Information scarcity will kill M-Akiba trading
By MUNGAI KIHANYA
The Sunday Nation
Nairobi,
23 April 2017
After an initial
technical hitch, the secondary market trading of the M-Akiba bond
started last week. Unfortunately, there is very little information about
it. On the day I wrote this article (Wednesday 19th April), I
tried to participate in that market. It was easy: you dial *889# from a
Safaicom or Airtel line and then follow the simple instructions that
come on your screen.
I found that the
price of the day was Sh1.0030 per bond shilling. I was not allowed to
negotiate at all: the system just asked me to enter the amount of money
I wished to invest. I placed an order for a Sh3,000 bond and waited and
waited…for a reply confirming the trade…
As I waited, two
questions lingered in my mind. First: how was the price arrived at?
Second: is this a clean or dirty price? The answer to the second
question would have been clear if the system had given me a summary of
my order – showing how much it would cost me. But it didn’t!
After 15 minutes
waiting, I decided to crunch some numbers. The M-Akiba bond started
earning interest on 10th April. So, in the nine days had
elapsed by the 19th, the 10 per cent per year had accumulated
to 0.2473p.c. Thus a Sh3,000 bond had earned 3,000x0.2473/100 = Sh7.42
in interest by that day. In other words, the investment was now worth
Sh3,007.42.
Assuming that the
quoted price of Sh1.0030 was dirty, the market cost of a Sh3,000 bond is
Sh3,009.00. Would it be better to sell? After all, it is Sh1.48 higher
than the intrinsic value.
Well; let’s not
forget that there is a trading commission to be paid by both the seller
and the buyer. The rate is 0.535 per cent of the bond’s face value, that
is, Sh16.05. Therefore, the seller will take home Sh3,009 – Sh16.05 =
Sh2,992.95 and I should expect to pay Sh3,009 + Sh16.05 = Sh3025.05.
I have no problem
with this deal since, come October 2017, I will get my Sh150 payment –
the interest for the full six-month period! The seller, however, walks
away Sh7 poorer than he was when he bought the bond!
If the quoted price
was the clean one, then I expect to pay Sh3,009 for the bond, plus
Sh7.42 accrued interest, plus Sh16.05 commission. Altogether, my bill
comes to Sh3,032.47. The seller will get Sh3,009 + Sh7.42 – Sh16.05 =
Sh3,000.37.
Looking at this new
calculation, I am convinced that the Sh1.0030 quote was a clean price.
Otherwise, it wouldn’t make any sense for the seller. Still, I have no
problem with it for I will get Sh150 in October and every six months
thereafter until April 2020.
All in all, I am
afraid that the M-Akiba bond might not go very far because crucial
information is not readily available.
***
PS: just got a
message that my mobile money wallet was deducted Sh2,999.96 for the
M-Akiba. I was allocated a bond worth Sh2,981. The system say that it is
processing a refund since the “order is not valid”. I don’t know what
went wrong!
|