The Treasury should go for a new Eurobond to take advantage of the declining interest rates in the international market, Dyer and Blair Investment Bank has advised.
Central Bank of Kenya (CBK) data shows the yields for the four outstanding Kenyan Eurobonds on sale in global markets have declined. Even relative to start of this year, all the Eurobond issues have seen their yields fall.
The yield on the 10-year issue of 2014 that is due to mature in 2024 has declined by a much bigger margin of 3.87 percentage points when taking account of its yield at the beginning of last year when it stood at 8.39 per cent.
“In the international market, yields on Kenya’s 7-year (2027), 10-year (2024), 10-year (2028), 12- year (2032) and 30-year (2048) Eurobonds decreased by 55.3, 23.2, 38.1, 45.0 and 37.2 basis points, respectively. The yields on the 10-year Eurobonds for Angola and Ghana also declined,” said the CBK.
Raiding the international market is therefore seen as a viable option, also from a demand point, with investors still keen on African debt issues.
On February 5, Ghana raised $3 billion (Sh301.5 billion) in a Eurobond in three tranches of seven, 15 and 41 years at between 6.38 percent and 8.88 percent, with the issue five times oversubscribed.
“We encourage the government to consider revisiting the Eurobond markets under the current conditions. The yields of existing Eurobonds have fallen since their issue in line with lower global yields following the widespread monetary easing. Against peers, Kenya remains a safer bet for foreign debt investors across all metrics,” said Dyer and Blair.
The analysts however believe that this will only be a stop-gap measure to curb an escalation of domestic interest rates in the face of the increased government spending.
At the same time, syndicated loans being short-term in nature are obtained at high lending rates and should be avoided in preference to a Eurobond.
“We believe that syndicated loans, not Eurobonds are the problem (short term tenors and high interest rates) and encourage the government to consider a Eurobond.