Housing Finance “A Key Player in the Kenyan Mortgage Sector” Accessing the Capital Markets

Who We Are (Housing Finance)A Mortgage provider with over 48 years of operations within the Kenyan Housing and Banking Sectors

1

n Incorporation of the Companyn The founding investors were the

Commonwealth Development Corporation and the Government of Kenya with respective shareholdings of 60% and 40% in the Company

n GoK increases its stake in the company to 50.0%, becoming an equal shareholder with CDC

n GoK reduces its stake in the company to 7.3%, with Kenyan individuals and institutional investors increasing their stake to 62.3%

n Housing Finance gets listed on the NSE, with CDC and GoK retaining a shareholding of 30.4% each and Kenyan individual and institutional investors taking up the balance of 39.2%

n CDC sells off its staken Housing Finance successfully

raises KES2.3bn (USD 27m) by way of a Rights issue

n Housing Finance successfully raises KES10bn (USD120m) by way of a MTN (2 tranches)

1970 1992 1999 2008 - 20121965

Housing Finance also has three subsidiaries that are instrumental to its operations namely Kenya

Building Society Limited (KBSL), Housing Finance Insurance Agency and Housing Finance Foundation.

Our Core Business Areas

2

Makao building solutions

Vuna Hela (Equity Release)

Construction mortgage

Project Finance to Developers

• Current accounts

Savings accounts

Deposit accounts

Trade finance

Forex accounts

Home Owners Mortgage

CRI Mortgage (Ezesha)

Pension Backed Mortgage (Home Freedom)

Cyclical Mortgage

Employer Sponsored Schemes

Mortgage FinancingSolutions

Construction Financing

Retail Banking Solutions

How We Have Grown….

3

Customers’ Deposit (KES Bn)

Mortgage Book (KES Bn)

From 2006 our Mortgage Book Growth

has been out pacing Customers’ Deposits

Growth

CAGR = over 24% in the last six years

CAGR = over 20% in the last six years

2006 2007 2008 2009 2010 2011 2012 -

5.0

10.0

15.0

20.0

25.0

7.6 8.8

10.1 12.2

15.9

18.7

23.0

(US-D89m)

(US-D270m)

2006 2007 2008 2009 2010 2011 2012 -

5.0

10.0

15.0

20.0

25.0

30.0

35.0

8.3 9.0 11.3

15.1

19.9

25.2

30.3

(USD98)

(US-D360m)

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How We Have Grown….(Cont’)

Rapid growth in Total Assets and

PAT between 2010 and 2012

YTD was supported by the new funding from

the bond issuance

CAGR = over 28% in the last six years

CAGR = over 38% in the last six years

Total Assets (KES Bn)

PAT (KES Mn)

2006 2007 2008 2009 2010 2011 2012 -

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

9.1 10.4

14.3

18.2

29.3 32.0

40.7 (US-D480m)

2006 2007 2008 2009 2010 2011 2012 -

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

101.0 73.5 136.4

234.2

379.5

682.9 693.3 (USD8.3m)

(USD107m)

(USD1.2m)

How We have Funded Our Growth in the Past…..(Funding Mix)Housing Finance for a long time had been mostly using customers’ deposit to finance its mortgage book, a situation that resulted in a funding mis-match since mortgage lending is long term with average maturity of 13 years

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2007 Funding (KES Bn)

Customers' Deposits

100%

2008 Funding (KES Bn) 2009 Funding (KES Bn)

2010 Funding (KES Bn) 2011 YTD Funding (KES Bn)

Long Term Capital Markets' Funding

26%

Short Term Bank Loans4%

Customers' Deposits

70%

Customers' Deposits

96%

Short Term Bank Loans

4%

Customers' Deposits

64%Short Term Bank

Loans7%

Long Term Capital Markets' Funding

29%

Customers' Deposits

88%

Short Term Bank Loans12%

2012 YTD Funding (KES Bn)

Short Term Bank Loans 2%

Long Term Bank Loans 3%

Customers' Deposits 66%

The Various Capital Raising Options that We Considered in 2010

Rights Issue

Securitization

Match Funded Bonds

Would have bolstered our core capital

hence giving us additional capacity to lend

more

We would have benefited from costs

savings since its perpetual capital and no

interest payments are made

Reduces asset liability mismatch

Lower capital requirements

Transfer risks – it is possible to transfer

risks from an entity that does not want to

bear it.

Can help unlock liquidity by using

incremental mortgage book.

Can help match asset and related liability

for the desired duration.

Can be structured as a revolving fund

We had done a rights issue in 2008 and needed time to

demonstrate to our shareholders value creation

following that rights issue

We did not want to impact our RoE

Market was still depressed and below the 2007

valuations

Expensive due to management and system costs,

legal, underwriting, rating fees and on-going

administration.

Legislation and operational procedures not fully

developed.

HF loan portfolio not sufficiently large enough but

definitely a future option.

Market currently not sufficiently deep and efficient enough

for match funded bonds.

Instrument Considerations Comments

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Merits of Issuing a Medium Term Note….

HF settled for the MTN Issue due to the following advantages over the other options:  No collateral required

No equity dilution…good for existing shareholders

A market for the issue existed & still exists…rates allowing

There was and still is sufficient appetite

Speed and timing of going to market

Flexibility especially related to the repayment structure

The related qualifying expenses are tax deductible

Transaction Highlights

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Situation Overview

Housing Finance had been mostly using customers’ deposits to finance

its mortgage book

These deposits were short term hence maturity mis-match with our

mortgage book

The short term deposits curtailed our growth potential amid abundant

opportunities

A need to grow our mortgage book as well as Shareholders’ interests

We needed a long term but flexible funding

The Instrument We Used

A 7 year Fixed Rate Note and Collared Floating Rate Note

The structure was based on the prevailing interest rate environment

Marketing and Execution

The transaction was marketed within a period of two weeks to local

fund managers, banks, insurance companies and a section of high net

worth clients

The first tranche of KES 5bn (USD60m) was oversubscribed by 41.0%

to KES 7.03 bn (USD85m) with majority of investors preferring fixed rate

note

Capital Markets Authority (CMA) gave us approval to pick the extra KES

2.03bn (USD25m).

Issuer: Housing Finance Company of Kenya Limited

Use of Proceeds: For onward mortgage lending and use in the supply of residential middle and lower income housing units

Method of Sale: Privately placed followed by listing at the Nairobi Stock Exchanage

Documentation: Domestic Medium Term Note of up to KES 10bn (USD120m)

Offered Securities: Senior Notes and unsecured

Tranche 1 Amount: Up to KES 5bn (USD60m)

Issue Price: Issued on a fully paid basis at par

Tenor (Maturity): 7 years to October 2017

Pricing: • Fixed Rate Note: Priced at 8.5%

• Floating Rate Note: Priced off a 182 day T-bill plus a margin of 3.0% with a floor rate of 5.0% and a cap rate of 9.5%

Interest/ Coupon (dates): April/October and will be paid semi-annually in arrears

Issue date: 11 October 2010

Redemption: Bullet

Status: The Notes are Senior Notes that constitute unsubordinated and unsecured obligations of Issuer and will rank pari passu with themselves and other unsubordinated and unsecured obligations of the Issuer

Transaction Summary (Tranche I)

● Need of creating long term instruments to fund housing projects e.g. Housing Bonds

● Creation of REIT Funds (Gazetted July 2013)

Way Forward…

● More legislation on mortgage sector to enhance more funding structures such as Covered Bonds

● Need of Mortgage players to leverage on their balance sheets with instruments like Mortgage Backed Securities and other forms of Securitizations

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THANK YOU

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