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Kenya to stage US roadshow in drive for $3b Eurobond

Kenya will stage a roadshow in the US this week as it looks to issue a Eurobond of up to $3 billion, to pay debts and invest in infrastructure.

Treasury Cabinet Secretary Henry Rotich was cagey on the details of the issue but people involved in the matter said the pitching would target investment banks in Boston, Los Angeles, New York and Washington DC.

“This is not an issue for publicity,” Mr Rotich said when asked to confirm reports that four banks had been picked to act as bookmakers – salesmen – of the debt placed.

The stopovers were confirmed by a dealmaker who is involved in the exercise.

The money is expected to help offset nearly $1.6 billion from the Eurobond Issue of 2014 ($750 million) and a syndicated loan of $800 million picked two years ago.

Central Bank Governor Patrick Njoroge said during the World Economic Forum in Davos, Switzerland two weeks ago that roadshows were planned around this time.

“There will be a roadshow in mid-February, which would likely be held in the US and Britain,” Dr Njoroge said on the sidelines of the World Economic Forum.

Quoting undisclosed sources, Bloomberg News reported that the National Treasury had chosen Standard Chartered, Citigroup, Standard Bank and JPMorgan Chase to manage the sale.

“The Treasury will seek to raise $1.5 billion to $3 billion in bonds, with a tenor of up 15 years,” the agency reported.

The range tallies with the $2 billion that Kenya said last November it was seeking to raise through a Eurobond in the first quarter of this year for spending purposes only.

Debt structure

It asked banks to propose how to structure the debt over a period of either 5-10 years or 12-15 years, with interest being paid in the final three years. It is understood the government has settled on a 15-year paper in a bid to lengthen the maturity profile of debt.

Kenya’s debut in the Eurobond market was in 2014 when it raised $2.75 billion whose usage drew a lot of questions from the auditor general and the opposition. Its issue will buck the trend of African governments opting for syndicated loans as poor sovereign ratings undermined investor appetite.

In June, Tanzania received a syndicated loan from London-based Credit Suisse Bank worth more than $300 million just five months after announcing it would tap the Eurobond market.

Ethiopia, Ghana and Rwanda are yet to effect plans to issue Eurobonds as economic growth slowdown affects investor sentiment and ratings.

Kenya is hoping to ride on a rally in emerging market assets which saw the yield on its running Eurobond due in 2024 reach a low of 5.45 per cent last month. Senegal and Ivory Coast which share Kenya’s B+ rating were at around 4.5 per cent about two percentage points above the equivalent US debt.

“This is the tightest yield premium over US debt on record that African issuers have seen. There has never been a better time to issue a Eurobond,” said an analyst.

Kenya borrowed more than $4.2 billion in the first four months of this financial year through loans, with a huge chunk of it going into development project financing in energy, water and education sectors. Treasury documents showed $300 million of the loans were from the domestic market.

The largest debt facility was a $750 million loan from Eastern and Southern Africa Trade and Development Bank (TDB) picked up in November last year. Part of its proceeds were used to pay off one of the previous syndicated loan arrangers.

The TDB loan is an eight-year contingent facility lapsing in 2023, but comes with a high interest rate of 6.7 per cent above the prevailing six-month London Interbank Offer Rate (Libor).

The $800 million syndicated loan of February 2017 attracted 5.7 per cent interest above the six month Libor. The Libor was at 1.6 per cent last week.

Domestic debt

Data from the Treasury’s Quarterly Economic and Budgetary Review for the first quarter of the 2017/18 financial year shows that the stock of gross domestic debt increased to $20.19 billion in September last year, from $17.6 billion in September 2016.

On the other hand, the external public debt stock increased by $4.2 billion to $22.37 billion, from from $18.15 billion in September 2016.

In its December 2017 Kenya economic update, World Bank cautioned the country to put in place serious fiscal consolidation measures to slow down the debt accumulation that has seen the debt to GDP ratio rise to 57 per cent from 54 per cent in June 2016.

“The expansionary fiscal stance and underperformance in revenue generation has led to a continued rise in the stock of debt.

The overall surge was attributed to increase in both external and domestic debt, as government borrowed to finance the fiscal deficit,” the bank said.

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