Ratings agency cuts foreign currency bond risk premium

CBK governor Prof Njuguna Ndung’u has said Kenya may revive the sovereign bond issue this year on the back of the relative stabilisation in international financial markets.

Buyers of sovereign bonds ordinarily rely on credit ratings of issuer countries from reputable international rating agencies, with the United States Sovereign rating being the market benchmark.

Moody’s observes in the report that capital account mobility has increased in recent years as domestic capital markets -- especially those in emerging economies -- have deepened and governments’ investor bases have broadened.

“Crucially, it is far more likely that problems servicing debt in one currency will spill over and affect a government’s ability to service its debt in another,” added Mr Cooper.

Though Kenya can easily raise the targeted $500 million -even going by this year’s domestic borrowing target of Sh109 billion- Prof Ndung’u has emphasised that issuance of a sovereign bond is supposed to market Kenya to international investors as a potential destination for foreign capital.

A sovereign bond sets a benchmark interest rate for international investors looking to invest in the global capital market.

“It makes a lot of sense for Kenya to push through with this bond offer, today we have a lot of liquidity in the domestic debt markets but this may not always be the case and an already established sovereign rating may help when the government wants to borrow externally,” said Mr Ndege.

Other African countries that have publicly announced plans to issue sovereign debts include Ghana ($300 million), Nigeria ($500 million), Tanzania ($500 million), Uganda and Zambia.

Gabon launched a debut global bond totalling $1 billion in December 2007 while Ghana issued a $750 million 10-year Eurobond in September 2007.