Debut Kenyan Eurobond could reach $2 billion, says minister
National Treasury Cabinet secretary Henry Rotich. He says Kenya may seek as much as $2 billion from its debut Eurobond issue, double the previously stated $1 billion.
Kenya may seek as much as $2 billion from its debut Eurobond issue, double the previously stated $1 billion, the country's finance minister said on Tuesday, an amount analysts said could be expensive to borrow.
The move would also come as many emerging markets are being battered by sell-offs brought on by fear of the withdrawal of US cheap financing.
Kenyan Treasury Secretary Henry Rotich said, however, he was confident east Africa's biggest economy would match the relatively low yields secured by other sub-Saharan states.
"Once we prepare the documentation we will firm up the numbers. It will be more than $1 billion dollars but not more than $2 billion," Rotich told Reuters.
Kenya has said it expects to tap international debt markets before the end of this year. It was finalising the procurement of lead arrangers and international legal advisors, the minister said.
Rotich did not specify why the target might be raised, but said the country had a "very favourable rating with Standard and Poor's and Fitch."
"The global market is very stable, so there is no reason why we should get something different from what (other) emerging markets are getting now."
Bankers in London described $2 billion as ambitious.
"There would need to be a fairly good backdrop for that amount to be feasible," said one syndicate banker.
Asked if raising $2 billion internationally was optimistic, a second banker said it was not impossible and that it was "just a question of pricing".
PUBLIC DEBT
Such an amount may, however, deepen concerns among some investors about Kenya's level of public indebtedness.
Public debt hit 52 per cent of national output in the year to June, up from about 44.5 per cent the previous year. The percentage is relatively low, but the direction has aggravated worries about the sustainability of Kenya's long-term debt.
Proceeds of the bond will be used to finance major infrastructure projects and to retire some of a $600 million syndicated loan signed in May 2012.
"It is a question of how much they are prepared to pay," said Mark Bohlund, senior economist at IHS Global Insight.
"But concerns about Kenya's public finances could be detrimental for the government's efforts to find foreign partners for ... investment projects."
Kenya initially planned to issue a $500 million Eurobond but that was shelved after nationwide violence in early 2008 following a disputed election that stunted economic growth and because of the global financial crisis.
In 2012, the Treasury doubled the size of the planned Eurobond to $1 billion.
Rwanda sold a debut $400 million Eurobond in April at a yield of 6.875 per cent, signalling strong appetite for emerging market debt as rock-bottom interest rates in the developed world left investors searching for yield.
But since then, emerging markets have experienced a sell-off on expectations that US monetary stimulus will soon be scaled back and on concerns about possible U.S.-led military intervention in Syria.
"It might be a good idea to get the money now because if Kenya does $1 billion now and try and do another $1 billion in 2014/15 rates might be higher," said Ignatius Chicha, head of markets at Citibank in Nairobi.
"If the US begins tampering on the quantitative easing then it means the rates will be slightly higher."
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