Treasury targets Sh68 billion more from Eurobond

Money Markets

Treasury secretary Henry Rotich promised to make a public statement on the Eurobond on Wednesday. PHOTO | FILE 

By GEORGE NGIGI, gngigi@ke.nationmedia.com

Posted  Tuesday, December 2   2014 at  00:00

In Summary

• Reopening of the Eurobond increases the total proceeds to Sh248 billion ($2.75 billion). The bond had initially raised Sh180 billion.
• Analysts reckon that the silent reopening of the bond was a pointer to the fact that the Treasury talked directly to investors who participated in the initial offer to take up more of the bond.
• The Treasury has been planning to exploit the huge investor appetite with plans for sukuk and diaspora bonds set for next year.

Kenya has reopened the sovereign bond it issued in June, raising an additional Sh68 billion ($750 million) from international investors.

The Business Daily has learned that the bond went on sale last Tuesday and the proceeds are set to be received on Wednesday.

Reopening of the Eurobond increases the total proceeds to Sh248 billion ($2.75 billion). The bond had initially raised Sh180 billion.

The Treasury has made little disclosure on the reopening of the bond and it has now emerged that only Parliament’s Budget Committee was informed about it ahead of the move.

Treasury secretary Henry Rotich did not inform the parliamentarians of the reopening date, which happened the same day he appeared before the committee.

On Tuesday, Mr Rotich promised to make a public statement on the Eurobond on Wednesday when people familiar with the transaction expect him to receive the proceeds.

“I will issue a statement on it on Wednesday,” he said.

Analysts reckon that the silent reopening of the bond was a pointer to the fact that the Treasury talked directly to investors who participated in the initial offer to take up more of the bond -- in a process commonly referred to as book building in financial jargon.

“It shows they were not desperate; they already had buyers,” said an analyst who did not wish to be named because of his role in the transaction.

Kenya’s debut borrowing in the international bond market was heavily oversubscribed with investors offering nearly $8 billion or four times the $2 billion target.

The Treasury has been planning to exploit the huge investor appetite with plans for sukuk and diaspora bonds set for next year.

READ: Kenya mulls issuing Islamic bond next financial year

Investor appetite has resulted in the price of the bond rising at the Irish Stock Exchange where it is listed for trading. The Treasury is hoping to pocket Sh3.9 billion ($43 million) as a premium from the price changes.

The five-year paper now has a five per cent yield having declined from the initial 5.875 per cent at which the bond was initially issued. Declining yield is usually an indication that prices have risen since issuance benefiting a seller who initially held the paper at the lower prices.

Yields and prices move in opposite directions. The yield of the 10-year paper has also declined to 5.9 per cent from the initial 6.875 per cent, meaning its price has risen.

Of the $750 million issued, $500 million will mature after 10 years while $250 million has a five-year tenor.

The Treasury has turned to international borrowing in the hope that it will help bring down interest rates on the domestic front.

Heavy domestic borrowing by the government has been partly blamed for the high interest rates in Kenya as banks have to factor the opportunity costs while lending to an individual.

Last week, Parliament approved the Treasury’s request for a doubling of international debt ceiling to Sh1.2 trillion.

The Treasury had argued that the economy is able to absorb more debt following the recent fresh computation of the GDP, also known as rebasing.

Analysts, however, question the country’s ability to absorb the interest payments. The funds, though borrowed for infrastructural development, are mainly going to support budget needs that do not translate to growth in revenue.

External borrowing exposes the country’s interest payments to movements in the volatile foreign currency market. The first interest payout for the bond is expected to be made in December.

The interest will be for the sum of $2.75 billion due to the reopening whose interest payout follows the schedule of the initial offer.

In the three months to September, interest payment took 14 per cent of the Sh276.6 billion that the Treasury spent in the quarter to September making loan servicing the second-largest expenditure item after teachers’ salaries.

Data released by the Treasury showed that interest on domestic and foreign loans grew rapidly by 35.8 per cent to Sh38.5 billion in the quarter to September.

Kenya’s gross public debt stood at Sh2.3 trillion at the end of September out of which Sh1.2 trillion (53 per cent) was domestic and Sh1.08 trillion external.

The International Monetary Fund (IMF) and the World Bank have previously warned Kenya to put a tight lid on its debt load to keep its economy on a steady growth path