Markets & Finance

Treasury to issue Kenya’s first eurobond in September

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The Treasury building in Nairobi. The National Treasury is targeting to issue Kenya’s first eurobond by the end of September. Photo/FILE

The Treasury is targeting to issue Kenya’s first eurobond by the end of September in a bid to plug the huge funding gap in its Sh1.64 trillion national Budget.

The money is expected to finance infrastructure projects such as the Lamu transport corridor, which includes new railways and roads, the Economic secretary Geoffrey Mwau said Wednesday.

The international bond issue will be at least Sh85 billion ($1 billion), but Mr Mwau hinted at a press conference last week that it could be as high as Sh220 billion.

“We are going to issue the sovereign bond by the end of the first quarter of the coming financial year. The funds will go into infrastructure development,” he said.

Rwanda, a much smaller economy than Kenya, recently raised Sh34 billion ($400 million) through a eurobond.

Investors priced Rwanda’s eurobond at 6.875 per cent. The sub-Saharan Africa head for credit rating agency Standard & Poor’s, Konrad Reuss, said in a recent interview that Kenya could issue the sovereign bond at a lower cost than Rwanda’s paper.

Kenya has a lower reliance on donors and higher credit rating (BB) than Rwanda’s (B).

A Kenyan bond would also have the advantage of being included in the JP Morgan bond global indices since it would surpass the $500 million eligibility threshold, unlike Rwanda’s. That would expose the issue to global investors, thereby providing more liquidity in the secondary market.

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Mr Mwau was speaking on the sidelines of a workshop to discuss public private partnerships. He said the Treasury was yet to make a decision on what assets would be targeted by the proposed capital gains tax, which has already generated fears among investors at the stock market.

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“We are yet to develop the framework for the tax, which is only at the proposal stage. The framework will show what assets will be affected,” said Mr Mwau.

The capital gains tax, proposed by Treasury secretary Henry Rotich in his June 13 Budget speech, was suspended in 1985. Before then, it was imposed on real estate and shares at a rate of 10 per cent.

Mr Mwau said it was premature to talk about the amount of tax to be imposed until the framework was developed and the proposals discussed by stakeholders.

Analysts see a possible decline resulting from imposition of the tax on shares traded on the Nairobi Securities Exchange.

“Introducing a capital gains tax would [slow] down the ability of companies to raise capital at the bourse, potentially stagnating the development of the market which has struggled to get additional listings despite numerous incentives,” said Standard Investment Bank.