Otiato GuguyuInvestors who have spotted Kenya may carry some of the world’s most profitable assets when Fed turns the corner, as East Africa’s largest economy closes in on Ksh300 billion ($1.9 billion) in local and foreign issues.
Kenya has marked its return to the international debt market with a 10.3 percent price on a Ksh236 billion ($1.5 billion) Eurobond.
The country also looks set on locking a Ksh70 billion ($443 million) local Infrastructure Bond with indicative bids of between 18.5 percent to 19.5 per cent.
The two offers just in time for valentines have marked Kenya as a rare customer. A B3 (Negative) rated borrower carrying very expensive debt because they need the money at whatever costs to avert a liquidity crisis.
Almost as rare as the Black leopard confirmed in Africa for first time in 100 years in Kenya’s Loisaba Conservancy.
The Eurobond markets had not seen an African issue for nearly two years until Ivory Coast broke the spell in anticipation of the US Fed rate cuts, with $2.6 billion bonds, followed by Benin which raised $750 million in debt. Ivory Coast whose credit rating ranks six positions ahead of Kenya and Benin which is five positions ahead both got single digit rates.
For Kenya, pressure to contain spiraling currency and local domestic maturities have meant that expensive money is preferable to inflation and default.
The country’s rush into the international markets may pay off, shutting down the uncertainties around default and cooling the depreciation of the local currency which has lost 26 percent against the dollar in 12 months.
But analysts say it could have cost less if Treasury had waited once the Eurobond maturity is successfully repaid, and we see actual G3 easing (interest rate cuts in advanced economies), risk perceptions towards Kenya are likely to moderate further.
“Eurobond yields should compress materially by H2-2024/H1-2025, and that might be a better time for Kenya to consider external issuance to refinance future debt maturities,” Ms Razia Khan, the Managing Director and Chief Economist for Africa and the Middle East at Standard Chartered PLC told BusinessDaily.
A Valentine at home
News that Kenya had finally resumed access to the international market should have meant the Central Bank of Kenya (CBK) could push down domestic rates by rejecting agressive bids.
Instead brokers indicate there are bids between 18.5 to 19.5 percent on the IFB with an institutional investor pricing lower at 17.5 percent.
The CBK has resorted to pressuring banks to shun aggressive bids in a period of heavy maturities of government debt, and underperforming revenue collection.
The government is in a tight corner having built up short term bills that are coming due even as investors seek lucrative rates to cover mark to market losses on bond holdings due to increasing Central Bank Rates.
The Monetary Policy Committee has raised internal rates 425 basis points over the last one year, making credit expensive for both government and local borrowers.
Churchil Ogutu an economist at IC Capital says Kenya is likely to take expensive bids on the eight-and-a-half-year infrastructure bond on sale until February 14.
He said Kenya has about Sh70 billion maturities coming up which will mean CBK, the fiscal agent, has limited scope to reject bids on the table.
“There are maturities coming up of around Ksh70 billion, so actually they may accept more than the offer and absorb the aggressive bids,” he said.
He said the government will have a better chance at bringing down the rates in subsequent offers in March once there is more visibility on the flows from the International Financial Institutions, the Eurobond and syndicated issues.
“The effect of the liability management will filter through in subsequent issues from March. The details will become clearer in the supplementary budget II that will show the fiscal needs of the government going forward,” he said.
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