Monday, 30 June 2014

Oversubscription of Kenya’s Eurobond


 When President Uhuru Kenyatta adamantly authorized the CS National Treasury to pay the controversial Kshs. 1.4 billion debt to Anglo Leasing firms, most people were delusional. The rationale was to protect the country’s reputation to bolster its credit worthiness in the international market to maintain a favorable credit rating, shield Kenyans for payment the high interest rates yielded by the Anglo Leasing debt and protect the country’s assets abroad. Non-payment of this debt would cost Kenyans 15 times the debt.
Payment of the Anglo leasing debt was the first step in enabling Kenya issuance of the first international Eurobond/sovereign bond. Otherwise, Anglo leasing would have attached the Eurobond’s proceeds until the debts were settled and this would affect 2014/2015 budget implementation.
Recently, European and American investors have been scrambling to invest in Kenya through the Eurobond. This was witnessed when the bond was over-subscribed. Most importantly, the success of the Eurobond is good news for the Jubilee Government, local and foreign investors as well as the ordinary mwananchi. CS Henry Rotich led the delegation that went marketing the Eurobond in San Francisco, U.S. and London, UK. The government was able to access cheap credit compared to domestic borrowing. The government secured two tranches:
*      -A 10-year Kshs. 131 billion ($1.5 billion) bond at 6.8% interest rate
*      -A 5-year Kshs. 44 billion ($500 billion) bond at 5.875% interest rate
However, instead of the Kshs. 175 billion, the Eurobond was oversubscribed by 500% to Kshs. 770billion.
Kenya sought $1.5 billion but raised $2billion after the Eurobond was oversubscribed. While American investors bought two-thirds of the Eurobond, the British took a quarter. Dollar influx is expected to immediately affect the shilling. A stable shilling will advantage the consumer since it will yield huge ripple effects on manufactured goods cost and energy prices.
The success of the Eurobond will enable the Jubilee Government reduce domestic borrowing recourse. This will enable investment by the private sector. Further, commercial banks will get the incentive to issue better loan terms to their customers.
The funds from the Eurobond will enable Kenya cut government’s domestic borrowing and consequently reduce the interest rates by commercial banks. Through elaborate financial diversification, the Jubilee Government aims at issuing Diaspora bonds, Sukuk bonds, and even the Sukuk (Islamic bonds) in future.  
The government targets the Sukuk in Middle East that conforms with Sharia Law that proscribes interest payments on bonds. Moreover, for the Asian market, the government intends to issue the yen-dominated Samurai bond to enable  it access Japanese capital.
Funds from the Eurobond will enable Kenya retire a Kshs. 52.2billion syndicated loan and boost development projects like geothermal development, Galana irrigation scheme, and the Lamu port. For the ordinary mwananchi, the government aims at pumping Eurobond money to cheaper energy production, cheaper food, and better infrastructure.

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