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IMF cover may drive sovereign bond price

CBK Governor Patrick Njoroge
CBK Governor Patrick Njoroge. FILE PHOTO | NMG 

Kenya could be forced to pay a premium for a new Eurobond because it currently does not have a programme with the International Monetary Fund (IMF) after the last one ended unsuccessfully.

However, this could change as CBK governor Patrick Njoroge said the State has opened talks with IMF while noting Kenya last year did not have such cover.

According to a new analysis by Dyer & Blair Investment Bank, the tighter global economic environment could also push up the yields in such a sovereign bond.

Kenyan authorities were unable to fulfil the conditions of the multilateral lender — technically called completing a review — because the Treasury was pursuing an expansionary budget that made it impossible to meet, for example, the fiscal deficit targets for several consecutive years.

“The expiry of the IMF standby facility in September amid rising global rates mean that investors will demand an ever higher premium this time,” said Dyer & Blair.

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The Treasury plans to tap the international market by June for a Eurobond whose amount is yet to be specified even though global financiers have already received request for proposals documents.

The verdict by the IMF that the Kenyan central bank manipulates or manages the shilling, instead of letting it to float freely, could also be a factor when the bond is offered for sale.

“It is important to highlight that the best performers in the sub-Saharan African’s 2018 Eurobond issues were countries that were co-operating with IMF,” said Dyer & Blair.

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