The Star (Nairobi)

26 June 2014

Kenya to Target Funds From Middle East and Asia Next Year

KENYA plans to borrow more from the international market next year after the successful debut Sh175 billion ($2 billion) Eurobond issue, National Treasury Cabinet Secretary Henry Rotich said yesterday.

Rotich said next year's issue will largely target cash from oil-rich Middle East, tiger economies of Asia and Kenyans leaving abroad-the present leading foreign exchange earner.

The bond issue on Irish Stock Exchange Monday last week comprised of a five-year Sh43.73 billion($500 million) and the 10-year Sh131.21 billion($1.5 billion) with a yield of 5.875 and 6.875 per cent, respectively.

It was dominated by the US and UK investors at 68 and 25 per cent, respectively, for the $1.5 billion bond and, 66 and 17 per cent for the $500 million issue.

The participation of investors from Middle East and Asia in the $1.5 billion bond was two per cent while in the $500 million offer it was three per cent.

The share of investors from other European countries was four and 13 per cent respectively for the $1.5 billion and $500 million offer, respectively.

Rotich said some of the money in the next 2015/16 budget will come from international borrowing with products such as sukuk(Islamic bonds) and diaspora funds under consideration.

"Our intention is to diversify the funding mix," he said at a press conference at State House Nairobi yesterday, adding that low participation by investors from Asia and Middle East was as a result of lack of suitable products.

The money was heavily invested through fund managers at 87 per cent for the $500 million and 84 per cent for $1.5 billion, respectively. The rest was taken up by banks and insurers.

President Uhuru said the borrowed funds already in Kenyan accounts will be invested in sustainable infrastructural development in energy, transport and agriculture.

He said the issue oversubscribed by 500 per cent will open doors for private sector borrowing abroad and reduce public domestic borrowing thereby reducing domestic interest rates.

Priority areas are expansion of power transmission lines, drilling of more geothermal wells, dredging of Lamu port, building of urban commuter rail in Nairobi and basic infrastructure at the one-million hectare Galana/Kulalu irrigation scheme.

"We are working with key infrastructure ministries to ensure procurement plans are ready over th next two weeks," Rotich reassured on absorption of the funds this next financial year beginning next month.

A total of Sh52.48 billion ($600 million ) will however be used to clear the 2011 /12 syndicated loan from Citibank London, Standard Chartered Bank London and Standard Bank of South Africa in August.

The success of the bond was largely driven by sound macroeconomic management policy, stable credit rating of B+, a diversified economy with strong private sector and the constitution that keeps checks and balances on institutions, the CS said.

The bond received an encouraging 102 per cent bid on the first day of trade on the Irish Stock Exchange. The Treasury, the CS said, was working on modalities to cross-list the bond on the Nairobi Securities Exchange but this "will take longer."

Meanwhile, Uhuru has directed the Central Bank to implement the Kenya Bankers' Reference Rate to act as the base lending rate with any cost above it disclosed to the borrower through the Annual Percentage Rate. CBK governor Njuguna Ndung'u said clear guidelines will be issued after the next Monetary Policy Committee meeting on July 8.

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