Talanta Stadium: State Funds Account for More Than Half of Sh44.7 Billion Bond

The National Social Security Fund (NSSF) and the Public Service Superannuation Fund (PSSF) have purchased more than half of the Sh44.7 billion Talanta Bond, highlighting the increasing reliance on state-backed agencies to finance government-led projects.

Filings with the Retirement Benefits Authority (RBA) reveal that the NSSF and the PSSF collectively invested Sh24.19 billion, accounting for 54 per cent of the bond. The funds raised are designated for the construction of the 60,000-seat Talanta Stadium.

The PSSF, which manages pensions for civil servants, was the largest investor with a Sh16.29 billion stake. The NSSF contributed Sh7.9 billion to the bond, which was issued by a firm linked to Joshua Kulei, a former aide to ex-President Daniel arap Moi.

Investors in the 15-year bond will receive a 15.04 per cent yield, paid semi-annually. These returns are secured by the state-backed Sports Fund, which collects revenue from taxes on betting and gambling firms.

"The decision wasn't about the stadium itself, but the fact that it was underwritten by the Sports Fund, which has strong collections," a PSSF executive who requested anonymity told Business Daily.

"There were some questions about the returns, but the two payments due since we invested were made promptly in February and July."

This investment pattern mirrors recent trends where state-owned entities have been instrumental in major fundraising efforts.

Previously, cash-rich parastatals were reportedly pressured to buy into the Kenya Pipeline Company (KPC) initial public offering to ensure its success after it was snubbed by high-net-worth investors.

In that instance, the NSSF acquired Sh36.3 billion in KPC shares, followed by the PSSF (Sh12.3 billion), the County Workers Pension Fund (Sh3.4 billion), and the Unclaimed Financial Assets Authority (Sh3.2 billion).

Several other government-supported pension schemes also participated in the Talanta Bond, including the County Pension Fund (Sh1.98 billion), the CPF Individual Pension Scheme (Sh790.5 million), and the Local Authorities Pension Trust (Sh197.7 million).

The bond achieved a 100.2 per cent subscription rate, suggesting that the offering would have missed its target without the significant participation of these government-linked funds.

The government required a minimum of Sh32.2 billion to complete the main football and rugby pitches for the stadium, which is slated to host the Africa Cup of Nations next year.

The remaining Sh12.5 billion was allocated for auxiliary facilities, including an indoor arena, four training pitches, and Olympic-standard swimming pools.

An additional Sh646.6 million was used to pay the deal's arrangers, such as Liaison Capital, KCB Investment Bank, and CPF Capital.

Liaison Capital, one of the financial advisors, is partly owned by Mr Kulei through his investment vehicle, Sovereign Group, which holds a 33 per cent stake.

The firm's CEO, Thomas Kimeu Mulwa, and its founder, James Wachira Mahihu, are other key shareholders, with Mahihu holding the largest stake at 42 per cent.

Liaison Capital was also involved in the Sh3 billion Linzi Sukuk, a bond whose proceeds were intended to finance housing for the Kenya Defence Forces.

The PSSF was the largest investor in that 2023 bond, currently holding Sh1.59 billion, which represents more than half of the total issue.

To boost its appeal, the National Treasury had made the Talanta Bond tax-exempt. Over its 15-year term, the bond is projected to earn the PSSF approximately Sh36 billion in interest, while the NSSF is set to receive about Sh15.7 billion.

South African agency GCR Ratings assigned the bond an AA rating, indicating very strong creditworthiness. The absence of an explicit government guarantee was cited as the reason it did not receive a higher rating.

Despite this, the pension schemes were undeterred, reassured by the bond's attractive premium and a structure that includes a standby letter of credit from KCB Bank to cover any payment delays.

The bond agreement stipulates that if the Sports Fund is ever dissolved, the bondholders' claims will be transferred to the National Exchequer Account.

Payments to bondholders are sourced from National Treasury disbursements to the Sports, Arts and Social Development Fund (SASDF), not from revenue generated by the stadium itself.

The bond is listed on the Nairobi Securities Exchange's restricted fixed-income market sub-segment, providing the funds with an opportunity to sell their holdings to secondary investors in the future.