Treasury cabinet secretary Henry Rotich. In a letter to Mr Rotich, Governor Isaac Ruto, who chairs the Council of Governors, protested over the delay and said the move would cause staff discontent against county governments. FILE PHOTO |
What you need to know:
Kenya’s first sovereign bond was massively oversubscribed and at a lower cost than hoped for. It attracted $8.8 billion, slightly more than four times the $2 billion, or the best case scenario the government had presented.
Banks, real-estate companies and insurance firms all thronged the bond market looking for money to develop property, expand operations and fund other corporate initiatives.
After years of talk about issuing sovereign bonds, Kenya finally ventured into the international debt market and chalked up an impressive performance.
Officials from the Treasury had estimated their sales pitch across the international finance centres would at best yield $2 billion (Sh180 billion) at the current exchange rate, but at a high cost since the debut note coincided with an unfavourable debt market.
But in June, Kenya’s first sovereign bond was massively oversubscribed and at a lower cost than hoped for. It attracted $8.8 billion, slightly more than four times the $2 billion, or the best case scenario the government had presented. The Treasury ended up taking $2 billion in two tranches of $1.5 billion over 10 years and a five-year $500 million bond.
In February, the Treasury had said the best rates would be between 7.625 per cent and 8.125 per cent, due to the US government cutting back on its bond-buying programme. Kenya managed to borrow at 5.875 per cent for the five-year portion while the 10-year bond had a yield of 6.875 per cent.
Market players said in addition to stabilising the shilling, the successful issue would open doors for local companies to borrow from the international markets in the future.
Successful issue
Analysts said the successful issue was taken as a vote of confidence in Kenya’s economy and would give companies the confidence to initiate borrowing plans.
“With this unprecedented structural change in government budget financing, we anticipate intensified corporate activity in the second half of 2014,” said analysts at Genghis Capital at the time.
This turned out to be an accurate prediction based on the corporate bonds subsequently issued and whose success rate mirrored Kenya’s first sovereign bond.
Banks, real-estate companies and insurance firms all thronged the bond market looking for money to develop property, expand operations and fund other corporate initiatives. All issues were oversubscribed with most issuers exercising green-shoe options— a provision contained in an underwriting agreement that gives the underwriter the right to sell investors more shares than originally planned by the issuer.
In July, Britam was the first company to the market seeking Sh3 billion. The bond ended up receiving Sh7.4 billion in applications. The listed insurer opted to exercise its green-shoe option and took up an additional Sh3 billion.
Next was UAP Insurance whose July offer got Sh3.19 billion, a 60 per cent oversubscription of its Sh2 billion target. NIC Bank was the first lender to go to the bond market in September targeting to raise Sh3 billion.
Like the two insurance companies, it netted more than two times what it had bargained for at Sh6.5 billion. It, too, opted to exercise the green-shoe option and accept Sh5.5 billion.
CIC Group was the third listed insurer to go to the market seeking Sh3 billion. The offer attracted Sh6.34 billion and the firm ended up accepting Sh5 billion in October.
Investor appetite saw Commercial Bank of Africa (CBA) exercise a green-shoe option and accept Sh7 billion up from Sh5 billion it sought in an issue that ended in November. Real-estate developer Home Afrika has also gone to the bonds market for Sh900 million but the results are yet to be released.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
