Treasury sets Sh85bn target for international bond

The Treasury building in Nairobi. Kenya government has requested the services of a lead counsel and lead manager, setting in motion plans to issue a $1 billion sovereign bond in the international markets this year. FILE 

By GEORGE NGIGI

In Summary

• It set off the search for transaction advisors for what is set to be Kenya’s maiden eurobond issue.
• The amount will be used for infrastructure development.
• The lead manager will assist Treasury determine the appropriate time to float the issue, its amount, tenure, and coupon. The lead counsel on the other hand will advise on US and European securities laws and help in negotiating contractual agreements with other players.

The government Tuesday confirmed that it would seek $1 billion (Sh85 billion) through a sovereign bond from international lenders.

It set off the search for transaction advisors for what is set to be Kenya’s maiden eurobond issue.

The Treasury has harboured plans to issue a sovereign bond for more than six years, but the call for applications for lead counsel and manager is the clearest indication that it will pursue the loan in this year.

“The government is considering accessing the international capital markets by the second half of the calendar year 2013 to issue a sovereign bond. The targeted amount is provisionally set at $1,000 million,” reads part of an advertisement published in Tuesday’s newspapers.

The amount will be used for infrastructure development, which has been the biggest loser in recent budget cuts as recurrent expenditure took up 73 per cent of the total Sh1.6 trillion outlay.

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The deadline for expressions of interest for both positions is July 15, according to Treasury’s statement.

The lead manager will assist Treasury determine the appropriate time to float the issue, its amount, tenure, and coupon. The lead counsel on the other hand will advise on US and European securities laws and help in negotiating contractual agreements with other players.

Analysts urged the government to hasten the issue as global interest rates were expected to rise following reports that the US government was preparing to terminate its economic stimulus programme which has been the main supplier of global liquidity.

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“US government bond yields are the benchmark, off which everything Prices. And this yield curve is shifting higher dramatically (post Bernanke’s quantitative easing exit road map speech) and therefore the government needs to move with speed and dispatch,” said Aly-Khan Satchu, managing director of financial advisory firm Rich Management.

He said the country would easily raise the $1 billion target given there was high demand in the market.

A 10-year period was considered ideal so as to ensure there was no huge difference between the local and international rates.

Suntra Investment head of research Johnson Nderi said that the government would also be keen to structure the bond in a way that does not burden the Treasury’s refinancing schedules.

Borrowing from the international markets is expected to help the State to avoid crowding out of the private sector from accessing bank loans.