The Treasury building in Nairobi. Photo/FILE
By Carol Musyoka
In Summary
- Why would international investors want to buy Kenyan paper on the day after one of the most vicious attacks on citizens made headline news globally?
- The investors see a well-educated populace that does not need to import talent for management of key economic sectors.
- They also see a commitment to infrastructure roll out that continues to make Kenya the country of choice for establishing a regional presence.
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“What is it, child?”
“Father, I have committed the sin of vanity. Twice a
day I gaze at myself in the mirror and tell myself that I am the most
beautiful woman who ever walked the face of the earth.”
The priest turned, looked at the woman and said, “My dear, I have good news. That isn’t a sin – it’s only a mistake.”
Kenyans are extremely vain. We bash each other in
political rallies and on social media platforms, strumming the guitar
strings of tribal hatred. We dismiss our verbal intellectual engagements
with each other with such summary barbs as “your name says it all”.
We yell. We scream. We thump our chests with the
fighting spirit of our tribal kinsmen. We mope about in our houses at
the thought that our country is going back to the brink of chaos.
We are extremely vain. Vain at the thought that we
have come to the end-of-our-world-as-we-know-it, once again at the
behest of politicians on both sides of the divide and their pathetic,
puerile war-mongering.
Our vanity stems from the thought that the
self-centred, round-the-clock guarded, filthy-stinking-rich political
elite will drive us over a bloody cliff.
Well, the investors in Kenya’s debut Eurobond just
gave us a reality check. They just told us: “Well that’s a mistake, it’s
never going to happen and here is $8.8 billion (Sh770 billion) proof
that we are putting our money where our mouth is!”
What, in heaven’s name, is going on with
international investors? Have they gone mad? Did they not read the
139-page Republic of Kenya Eurobond Prospectus?
A prospectus for any publicly traded debt or equity
issue must clearly articulate the risks faced by the issuing entity.
The Eurobond prospectus takes a no-holds-barred approach and tells
investors what we Kenyans already know.
We are two cents short of a Third World basket case
with identified risks such as a significant unrecorded economy,
unreliability of our statistical information, corruption and money
laundering, untested legal reforms that can adversely effect the
economy, internal security issues, political instability from the
International Criminal Court (ICC), shilling depreciation risk….you get
my drift.
A seasoned Kenyan banker will tell you that nothing
gives an international lender more sleepless nights than what is called
cross-border risk, that is, that the government of a foreign currency
borrower will put in place restrictive policies on the convertibility of
local currency to foreign currency or the transferability of that
foreign currency to a jurisdiction outside the home country. (In case of
any doubt, ask the Zimbabweans).
Sure, of course you will say that this is the
Government of Kenya borrowing and they will always ensure that foreign
currency is available to repay the debts. However, as a net generator of
local currency, the government has to purchase that foreign currency in
the open market.
If it cannot then the risk of government debt
default becomes clear and present as happened in Russia in 1998,
Argentina in 2001 and Greece in 2012. Those governments simply ran out
of money to pay their international debts.
The impact on such default is immediate in the international
markets with regards to the country’s credit rating. The Fitch rating
(where Fitch are one of those chaps who put a tonne of data into a
computer that generates a risk rating algorithm whose outcome is Bible
truth to investors) for Kenyan sovereign international debt is B+.
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The Kenyan rating is higher than that of Greece at plain B
and Argentina at CC. Which explains why it was imperative that the Anglo
Leasing payments be made as non-payment of a Kenyan sovereign payment
obligation would definitely drive the credit rating, which in turn
drives the pricing and placement of the debt in the international
market.
But why would international investors want to buy
Kenyan paper on the day after one of the most vicious attacks on
citizens made headline news globally? Why would they want to buy Kenyan
paper when there are several other emerging market economies with higher
credit ratings?
Because these savvy investors have seen it all.
But as my favourite investment banker told me last
week, it comes down to one thing: Kenya is one of the highest performing
non-resource economies on the continent.
We are not (yet) producing oil, gold, diamonds or
copper but continue to grow at a four per cent GDP rate and blaze the
trail in telecoms and banking penetration. The investors see a steely
resolve in the Kenyan economy, a resolve to continue growing despite ICC
tribulations.
They see a necessary pressure valve called loud,
unfettered political rhetoric combined with a vibrant National Assembly,
both of which help to release pent up political frustrations rather
than going the South Sudan way of the gun.
The investors see an economy that has, since 1992,
consistently had five-year knocks and positive rebounds in line with the
multi-party electoral cycle.
The investors see a well-educated populace that
does not need to import talent for management of key economic sectors.
The investors see a commitment to infrastructure roll out that continues
to make Kenya the country of choice for establishing a regional
presence. We don’t see it.
All we see is noise, death, destruction and a bleak
future. Well, we have just witnessed $8.8 billion reasons why it seems
brighter from the outside.
The Eurobond investors have told us what we are too
blind to see. Kenya rocks. Congratulations are due to Henry Rotich and
his Treasury team for an excellent outcome.
carol.musyoka@gmail.com
Twitter: @carolmusyoka
Twitter: @carolmusyoka
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