Kenya changes its borrowing habits

Published Jul 30, 2014

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David Malingha Doya

KENYA is on the threshold of one of the biggest changes in its borrowing habits since independence five decades ago.

Following a debut sale of eurobonds last month, President Uhuru Kenyatta’s government is considering first-time offerings of yen-denominated debt and sharia-compliant securities, according to Treasury Secretary Henry Rotich.

“There is a bit of euphoria around African issuance,” Nema Ramkhelawan-Bhana, an analyst at Rand Merchant Bank, said on Monday. “Perhaps they’re being opportunistic.”

Falling borrowing costs are prompting Kenya to tap global debt markets and rely less on local funding as it struggles to counter terrorism and revive a slowing economy amid a slide in tourism, the biggest foreign exchange earner after tea.

Arrivals of holidaymakers fell 18 percent to 1.4 million last year following a series of gun and grenade attacks across the country, including a deadly raid by the militant Islamist al-Shabaab group on a Nairobi mall in September last year.

African nations including Zambia, Ivory Coast and South Africa have raised $4.75 billion (R50.4bn) in dollar bonds this year, following record issuance last year of $6.25bn.

Senegal sold $500 million of 10-year debt last Wednesday, a week after offering 100 billion CFA francs (R2.2bn) of sukuk. South Africa and Nigeria are considering Islamic bond sales.

“It makes sense for Kenya to diversify its investor base and take advantage of demand for Kenya risk in yen,” Mark Baker at Standard Life Investments in London said. “As an issuer, having different investor types and pools of capital to tap into is attractive.”

The offerings, which include diaspora bonds sold to Kenyans living abroad, were being considered for the fiscal year to June next year, Rotich said on Friday, adding that a decision on the type of bonds and the amount to be issued would be made “in weeks”. “Once we make a decision, we shall be able to go to the market in just a few months, because we now have experience from issuing the eurobond,” Rotich said.

Kenya first weighed selling eurobonds in 1997. It received orders for five times the $2bn it raised from last month’s sale. Since they were sold the yield on the eurobonds due in June 2024 has dropped 86 basis points to a record low of 6.02 percent on Monday.

That compares with an 11 basis-point drop in average African yields this month to 5 percent, according to JPMorgan Chase indices.

“There needs to be some urgency” with yields at a record low, said Aly-Khan Satchu, the chief executive of Nairobi-based Rich Management, an adviser to companies and wealthy individuals. “These are signals that no cabinet secretary should ignore.”

Unprecedented stimulus from central banks including the Bank of Japan, US Federal Reserve and European Central Bank is spurring demand for riskier debt to boost returns. The rate on 10-year US treasuries is 2.48 percent. It is 0.53 percent on similar-maturity Japanese government bonds.

The World Bank has lowered its forecast for Kenya’s economic growth this year and next year to 4.7 percent, from as much as 5.2 percent. The shilling has lost 1.7 percent against the dollar this year.

Fitch Ratings affirmed the country’s credit rating at B+, the fourth-highest non-investment grade category, with a stable outlook on Friday.

Rotich said Kenya planned to cut its domestic borrowing target of 191 billion shillings (R23bn) for the current fiscal year and use outside markets to make up the difference.

In his Budget last month, Rotich said the country would raise 150 billion shillings from external sources. – Bloomberg

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