Kenya’s Fusion Capital Falls Short on REIT Fund Raise

August 27, 2016

Kenya RE fund manager Fusion Capital fails to raise Sh2.3b from public, REIT Fund Prospectus Undersubscribed
( 26 Aug 2016–Kenya-based real estate development fund manager Fusion Capital failed to raise Sh2.3 billion it targeted from its Development Real Estate Investment Trust (D-REIT). The firm also achieved a 38 per cent subscription collecting Sh873 million with only four investors against the requirement of seven. This means it fell short of Sh1.15 billion.

Kenya’s Capital Markets Authority (CMA) required Fusion Capital to raise at least half of the initial gross proceeds it had targeted through a D-REIT, before it could qualify for listing in the Real Estate Investment Trusts. “The offer obtained a subscription rate of 38 per cent which is below the threshold of 50 per cent as set out in the offering memorandum,” read a statement issued by Group Chief Executive Officer Luke Kinoti.

CMA also required Fusion Capital to attract at least seven investors. But the fund manager was only able to come up with only four investors, three of whom are shareholders of Fusion Capital, meaning the firm attracted only one external investor. The company had hoped to use the proceeds of the D-REIT to finance development of Greenwood City, which is a mixed-use real estate project in Meru County. Fusion Capital first opened the sale of the D-Reit selling at Sh23 per unit on June 22 this year, and it hoped to close the sale by July 15 targeting to have sold 100 million units.

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However, prospects for the sale started going grim when the real estate developer extended the offer to August 4 after it failed to hit its target. The company had hoped to list at the Nairobi Securities Exchange by August 10. Mr Kinoti, however, confirmed to Weekend Business that Greenwood City project was on course, having been 32 per cent complete. “I can affirm that 10 per cent of the office blocks have been booked, while 25 per cent of the shopping area has also been booked. All in all half of the project has a guaranteed tenancy,” said Kinoti. The CEO also added that the funds that could not be raised publicly through the D-REIT offer, will be raised privately. “We want to raise money publicly so that we can give people a chance to own the project. But now that we are no longer under the strict guidance of the regulator, we will raise the money using private means,” he said. “Despite the fact that the offer was not successful, the promoter will continue to engage the Greenwood project and will seek alternative sources of funding,” said Kinoti. The CEO also confirmed that the Sh873.9 million that has already been raised publicly will be turned into private equity subject to the normal regulatory requirements from the Government. Investors in the REIT were required to raise a minimum of Sh5 million, equivalent to 218,000 units, to participate in the offer which targeted fund managers and high-net worth individuals.

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Kenya RE fund manager Fusion Capital fails to raise Sh2.3b from public, REIT Fund Prospectus Undersubscribed