CMA Moves to Review Corporate Bond Guidelines to Increase Chances of Issuances

Since December 2013 when sugar manufacturer, Kakira Sugar Limited issued its UGX 76 Billion corporate bond, Uganda’s capital markets have not witnessed any new corporate debt issuance, despite the rising cost of bank debt, a factor that would be expected to drive businesses to consider alternative financing options. A corporate bond is a debt security issued by corporations to raise funds from the capital markets. Investors incorporate bonds typically lend money to the corporation with the expectation of being paid back the principle with interest. Todate, a total of only nine corporate bonds have been issued in Uganda, raising a combined UGX 289 Billion, with majority of the issuers being financial institutions in the banking sector.

The Capital Markets Authority (CMA) has engaged a consultant with support from Financial Sector Deepening Africa (FSDA) to review the Corporate Bond Guidelines,2003 , with the aim of making it easier and faster for more private companies as well as local governments to raise alternative non-bank financing for business growth and project development.

Speaking during the stakeholder consultative meeting held in Kampala on Thursday 21 February 2019, CMA’s CEO, Mr.Keith Kalygira said that the revision of the guidelines is meant ease issuance and ensure a more efficient capital raising process, without compromising investor protection.

”Our core mandate remains protection of investors; however, investors in corporate bonds are normally professionals and therefore deemed to have a higher degree of understanding of the structure and complexities of the instrument, making it easier for them to make investment decisions based on disclosures by the issuer, and not necessarily regulatory approval”, said Kalyagira.

Mr. Kalyegira added that this review is part of the implementation of the recommendation in Ugandas ten-year Capital Markets Development Master Plan 2016/17 – 2026/27, and appealed to the various market advisors to endeavour to internalise the proposed amendments (which will also be made available on the CMA website), share comments and feedback to enable the consultant improve the final outcome.

Besides improving the potential for issuance, the amendments seek to widen the scope of debt products that can be issued under these Guidelines including green bonds, municipal bonds and infrastructure bonds; to clarify obligations of the various issuers; and move from merit to disclosure based approval, among others.

The process of amending the Guidelines commenced in 2018, following the engagement of an international corporate bond expert to lead the review. The expert consultant was hired to review the existing guidelines and propose recommendations for improvement, bearing in mind the other existing laws within the capital markets space, including the CMA Act, the Companies Act and the Local Government Act, and their regulations.

Once all comments are received and incorporated, the final draft will be submitted to the Board of the CMA for review and approval.