Plans for Kenya’s Diaspora bond to be released

Treasury Secretary Henry Rotich is next week set to release initial details of a sovereign bond targeting Kenyans in the diaspora.

The size of the diaspora bond, expected this financial year, will be dependent on new borrowing figures also to be announced next week.

In the wake of June’s successful $2 billion Eurobond, the Government has said it is looking at various options for another sovereign bond, including interest-free Islamic bonds, known as sukuk, and Yen-denominated debt instruments or samurai bonds.

Interest in State paper from Kenyans abroad has shifted attention to a diaspora bond.

READ: Kenya to borrow again, eyes no-interest Islamic bonds

Mr Rotich said that the Government received the balance of the Eurobond cash this week. This will see Treasury review downwards the amounts it plans to borrow locally and in the international market.

“Once I have those revised borrowing figures, I’ll know how much we we’ll get outside and what we’ll borrow locally,” he said.

He added that to issue the diaspora bond, Treasury will only need to revise the documentation it used for the Eurobond. The paperwork needed for a sukuk, which requires the hiring of Islamic scholars and finance experts, could explain why that option may not take off.

READ: Fitch Ratings says Kenya can still borrow more cash

Earlier this week, Mr Rotich said that the diaspora bond option was also chosen because it does not carry any foreign exchange exposure. The bond is denominated in the Kenya shilling.

The enthusiasm Kenya and other countries have for sovereign bonds is not without its critics. Just this week, the head of the World Bank Sri Mulyani Indrawati warned Kenya and other African nations against issuing too many bonds and “spending like there is no tomorrow”.

“To be clear, raising debt on the international markets and increasing spending are standard tools for any finance minister,” she argued. “But this should not be a race for issuing more and bigger bonds and shouldn’t result in out-of-control spending.”

READ: INDRAWATI: Africa must avoid short-sighted spending

There are an estimated 2.5 million Kenyans living abroad. Their remittances to the country have been on the rise, hitting Sh110 billion (about $1.3 billion) last year. Many are keen to invest in Kenya, which offers higher returns than most developed markets and is more familiar than other emerging markets.

The Government is also hoping to tap into their patriotic desire to support infrastructural development in their homeland. Kenya has in the past marketed locally issued infrastructure bonds to citizens living abroad, but has not issued a bond targeting the community.

A recent example was a Sh20 billion 12-year infrastructure bond reissued in 2012 to take advantage of diaspora interest.

The Treasury is also hoping to ride on the success of the recently issued dollar-denominated sovereign bond (the Eurobond), which was oversubscribed nearly fourfold, indicating huge investor appetite.