Eurobond attracts Sh702bn bids, shows investor confidence in Kenya
The Treasury: Analysts say demand for Kenya’s Eurobond reflects abundant liquidity in global financial market. Photo/FILE
What you need to know:
Treasury will accept $2 billion (Sh175.6 billion), breaking an African record.
Kenya had targeted to borrow between $1.5 billion (Sh131.7 billion) to $2 billion (Sh175.6 billion).
Analysts said the outcome reflected the abundance of liquidity in global financial markets chasing yields, as well as showing that confidence in Kenya’s diversified economy trumped worries about attacks by Somali-linked Islamist militants.
Kenya secured bids worth $8 billion (Sh702.4 billion) for its debut Eurobond, highlighting foreign investor confidence in a country grappling with terror threats.
A senior official, who asked not to be named, told the Business Daily that Treasury will accept $2 billion (Sh175.6 billion), saying the bond has broken an African record.
“It is the largest ever debut for an African country and speaks of the country’s high standing in the international financial markets,” said the official.
“Kenya’s low yield and high investors’ interest reflect prudent and shrewd timing. Kenya received orders…four times than it wanted.”
Kenya had targeted to borrow between $1.5 billion (Sh131.7 billion) to $2 billion (Sh175.6 billion).
The issue came in two tenors with a five-year tranche of $500 million (Sh43.9 billion) offering investors a minimum six per cent return and a 10-year portion of $1.5 billion (Sh131.7 billion) guaranteeing a yield of seven per cent. These were lower than an earlier Treasury estimate of slightly over eight per cent.
The oversubscription and lower interest rates come two days after unknown gunmen attacked the coastal town of Mpeketoni on Sunday, killing at least 60 residents. They also burnt buildings and vehicles.
The attacks follow a series of gun and bomb attacks in Nairobi and Mombasa that were expected to put pressure on the Eurobond issue, including demands for higher interest rates by investors.
“Advisers initially thought Kenya had missed the most opportune window to turn to the international markets after the US Fed began tapering its bond buying programme, which was expected to send initial repayment rates higher than hoped,” said the official.
Analysts said the outcome reflected the abundance of liquidity in global financial markets chasing yields, as well as showing that confidence in Kenya’s diversified economy trumped worries about attacks by Somali-linked Islamist militants.
“It shows that Kenya is a strategic investment destination despite the security situation. They (foreign investors) have faith in our currency,” a Nairobi-based bonds trader was quoted in a Reuters report Tuesday.
Funds raised through the Eurobond will be used to retire a $600 million (Sh52.2 billion) syndicated loan — for which Kenya said last month it had received a three-month extension to the May deadline — and for development projects.
The government accepted an offer by the three arranging banks to extend the loan at the same terms, even though it had enough money to repay the entire loan, which had matured on May 15.
Citigroup Inc, Standard Chartered Bank Plc and Standard Bank Plc arranged the two-year syndicated loan at an interest margin of 475 basis points more than the London interbank offered rate.
Taxpayers lost Sh1.2 billion following the loan default. Treasury paid Sh570 million in extension fees while the interest amount for the three months would be Sh700 million.
The repayment extension highlights the “refinancing risk” faced by some African nations that may not have sufficient reserves to pay debt, Fitch Ratings said earlier.
The fundraiser has been delayed by volatile markets and by the dispute over the Anglo-Leasing contracts, which Parliament argued were issued by past governments and violated laws and regulations.
