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Secrecy shrouds Kenya’s $2b Eurobond as Treasury mandarins withhold details

Kenya’s issuance of its second Eurobond worth $2 billion at the London Stock Exchange (LSE) on Wednesday was the culmination of a well thought-out hush-hush plan that had book runners, arrangers and government officials appearing gagged.

In stark contrast to its debut $2.75 billion issued four years ago, the current one was conducted without public awareness in the country, no prospectus was released to the public, and no indication on which investors the Eurobond was being pitched to.

By Friday, the prospectus for the debt, which Treasury Cabinet Secretary Henry Rotich announced was seven times oversubscribed, was still not available to the media. Mr Rotich told The EastAfrican the document was the preserve for investors.

The document generally contains projections, contingency plans, forecasts, use of funds, explains the country’s financial health in detail, to help the investors make an informed decision.

It would shed light on the intended use of the debt, and tell Kenyans what commitments government has made on their behalf.

In the first public statement since quietly leaving the country for a roadshow in the US and UK, Mr Rotich announced on Thursday that the bond had attracted up to $14 billion, making it one of the highest order books for an issue from Africa.

“That we got $14 billion in investor appetite reflected the continued support the country receives. We now have a dollar yield curve stretching out to 30 years, making Kenya one of only a handful of governments in Africa to achieve this. The funds will be applied towards the government’s development initiatives and liability management. We will continue to invest in the infrastructure and capacity to roll out these programmes,” Mr Rotich said.

Bond issuance leak

The Eurobond will cost the Kenyan taxpayer a total of $3.2 billion in interest payments during its lifetime of up to 30 years.

Unlike in 2014, when he gave public interviews prior to the sovereign bond issuance, Thursday’s statement would be Mr Rotich’s first public admission and disclosure of the bond’s existence, having in November last year, quietly asked the lead arrangers comprising Citi Group, Standard Chartered Bank, JP Morgan and Standard bank for pitches on how to structure the sale.

Last week’s discreet roadshow in the US cities of Boston, New York was also different from the 2014 one, with the expectation that Treasury would at least give an indication on which investors it would be pitching to.

This did not happen. Instead, as the country expected its top Treasury officials to head to London on the last leg of the roadshow, a bond issuance leak emerged via news agencies mid Wednesday morning.

The EastAfrican’s efforts to get the prospectus from the LSE were unsuccessful too.

In the 2014 bond, the prospectus was made available to the public and can still be accessed at the Irish Stock Exchange here the bond was issued.

On Thursday, the LSE tweeted a photo Mr Rotich, Treasury Permanent Secretary Dr Kamau Thugge, several banking executives from the lead arrangers’ teams and LSE executives, which was followed shortly by a statement from Treasury confirming the bond listing at the LSE.

He said Kenya had indeed issued a 10-year tenure bond at the rate of 7.25 per cent and a 30-year bond at the rate of 8.25 per cent on Wednesday. At its opening, the instrument was trading at 7.11 per cent while the 30-year one traded at 8.14 per cent.

“We have seen significant investment to our growing economy from global investors and this listing provides yet a further avenue for investors to participate in our story,” Mr Rotich would later say in a statement.

Economist David Ndii says the secrecy points to “a system that was determined to sell to the investors their own version of a success story outside of the reality”.

Previous bond proceeds

“This is not the way the Eurobonds market works. You do not go on a secret roadshow with no public prospectus. It means that they have something to hide. We have yet to conclusively get responses on what happened to the previous Eurobond proceeds, for which we are borrowing now to repay. We also saw this week the IMF standby facility debacle play out,” Dr Ndii said.

Deepak Dave, the founder of Riverside Capital, a debt advisory firm, said that the secrecy around these sorts of market issuances is never good.

“The disclosure requirements in developed markets are so strict that the truth always comes out anyway. Better to address the bad news with positivity than hide things.

As it is, and from the Order Book, the market is positive about Kenya’s prospects, hence the 30-year funding.

It would be important for the Treasury to build on that sentiment by broadening Kenya’s access to capital. Therefore, we can’t treat each Eurobond as a matter of national crisis, but instead as a positive,” Mr Dave said.

Transparency International Kenya executive director Samuel Kimeu said that the huge repayment schedules were of concern even to international institutions.

“When the public debt-to-GDP ratio was 30 per cent, Treasury and the government said that it had breached the red line of 40 per cent.

But now we are paying over 50 per cent of our revenue to service these debts and that must be worrying,” Mr Kimeu said.

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