate will be in range with the government’s rate it uses to borrow by issuing treasury bills and bonds. Government securities, mostly the 10year bond fetches is at a 14.5percent rate, meaning Kakira can borrow at least 3-5percentage points higher than that. A rate that is lower than that in commercial bank.
 
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Uganda’s capital markets have only benefited mostly from companies listing on the Uganda Securities Exchange (USE), where shares are bought and sold. There have been some corporate bonds, issued by Stanbic, Standard Chartered Bank and Housing Finance Bank. However, there has been no company outside, telecoms and banking that had ever issued a debt instrument as an alternative to raising capital. Arapta believes that development of capital markets can contribute to Uganda’s economic since companies can access affordable capital.
 
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Kakira Sugar Works will have disclose to investors its future plans on expansion and profitability. This disclosure is a must for any company looking to tap the capital markets for money. Small businesses especially family owned find fault in having to disclose company details. For Kakira, this issuance comes at a time of increased competition in the sector and several grey areas cited in the National Sugar Policy.