Global financiers call on Nairobi ahead of Eurobond

Senior executives of at least three global financiers have called on Nairobi in the past two week, reflecting increased investor interest in the Sh172 billion ($2 billion) Eurobond.

A delegation led by global chairman of Standard Chartered Bank, Sir John Peace, met President Uhuru Kenyatta in Nairob last week while James Cowles — the CEO of Citigroup’s Europe, Middle East and Africa region — and the PineBridge global chief operating officer George Hornig were both in the capital Monday.

The executives have all commented on the upcoming Eurobond offer, indicating that it was one of the items on their to-do-list in their Nairobi visits.

“In past 12 months the developments in governance, political situation and plans for infrastructure development are a plus and a positive for (euro) bond. These are the factors Citi and its local multinational clients are considering,” said Mr Cowles in an interview.

The $1.5 billion to $2 billion sovereign bond is expected to go on sale in the first quarter of this year.

The Treasury expected to use cash rom the Eurobond to partly finance a Sh330 billion budget deficit and also pay off a Sh600 million loan borrowed from a syndicate of international banks in 2012.

In her assessment of Kenya’s chances of successfully floating the international bond, head of research for Africa region at Standard Chartered Bank Razia Khan said Kenya’s economic growth pattern would attract investors.

“Kenya has a history of more diversified growth. That is ultimately what will add to perception of Kenya’s credit strength and will lead to demand for the Eurobond, even if it is coming at a time when the QE (quantitative easing by US Federal Reserve) is being tapered,” said Ms Khan, who was in Sir Peace’s delegation.

READ: StanChart executive backs timing of Kenya’s Sh172bn Eurobond offer

The PineBridge global COO said Kenya, Nigeria and other sub-Saharan countries are benefiting from a shift in investment focus to frontier economies from emerging markets such as South Africa.

“Money that was going to emerging markets has begun going to frontier markets,” said Mr Hornig at a press briefing in Nairobi.

The shift, he said, explains the 43.7 per cent gain in Kenya and 43.2 per cent gain in Nigeria’s stock markets last year, a sharp contrast to the -10.6 performance of South Africa’s market.

PineBridge is East Africa’s largest fund manager, handling about Sh172 billion ($2 billion) of investors’ money.

“We see a lot of foreign interest on the sovereign bond,” said the PineBridge (East Africa) Investments chief executive Jonathan Stichbury.

The peaceful General Election and transition last year lessened Kenya’s political risk and is expected to boost economic growth this year.

Rwanda, Nigeria and Ghana have all issued Eurobonds at between 6.6 and 7.8 per cent in recent years.

Mr Cowles said his group discussed with senior government officials issues such as ongoing oil discoveries in northern Kenya.

Ratings agency Fitch said in October last year that the US cutback on the economic stimulus programme, which had provided liquidity to global markets, would increase the cost of borrowing through sovereign bonds.

Top analysts from Fitch visited senior government officials in January and after the meeting said market volatility was no longer the main risk but how efficiently the government would use proceeds from the bond.

“The possibility of high carry cost if (the) funds cannot be put to use immediately,” said Fitch director and lead analyst for Kenya Carmen Altenkirch at a conference call held on February 4.

Fund managers concur that interest in the Kenyan issue is still strong despite fears that the US government’s cutback would make it pricey to issue bonds.

“Many global fund managers are increasingly looking for African sovereign debt exposure as a way of enhancing yield without necessarily taking on too much risk.

Kenya presents an investment grade credit with numerous upside potential and as such the interest for such credit seems immense,” Frontier Markets Fund Managers regional director Irungu Nyakera told the Business Daily.

Frontier Markets manages GuarantCo, a firm that guarantees infrastructure projects in Africa and Asia. The International Monetary Fund has also backed the bond issue.

The Treasury has already appointed lead transaction advisers JP Morgan Chase and Arnold & Porter LLP as lead counsel for the Eurobond sale.