18 June 2014

Africa: Investors Snap Up Kenya's Bond to Break Africa Record

INVESTORS have shrugged off risk concerns shown a huge appetite for Kenya's Eurobond debut with the country receiving bids worth $8 billion against a target of $1.5 billion, a senior Treasury official has disclosed ahead of the official announcement on Monday.

The offer is a record for a debut bond in Africa. Other countries that have previously floated similar bonds include Nigeria, South Africa and Ghana, Zambia, Senegal and Gabon. The government will however not take orders beyond $2 billion, according to the ministry official who sought anonymity.

The record bond orders has been attributed to high interest from pension funds, insurers and sovereign wealth funds.

The high interest for the country's first Eurobond is a somehow a suprise given that analysts had projected Kenya had missed to turn to international markets at the right time given that the US Federal Reserve's announcement in December that it would cut back its aggressive bond buying programme.

The Treasury official said the fund-raising yielded two notes, a five year bond with an interest rate of 5.875 per cent and a 10-year bond with a yield of 6.875 per cent, adding that the yields were much lower than expected.

The high demand for the bond signals good news for the government which will partly use the funds raised to repay a $600 million loan that expires mid-August as well as finance the government's ambitious development plans.

Last month the government got a three-month extension for repayment of the loan which it took in 2012 to finance infrastructure projects. The loan was underwritten by Citi Group, Standard Chartered and Standard Bank.

The success of the bond also signals good news for borrowers as it is expected to lead to easing of interest rates since the government will scale back on its borrowing in the local market.

The shilling which has also taken a beating recently over security jitters that have affected tourism, a key forex earner, is also expected to be cushioned following the high subscription rate of the bond.

The money raised will help the government advance its development plans by bridging the Sh342.6 billion budget deficit. The Sh1.7 trillion budget has been termed as ambitious by economic analysts and outlines an elaborate infrastructural upgrade mostly of the road network; among other things.

Zambia floated the first sovereign bond of the year in May raising $1 billion. Ghana was also expected to issue a $1 billion Eurobond earlier in the year but shelved the plans amid uncertain market conditions between March and April.


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