Why Kenya is listing Sh132bn sovereign bond in Dublin
The Treasury is in dire need of the bond money to lift it from a cash crunch that had seen it suspend procurement. Photo/FILE
Kenya will join a list of three other African debt securities that have been floated in Ireland after issuing its Sh132 billion ($1.5 billion) sovereign bond over what its London-based handlers said was the ease of doing so in that market.
Arrangers of the bond, set to be issued early next month, settled on the Irish Stock Exchange over those of Luxembourg and the more renowned London. The three are the most popular with countries issuing bonds under the English law.
“It was a matter of the regulation. Ireland has a more commercial and quicker approach to listing; it is very efficient,” said a London-based expert close to the process who sought not to be named due to the sensitivity of the matter.
The quick turnaround period is crucial for the liquidity of the security and the issuance process critical to bridging a yawning budget deficit in Kenya.
Rwanda and Ghana have used the Ireland exchange because of its more attractive tax regime. Afriexim Bank also listed its bond in Dublin, the financial capital of Ireland. Nigeria and Zambia have listed on the London Stock Exchange.
“It is one of the most tax friendly jurisdictions; it will allow maximum returns to investors,” said ABC Capital corporate finance and advisory manager Johnson Nderi.
Arrangers of the issue — JP Morgan, Barclays PLC and Standard Bank — are structuring the deal from the City of London where there is abundance of expertise though.
Floating of the bond has elicited much debate due to the Treasury’s decision to pay off Anglo Leasing related debts so as to avoid a negative credit rating which would scare off potential investors.
Defend
President Uhuru Kenyatta has come out to defend the payments as necessary for the greater good. The expert also noted that the Kenyan bond issue was being made under the English Law which is why the government had to settle the debt.
Kenya is looking to raising the money to fill a budgetary deficit in this financial year in June and to liquidate an overdue syndicated loan of Sh52.5 billion ($600 million).
A recent research paper by ODI noted that African countries issuing sovereign bonds needed to develop clear plans on how they intend to use the proceeds so as to attract more investors.
Use of the funds in development projects is more favourable as it assures investors that the debt will generate returns which can be used for repayment.
The Treasury is, however, in dire need of the bond money to lift it from a cash crunch that had seen it suspend procurement activities. The exchequer has had to bear some unexpected expenses especially relating to boosting security.
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