Money Markets
Treasury Secretary Henry Rotich. PHOTO | FILE
By JOHN GACHIRI, jgachiri@ke.nationmedia.com
In Summary
- Kenya’s first sovereign bond was massively oversubscribed and at a lower cost than hoped for. It attracted $8.8 billion, slightly more than four times the $2 billion, or the best case scenario the government had presented.
- Banks, real-estate companies and insurance firms all thronged the bond market looking for money to develop property, expand operations and fund other corporate initiatives.
After years of talk about issuing sovereign bonds,
Kenya finally ventured into the international debt market and chalked up
an impressive performance.
Officials from the Treasury had estimated their sales pitch
across the international finance centres would at best yield $2 billion
(Sh180 billion) at the current exchange rate, but at a high cost since
the debut note coincided with an unfavourable debt market.
But in June, Kenya’s first sovereign bond was
massively oversubscribed and at a lower cost than hoped for. It
attracted $8.8 billion, slightly more than four times the $2 billion, or
the best case scenario the government had presented. The Treasury ended
up taking $2 billion in two tranches of $1.5 billion over 10 years and a
five-year $500 million bond.
In February, the Treasury had said the best rates
would be between 7.625 per cent and 8.125 per cent, due to the US
government cutting back on its bond-buying programme. Kenya managed to
borrow at 5.875 per cent for the five-year portion while the 10-year
bond had a yield of 6.875 per cent.
Market players said in addition to stabilising the
shilling, the successful issue would open doors for local companies to
borrow from the international markets in the future.
Successful issue
Analysts said the successful issue was taken as a
vote of confidence in Kenya’s economy and would give companies the
confidence to initiate borrowing plans.
“With this unprecedented structural change in
government budget financing, we anticipate intensified corporate
activity in the second half of 2014,” said analysts at Genghis Capital
at the time.
This turned out to be an accurate prediction based
on the corporate bonds subsequently issued and whose success rate
mirrored Kenya’s first sovereign bond.
Banks, real-estate companies and insurance firms
all thronged the bond market looking for money to develop property,
expand operations and fund other corporate initiatives. All issues were
oversubscribed with most issuers exercising green-shoe options— a
provision contained in an underwriting agreement that gives the
underwriter the right to sell investors more shares than originally
planned by the issuer.
In July, Britam
was the first company to the market seeking Sh3 billion. The bond ended
up receiving Sh7.4 billion in applications. The listed insurer opted
to exercise its green-shoe option and took up an additional Sh3 billion.
Next was UAP Insurance whose July offer got Sh3.19
billion, a 60 per cent oversubscription of its Sh2 billion target. NIC
Bank was the first lender to go to the bond market in September
targeting to raise Sh3 billion.
Like the two insurance companies, it netted more
than two times what it had bargained for at Sh6.5 billion. It, too,
opted to exercise the green-shoe option and accept Sh5.5 billion.
CIC Group was the third listed insurer to go to the
market seeking Sh3 billion. The offer attracted Sh6.34 billion and the
firm ended up accepting Sh5 billion in October.
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