Rotich clears way for AfDB bond sale

Mr Gabriel Negatu, the AfDB regional director: “Investors will not be subject to tax.” FILE 

By GEOFFREY IRUNGU,

In Summary

• Treasury secretary Henry Rotich grants African Development Bank (AfDB) special status that allows it to issue a corporate bond in Kenya.
• This paves the way for AfDB to issue a Kenya shilling denominated bond to ease the bank’s lending to local companies.

Treasury secretary Henry Rotich has granted African Development Bank (AfDB) a special status that allows the continental lender to issue a corporate bond in Kenya as if it were a local public entity.

The status, granted by Mr Rotich through a legal notice, paves the way for AfDB to issue a Kenya shilling denominated bond to ease the bank’s lending to local companies.

“In exercise of the powers conferred by sections 2 of the Central Bank of Kenya Act, the Cabinet Secretary for the National Treasury, on the recommendation of the Central Bank of Kenya, specifies the African
Development Bank as a public entity for the purposes of the Act,” said Mr Rotich in the Gazette notice.

Besides Kenya and Uganda, AfDB said in July that it was planning to issue up to $1.5 billion worth of similar local currency bonds in Zambia and Nigeria.

(READ: Kenya to benefit from $1 billion AfDB bond)

Designation as a public entity also means buyers of the AfDB bond will get withholding tax concessions.

In Kenya, government bonds of a tenor of between two and nine years are subject to 15 per cent withholding tax, while those of 10 years and above pay 10 per cent of the same levy, while some infrastructure bonds are tax-exempt.

“Designation as a Kenyan public entity will make the bonds issued by AfDB more similar to GoK bonds. Investors in an AfDB bond in Kenya will not be subject to tax for their investment,” said Gabriel Negatu, the director of AfDB’s East African Regional Resource Centre in Nairobi.

The AfDB bond is intended to raise funds for private sector, long-term lending, for both infrastructure and other development projects, helping to address the current situation where commercial banks only give short term loans due to over-reliance on current customer deposits.

It is the first time the organisation is to issue such a bond in Kenya, although it has issued such bonds in Uganda and South Africa.

Mr Negatu said that without the designation as a public entity, the organisation would only issue foreign currency bonds, leaving it without the competitive edge of the local unit.

“[Without the public entity designation] it means that we would only be able to issue in dollars and pounds; given that forex is fickle, it would not give us the competitive advantage of issuing a bond in this market,” said Mr Negatu.

Geoffrey Mwau, economic secretary at the Treasury, said that the triple ‘A’ rating of AfDB and its international reputation, the entry of the bank into the local market for funds would raise the profile of the Kenyan capital markets.

“Considering its triple ‘A’ rating and its international reputation, its entry in our market will raise the profile of our capital markets and send the right signals in terms of corporate governance,” said Dr Mwau.

With a good rating and lending long-term, the bank would also realise a relatively lower yield, and therefore cheaper debt for institutions that would participate.