9 April 2016

Kenya to Re-Enter Market With U.S.$600 Million Eurobond Issue

Kenya could be looking to re-enter the Eurobond market next month as the issuance window reopens for some African countries.

Kenya's money managers last week held a road show in London that Treasury Cabinet Secretary Henry Rotich described as a "non-deal" outing meant to create awareness among target investors on investment opportunities in the country.

"We were in the market to talk to investors about the prospects in the country," Mr Rotich told The EastAfrican.

An IMF staff review had hinted early this month that Kenya was looking at raising $600 million later this year from creditors.

In January, the National Treasury said it would use borrowing from export credit agencies, sukuk bonds, direct bilateral loans and a Eurobond to bridge the budget deficit. The country in its 2016/17 draft budget policy statement said it was aiming to reduce the deficit to 6.9 per cent of GDP ($5.11 billion) from 8.1 per cent ($5.69 billion) in 2015/2016.

Bond sales from sub-Saharan Africa are yet to begin in 2016 after a stormy start to the year for commodities and currencies that has left some countries on the brink of crisis.

While the yield on the $2.75 billion offer in the secondary market has risen, Kenya is still paying interest at the coupon rate of 7.75 per cent on the bond making a second issue still attractive. The yield on the existing 2024 dollar bond is down from it 9.8 per cent January high, and December 6.75 per cent low.

The EastAfrican has learnt that the country could be looking at a coupon rate of 8.25 per cent for the new 10-year bond.

Investment bank Exotix Partners said in its outlook report for 2016 that investors in the international markets were demanding a premium on buying Kenya's 10-year Eurobond in the secondary market a reflection of the economic issuers plaguing the country.

"We think Kenya at near nine per cent yields is attractive. The country has spent much of 2015 stumbling from one small crisis to the next, making it very difficult for investors to get comfortable with what would otherwise be one of Africa's best underlying stories. Investors are more sensitive to negative headlines and policy weaknesses than before," said Exotix.

Reuters data shows a fall in premium demanded by investors on African bonds from 620 basis points in January to 550 bps, with oil importers Kenya and Cote d'Ivoire topping the list of winners.

Exotix also noted that Kenya's investment-driven growth model, its economic diversification, and status as an oil importer in an era of lower commodity prices favours it in the sovereign bonds market.

Kevin Daly, a portfolio manager at Aberdeen Asset Management said that all the odds for a new issue favour the country's currency is now stable, domestic rates are coming down, inflation is starting to fall and growth is in the 5-6 per cent range -- all indicators favouring a new issue.

"Kenya will probably issue a new Eurobond because all factors apart from the eight per cent budget deficit makes it a good investor bet," Mr Daly said.

Kenya could be competing with South Africa and Ghana, both of which also had investor conference calls and road shows in London and Paris. South Africa is looking at raising a 10-year dollar infrastructure bond despite the economic turmoil that has seen its currency slump.

Ghana on the other hand is looking at raising its fifth bond in nine years, with a quarter of the $1 billion proceeds going to repayments of one of its bond maturing next year. This new issue come against the backdrop of its October 2015 issuance at 10.75 per cent, through a partial World Bank guarantee. The existing bond is currently trading at 12.4 per cent.

In December, the country's parliament approved plans by the government to issue fresh Eurobonds of up to $1 billion to refinance debt and support its 2016 budget.

"We are proposing to use $75 million of the proceeds to fill a 2016 budget funding gap of $750 million, while $250 million would refinance a previous Eurobond that matures next year," Ghana's Finance Minister Seth Terkper said.

Kenya

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