Money Markets

Treasury seeks quicker issue of international bond

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Photo/FILE  Kenya has a higher public debt — net of government and related deposits — of 45 per cent, its current account deficit is close to ten per cent and its fiscal deficit is over six per cent.

Photo/FILE Kenya has a higher public debt — net of government and related deposits — of 45 per cent, its current account deficit is close to ten per cent and its fiscal deficit is over six per cent. 

By GEOFFREY IRUNGU

Posted  Sunday, November 18  2012 at  19:17

In Summary

  • The bond is expected to provide the government with funds to settle the $600 million syndicated loan taken early this year and use the rest for infrastructure development.
  • Kenya has a higher public debt — net of government and related deposits — of 45 per cent, its current account deficit is close to ten per cent and its fiscal deficit is over six per cent.

The Treasury is considering using the same transaction arrangers it had appointed three years ago to advise on the issue of the $1 billion (Sh85 billion) sovereign bond in the next financial year to speed up the borrowing plan.

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Barclays Capital and Deutsch Bank had been appointed as the lead arrangers for the issue in 2009, before it was postponed following onset of the global financial crisis.

“We had done road shows for the bond. We may go for the same arrangers to save on time in the next financial year. But the final decision is yet to be made,” said Felister Kivisi, senior assistant deputy director in the debt management department at the Treasury.

The bond is expected to provide the government with funds to settle the $600 million syndicated loan taken early this year and use the rest for infrastructure development.

The cost of the bond is also expected to be lower than that of the syndicated loan, procured at a rate of 6.73 per cent including the fees and commissions on annualised basis. However, the bond is expected to be for a longer maturity period unlike the loan that was only for two years.

Ms Kivisi said by the time of issuing the bond, the Treasury expects to have had a new credit rating from Standard & Poor’s. The last rating by S&P showed the country was considered to be B+ with a stable outlook.

“The most S&P rating of Kenya is favourable. Possibly, there will be another rating before the bond is issued,” said Ms Kivisi.

Kenya will be among the rising number of African countries that are tapping into international markets in the last few years.

Zambia recently raised $750 million in a sovereign bond priced at 5.6 per cent.

The bond attracted bids worth $12 billion.

A similar bond by Ghana in 2007 brought $3 billion although the country was only looking for $500 million but ended up taking $750 million.

Kenya could manage to get high subscription similar to that of Zambia or Ghana.

London-based Capital Economics, which advises institutional investors, has estimated a Eurobond by Kenya with a tenor of 10 years could be priced at 7.5 per cent, close to the rates of such potential issues by its neighbours Tanzania and Uganda.

But unlike in the case of Zambia, it says investors in the Kenya Eurobond would demand a higher yield due to the latter’s less favourable macroeconomic status.

Kenya has a higher public debt — net of government and related deposits — of 45 per cent, its current account deficit is close to ten per cent and its fiscal deficit is over six per cent.

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