Acorn Holdings, a prominent real estate developer in Kenya, has announced plans to delist its KSh5.7 billion green bond from the Nairobi Securities Exchange (NSE). Listed under the Fixed Income Securities Market Segment, the company issued the bond in 2019 as the first green housing bond on the African continent. Now, in an early redemption move, Acorn will repay the outstanding balance ahead of schedule, marking a significant moment in Kenya’s capital markets and the region’s green financing landscape.

Acorn’s Early Redemption Move

The KSh5.7 billion bond was initially issued in November 2019, set to mature on November 8, 2024. However, Acorn has opted for early repayment, with the remaining KSh2.7 billion to be redeemed by October 4, 2024. According to a notice released by the company, the notes will be redeemed at their nominal value, along with accrued interest up to the early redemption date.

“The notes will be redeemed at an amount equal to the nominal value of the notes, together with accrued but unpaid interest from the preceding Interest Payment Date up to and including the Early Redemption Date,” Acorn said in the notice.

This early redemption follows Acorn’s successful completion of various financing deals, which have strengthened its capital position and allowed the company to pursue further real estate development projects, particularly in student housing.

The Bond and Acorn’s Impact on Green Financing

Acorn’s green bond, which was used to fund the development of sustainable student housing under its Acorn Student Accommodation (ASA) Development Real Estate Investment Trust (D-REIT), represented a pioneering effort in sustainable real estate in Africa. The bond paid an annual interest of 12.5% to investors, making it an attractive investment for institutions focused on environmental, social, and governance (ESG) criteria.

The ASA D-REIT was designed to finance the construction of student accommodation from land acquisition through to completion. Once the properties achieved stable occupancy, they were sold to the ASA I-REIT, a separate investment vehicle, at market rates. This model enabled D-REIT investors to realize capital gains from their investments, providing both steady returns and environmental benefits.

Acorn’s green bond was one of the early examples of sustainable finance instruments in Africa, aligning with global trends aimed at combating climate change through responsible investments. The issuance of green bonds in Africa has been relatively slow, but Acorn’s bold move demonstrated the potential for such instruments to play a vital role in addressing the continent’s pressing infrastructure needs.

Recent Funding Deals Bolster Acorn’s Expansion

Acorn has been securing significant funding to support its projects and ensure its continued growth in the student housing sector. In February 2023, Acorn raised KSh6.7 billion in debt from Absa Bank to finance ten of its major projects. These projects include key developments like Qwetu and Qejani KU, Qejani Hurlingham, and Qejani Juja, all of which focus on affordable student accommodation.

In May 2024, the company also secured an additional $180 million from the U.S. International Development Finance Corporation (DFC). This funding is part of a larger, 18-year transaction totaling $700 million, arranged in collaboration with Stanbic Bank Kenya. The funding package aims to support Acorn’s long-term growth, particularly in providing modern student housing solutions.

“The transaction will also crowd-in over $315 million equivalent KSh financing from Kenyan capital markets, including domestic pension funds and asset managers, for a total blended financing of $700 million over the 18-year life of the transaction,” Acorn stated in its half-year report.

This influx of capital has positioned Acorn to not only accelerate its development projects but also reduce its reliance on the corporate bond market. With interest rates remaining high, Acorn has indicated that it does not plan to issue another corporate bond in the near future.

Delisting from the NSE and Implications for Investors

As Acorn moves to redeem its bond early, it will be delisted from the NSE’s Fixed Income Securities Market Segment. This delisting is part of the early redemption process, as stated in the company’s notice: “In connection with the early redemption, the Notes will be delisted from the Fixed Income Securities Market Segment of the Nairobi Securities Exchange.”

For investors, this means that they will be repaid their principal along with any accrued interest. While the bond has provided stable returns over the past few years, the early redemption and subsequent delisting remove it as an investment option on the NSE.

Acorn’s early redemption decision is indicative of its robust financial position, bolstered by recent funding rounds and favorable market conditions. However, it also reflects broader challenges within Kenya’s corporate bond market, where high interest rates have deterred many companies from issuing new bonds.

Acorn’s Continued Dominance in Student Housing

Despite delisting its bond, Acorn remains a dominant player in Kenya’s real estate market, particularly in student housing. The company’s ASA D-REIT and I-REIT structures have allowed it to develop a sustainable and scalable business model that caters to the growing demand for affordable student accommodation.

As of June 30, 2024, Acorn Holdings was the largest unit holder in its REIT, controlling 70.6% of the total units. InfraCo Africa Investment, a key partner in Acorn’s development efforts, was the second-largest unit holder with 6.2%. These figures underscore Acorn’s continued influence and leadership in the sector.

Acorn’s decision to focus on student housing aligns with broader demographic trends in Kenya, where a growing youth population is driving demand for affordable, high-quality accommodation near universities and colleges. The company’s Qwetu and Qejani brands have become synonymous with modern, purpose-built student housing, offering amenities that cater to the needs of students while promoting sustainability.

The Future of Green Bonds in Kenya

Acorn’s success with its green bond has paved the way for other issuers to explore sustainable finance options in Kenya. Green bonds, which are designed to fund environmentally friendly projects, have gained traction globally as investors seek to align their portfolios with ESG principles.

In Kenya, the market for green bonds is still in its nascent stages, but Acorn’s early adoption and successful execution of its green bond provide a roadmap for other companies and investors. With increasing interest in sustainable development and climate-resilient infrastructure, green bonds are likely to play a growing role in Kenya’s capital markets in the coming years.

The Kenyan government has also expressed interest in promoting green finance as part of its broader efforts to combat climate change. This includes the potential issuance of sovereign green bonds to fund public projects related to renewable energy, water conservation, and sustainable agriculture.

Conclusion

Acorn Holdings’ decision to redeem its green bond early and delist from the NSE marks a significant milestone for the company and Kenya’s capital markets. The success of Acorn’s green bond has demonstrated the viability of sustainable finance instruments in Africa, providing a model for future issuers. With continued funding from international and local investors, Acorn is well-positioned to maintain its leadership in student housing while contributing to Kenya’s growing green finance sector.

As the company moves forward, its focus on sustainability, combined with its innovative REIT structures, will likely continue to attract investors looking for both financial returns and positive environmental impact. The early redemption of its bond, while reducing its presence in the corporate bond market, signals Acorn’s strong financial health and commitment to long-term growth in the real estate sector.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

23rd September, 2024