Moody’s sees foreign capital boost in Eurobond sale

A successful sale of Kenya’s international bond will help to open access to funding for local companies, international ratings agency Moody’s has predicted.

Moody’s says the issue of a Sh172 billion ($2 billion) Eurobond, expected by end of the year, would raise Kenya’s visibility, attracting a larger pool of international investors while also helping to set a benchmark for local firms seeking foreign capital.

“Benchmarking for the corporate bond markets is the most important development that African economies are experiencing,” said Aurelien Mali, senior analyst at Moody’s.

Following the inaugural $750 million Ghana Eurobond issued in September 2007, Ghana Telecom placed a $200 million issue in the international market two months later, noted Moody’s.

Nigeria’s Guaranty Trust Bank which recently bought a majority stake in Kenya’s Fina Bank successfully issued a $500 million Eurobond four months after the debut of Nigeria in the international credit market in 2011.

(READ: Moody’s asks Kenya to consider issuing diaspora bonds)

Other Nigerian lenders that have issued international papers include Access Finances BV in 2012, and Fidelity Bank Plc and First Bank of Nigeria who made their issues in the same month as the sovereign debt issued by their country this year.

Kenyan banks are seen as potentially high candidates of seeking international capital, as cash raised through the bonds could help to boost the banks’ capital adequacy ratios, which have recently been raised by the regulator.

Kenyan banks have in recent years signed long-term loan agreements with European based lenders to substitute expensive cash deposits as source of funds for onward lending.

Following the rise in interest rates, large depositors have been aggressive in bargaining for high rates challenging banks to match the returns of Treasury bills and bonds, which are currently at about 10 per cent.

The banks’ long-term lending, especially in the mortgage market, has also been hampered by the unavailability of long term funds in their books.

Last year, Equity Bank, the largest retail bank in the country, increased its borrowed funds to Sh25.7 billion from Sh13.7 billion the previous year as it moved to re-structure its balance sheet. Part of its new debt included a $100 million (Sh8.5 billion) loan from the International Finance Corporation.

Other lenders that have taken loans from international lenders include NIC Bank from Proparco of France (Sh1.8 billion) with a tenure of seven years, French development agency AFD to CFC Stanbic and Co-operative Bank (Sh3.9 billion equally) for 12 years at an interest rate equivalent to 0.5 per cent above the average three-month Libor rate for the first two years.

The EU-owned bank advanced Sh770 million to ABC Bank and Sh715 million to Consolidated Bank.