Kenya could postpone borrowing from international money market
Treasury secretary Henry Rotich. Mr Rotich said the government will diversify the profile of investors by targeting the diaspora, the Middle East and Asian markets. Photo/FILE
What you need to know:
Kenya could be forced to pay over eight per cent in yield if it goes for the sovereign bond now.
Analysts have said in recent weeks that the Eurobond is likely to be affected by the ongoing reduction of liquidity in the US financial markets.
Kenya could keep away from international capital markets for the time being due to high interest rates and considerations of the time left in the current fiscal year.
A source familiar with the matter said the country could be forced to pay over eight per cent in yield if it goes for the sovereign bond now, in line with a similar rate for the Zambia bond.
Given that the two countries have almost similar creditworthiness, as issued by credit rating agency Standard & Poors, Kenya may be hard pressed to pay more than the 6.7 per cent yield it paid for the Sh52 billion syndicated loan the county received in early 2012.
Latest data show that Zambia paid 8.5 per cent early this year and attracted more than $1 billion, though full details on the transaction were never released.
“What is likely to happen under this situation is a postponement till the next fiscal year. Alternatively, the Treasury might just roll over the syndicated loan,” said the source, who asked for anonymity in order to speak candidly.
The syndicated loan is Sh52 billion, but half of it has already been paid.
Kenya is seeking up to Sh172 billion ($2 billion). However, a document released last December by the International Monetary Fund (IMF) shows the actual amount agreed on was Sh127.5 billion equivalent to $1.5 billion.
Treasury secretary Henry Rotich recently said that plans for the issuance of the bond were still under way, but with the financial year being only two months away from ending, it is unclear whether the money will be raised.
Liquidity
Treasury officials were not available to speak on the matter. They were said to be holed up in meetings.
“It takes some 40 days to prepare for the rolling out to raise the money, but we are already just a month to June. So it is unlikely to be done before the next fiscal year,” said the source.
Analysts have said in recent weeks that the Eurobond is likely to be affected by the ongoing reduction of liquidity in the US financial markets, with the Federal Reserve buying $55 billion compared to the previous level of $85 billion per month.
With a 35 per cent reduction in dollar market liquidity, analysts predict that it will become increasingly difficult to raise cash without paying a considerable premium.
Zambia was affected by the tapering as it was raising cash just when the global markets were beginning to get drained of some liquidity.
