Markets & Finance

Kenya mulls issuing Islamic bond next financial year

Kenya plans to issue a second international bond in the 2015/16 fiscal year and may consider Islamic and Asian bonds, Treasury secretary Henry Rotich has revealed.

This, he added, is part of a Government strategy to significantly reduce competition for funds in the local markets and ultimately drive interest rates down.

Kenya has just tapped global markets for $2 billion (Sh172 billion) with a sovereign bond that set a new record for African borrowing.

READ: Eurobond attracts Sh702bn bids, shows investor confidence in Kenya

At a press briefing on the successful debut Eurobond that closed this week, the finance minister said ‘sukuk’ were among the options being considered for a second go at international capital markets.

These are Shariah-compliant bonds that do not pay interest to investors, but instead pay out profits based on income from underlying assets. About $60 billion worth of ‘sukuk’ are expected to be issued globally this year.

The United Kingdom this week became the first Western country to issue an Islamic bond, raising GBP 2 billion with a five-year ‘sukuk’. Senegal is also launching a programme to raise $207 million over the next three weeks.

The instruments are vital to attracting investors from the Arab world. Rotich also said Treasury would consider yen-denominated Samurai bonds to tap funds from the Asian market. Kenya’s debut bond attracted more than 80 per cent of its bids from the United States and United Kingdom.

Speaking at the same event, President Uhuru Kenyatta said the Eurobond funds – now with the Central Bank -- would help reduce domestic borrowing requirements for the 2014/2015 financial year.

“With our plan to access international capital markets, we will reduce our recourse to domestic borrowing,” he said. “This, together with other measures which we shall be implementing shortly, should result in a lower interest rate regime in Kenya.”

The Government had planned to borrow Sh190.8 billion in the 2014/2015 budget. The President vowed that this amount will now be reduced but did not provide details.

Funds raised from the Eurobond will be used to repay a Sh52.5 billion ($600 million) syndicated loan and fund infrastructure projects in the transport, agriculture and energy sectors.

Additional reporting by Muthoki Mumo.