This refers to a stock or any other security that represents an ownership interest in a limited liability company. Equity ownership in can be obtained through an Initial Public Offer (IPO), a Rights Issue or through purchase through the Nairobi Securities Exchange.
As at 31st March 2018 had 64 companies listed and trading at the Nairobi Securities Exchange.
A bond is a debt instrument in which an investor loans money to an entity (typically corporate or government) for a defined period of time at a variable or fixed interest rate. Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities. Owners of bonds are creditors of the issuer. There are two main categories of bonds issued in the Kenyan Market namely: -
i. Treasury Bonds
These are debt instruments issued by the Government of Kenya to finance budgetary goals. Treasury bonds are medium to long-term debt instruments usually longer than one year issued by the government to raise funds in local currency. Treasury bonds may be defined by the purpose, interest rate structure, maturity structure, and even by issuer.
The most commonly issued bonds in Kenya are fixed coupon bonds. Additionally, Treasury bonds in Kenya are issued on a monthly basis.
Treasury bonds are available in both the primary market (through auctions) and the secondary market (through the Nairobi Securities Exchange). An investor needs at least Kshs. 50,000 to purchase bonds in Kenya.
ii. Corporate Bonds
These are long-term (at least one year and above) debt instruments issued by the private sector. Issuers of this instrument target high net worth investors who understand technical information about pricing, valuation, yields etc.
3.0 Loan Stocks & Preference Shares
i. Preference shares
These are shares of a company’s stock that rank higher in seniority, compared to ordinary shares, with dividends getting paid out first to shareholders holding them before common stock dividends are paid. In the event of bankruptcy, shareholders with preferred stock are have to be paid from the bankrupt company’s residual assets first, before ordinary shareholders are paid.
ii. Loan stocks
Loan stock are shares in a business that have been pledged as collateral for a loan. This type of collateral is most valuable for a lender when the shares are publicly traded on a securities exchange and are unrestricted, so that the shares can be easily sold for cash.
4.0 Collective Investment Schemes (CISs)
Collective investment schemes securities offered by a company under which, contributions made by the investors, are pooled and utilized with a view to paying a return in accordance with specific shared investment objectives that have been established for the scheme. Collective investmen funds thus group assets from individuals and organizations to develop a larger, diversified portfolio.
In return for putting money into these funds, the investor receives shares or units that represent their pro-rata share of the pool of fund assets. The unit price (also known as the net asset value (NAV)) is dependent on the market value of the instruments in which the pool of money is invested and therefore rises and falls. It is calculated daily.
As at 31st March 2018, there were 26 fund managers and 23 collective investment schemes licensed by the Capital Markets Authority.
5.0 Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts are pooled investments typically designed to enable the investors to benefit from investments in large-scale real estate enterprises. They invest in real estate through property or mortgages and often trade on a securities exchange like a stock. REITs provide investors with a liquid stake in real estate and mortgage properties.
In Kenya, the two main types of REITs are:
i. Income Real Estate Investment Trusts (I-REITs)
This is a REIT that primarily derives its revenue from property rentals. It owns and manages income generating real estate for the benefit of its investors. Distributions to investors are underpinned by commercial leases. This means that income returns are predictable and generally less volatile. I-REITs provide an instrument for investing in the real estate market offering both liquidity and a stable income stream.
Kenya has already covered some ground on this front, with the listing of the first Real Estate Investment Trust, the Stanlib Fahari Income REIT in October 2016. The REIT raised KES3.6 billion to be invested in real estate projects.
ii. Development Real Estate Investment Trust (D-REIT)
This is a real estate investment trust that is principally involved in the development and construction of property for sale or and for rental.
6.0 Asset Backed Securities
Asset-backed securities (ABSs) are securities created by bundling loans – such as residential mortgage loans, commercial loans or student loans using a Special Purpose Vehicle – and creating securities backed by receivables from those assets, which are then sold to investors. Often, a bundle of loans is divided into separate securities with different levels of risk and returns. For investors, asset-backed securities are an alternative to investing in corporate debt. They are mainly used to finance roads, power, energy, ports, railways and many other projects.