Treasury Cabinet Secretary Henry Rotich (centre) during the budget public hearings at the KICC in Nairobi on Wednesday. With him are House Budget Committee chairman Mutava Musyimi (left) and Devolution PS Peter Mangiti. Photo/Diana Ngila
What you need to know:
Kenya will pay higher returns to investors once liquidity in global markets tighten.
A year ago analysts at London-based Capital Economics had priced the Kenyan bond at 7.5 per cent.
The country has since discovered oil reserves whose commercial viability has also been confirmed, a factor that could impact on the coupon rates.
Kenya is likely to pay a higher price for the planned Eurobond if the US central bank cuts supply of cheap money to the financial markets, the World Bank has predicted.
The Treasury is expected to issue a sovereign bond later this month or in early February to raise about Sh172 billion (between $1.5 billion to $2 billion) to partly go towards financing a Sh330 billion deficit in the national budget.
Kenya’s capital market has been a major beneficiary of America’s loose monetary policy that has seen foreign investors drive a share price rally, but it is also set to feel the heat of the planned tapering of the US stimulus programme.
“Frontier countries such as Kenya and Nigeria, which have seen significant portfolio inflows into local securities markets, would also be affected by the reversal of capital flows; and countries that are planning to tap the international bond markets are likely to face higher coupon rates,” said the World Bank in a report titled Global Economic Prospects 2014; Coping with Policy Normalisation in High-income Countries.
The Treasury has stepped up preparations for issuance of the international bond with the realisation that it will be forced to pay investors higher returns once liquidity in the global markets tightens.
A year ago analysts at London-based Capital Economics had priced the Kenyan bond at 7.5 per cent. The country has since discovered oil reserves whose commercial viability has also been confirmed, a factor that could impact on the coupon rates.
With the American economy showing signs of strong growth recovery, the Federal Reserve Bank has said it will gradually end its $85 billion-per-month stimulus package that has injected cheap money to the markets.
The Treasury has already appointed lead transaction advisers JP Morgan Chase and Arnold & Porter LLP, based in the US, as lead counsel for the Eurobond sale.
African countries that have tapped the international market in recent past include Rwanda which issued a $400 million bond priced at 6.8 per cent last year. Nigeria and Ghana each raised $1 billion at a cost of 6.6 per cent and 7.8 per cent respectively last year.
The Kenyan government early this month put a request to the International Monetary Fund for a loan accessible on call to help the country sail through any headwinds that may come from turbulence in the global markets.
IMF has fanned Kenya’s ambition of issuing the sovereign bond which the country will use to offset a syndicate loan taken up in 2012 and boost its foreign currency reserves.
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