Kenya’s Eurobond was priced higher than that of Senegal and South Africa based on factors such as narrow sources of foreign exchange (FX) earnings despite the three nations having almost similar credit ratings.
Analysis by Sterling Capital Ltd says the $2.1 billion (Sh214.2 billion) issue, though much lower than the Initial Pricing Thoughts (IPT) at the start of the issuance, is expensive when compared with that of other countries enjoying stable ratings by Standard & Poor’s.
“Kenya’s bond spreads while lower than those of Ghana are significantly higher than Senegal’s and South Africa’s in spite of having almost similar credit ratings,” Sterling Capital says.
It adds that Kenya lacks a diversified FX earning export base and has low FX reserves, major factors in Eurobond pricing.
Kenya’s exports are composed of a few primary commodities, which include tea, coffee, cut flowers, and vegetable products, accounting for more than 50 percent of total exports. The trade direction is also limited to a few countries with Comesa and the EU accounting for more than 60 percent of exports.
Both Kenya and Senegal have B+ ratings by S&P while South Africa has BB rating. Kenya’s pricing of the seven-year and 12-year tenor Euro bond have a spread of 4.59 percent and 5.48 percent respectively. This signifies higher risk when compared with the spread of 3.71 per cent for Senegal and 3.17 per cent for South Africa.