IMF says Kenya well placed for debut Eurobond in Q4 2013
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IMF said 10 years would be a "reasonable tenor" and the government could seek up to $1 billion, an amount that would keep the government's borrowing on debt markets within a limit agreed under the IMF's extended credit facility programme.
Spritely growth and falling inflation should ensure strong demand and keen pricing for Kenya's long-awaited first Eurobond, planned for later this year, helping cut its overall debt costs, the International Monetary Fund said on Wednesday.
Ragnar Gudmundsson, IMF resident representative in Kenya, told Reuters a peaceful presidential vote in March has helped restore Kenya's image after post-election violence five years ago and would also help secure a lower yield on the new issue.
African countries' robust growth prospects contrast with those of European economies still struggling to shake off a debt crisis, and investors have snapped up their debt, including a 10-year Eurobond issued by Kenya's neighbour Rwanda last month.
"Now that the authorities have succeeded in taming inflation and bringing down interest rates, the likelihood that they would be able to achieve a lower yield has gone (up), especially following the peaceful political transition," Mr Gudmundsson said.
"The conditions would be right to negotiate a sovereign bond in the last quarter of the year."
Kenya will use proceeds from the sale to retire a $600 million syndicated loan taken out last year at an overall cost of 7 per cent and to fund infrastructure projects. Rwanda, a smaller economy, paid a yield of 6.875 per cent on its bond.
Kenya has yet to finally decide on the timing or details of the Eurobond, plans for which have been delayed several times.
Mr Gudmundsson said 10 years would be a "reasonable tenor" and the government could seek up to $1 billion, an amount that would keep the government's borrowing on debt markets within a limit agreed under the IMF's extended credit facility programme.
With inflation running below the government target of 5 per cent, Kenya's economy is expected to grow by 5.5-6 per cent this year and 6-6.5 per cent in 2014, spurred by good rains and falling lending rates, the IMF representative said.
Double-digit growth
Mr Gudmundsson said the country, which discovered oil in the far north county of Turkana last year, could attain the double-digit growth that the government has been targeting if it properly manages wealth from those natural resources.
"If these deposits are commercially viable and they are managed well, double-digit growth becomes a more realistic prospect," the representative said, although he said production could still be five years away.
Kenya has been working with the IMF and others to review terms for energy projects, including production-sharing deals.
The new government of President Uhuru Kenyatta has promised to expand investment in oil and gas and to reduce the cost to consumers of electricity in a nation where power cuts are common due to inadequate capacity and a creaking transmission network.
Mr Gudmundsson warned this could taint Kenya's reputation as a model for energy sector reforms and dampen investor enthusiasm after the nation eliminated subsidies and opened itself up to independent power producers in the past 15 years or so.
"The power generator and distributor need to become more efficient and speed up the pace of implementation of power generation projects," he said.
"That is a clear priority but I'm not convinced that right now blocking tariff increases is the best measure."
Other risks to the economy include any worsening of the debt crisis in the Eurozone, shortfalls in revenue collection, and a public wage bill that accounts for half of government revenue.
"If the wage bill remains at current levels or even increases that means that there will be less space for priorities and other expenditures," Mr Gudmundsson said.
