Kenya’s Eurobond offer oversubscribed by $12b

The government has raised a new $2 billion (Sh204 billion) Eurobond even as the International Monetary Fund (IMF) team, currently in the country to review a precautionary credit facility, raised a red flag on the growing public debt.

According to a statement by the National Treasury, the government team managed to conduct a successful road show with international investors that drew a significant level of interest in the issue, leading to oversubscription.

The bond which was jointly arranged by Citi, JPMorgan, Standard Bank and Standard Chartered Bank was executed at the London Stock Exchange and Irish Stock Exchange.

“This issue was seven times oversubscribed. And makes it one of the highest order book for an issue from Africa,” the Treasury statement said.

“The fact that we got $14billion (Sh1.4 trillion) in investor appetite, (this) reflected the continued support the country receives. We now have a dollar yield curve stretching out to 30 years, making Kenya one of only a handful of governments in Africa to achieve this.”

According to reports, the bond will be split equally between 10 and 30 year tranches. The 10 year bond will yield a coupon return of 7.25 per cent while the 30 year bond will yield an 8.25 per cent.

Treasury said proceed money will go to fund government’s development initiatives and liability management. This includes servicing loans like the earlier $750 million (Sh7.6 billion) bond, which is expected to mature before June this year.

The Treasury exuded confidence that the issuance of the bond supports the government’s liquidity and also confirm the vibrancy of Kenya’s economy.

“Specifically with the 30-year yield, investors have shown their long-term belief that Kenya is a stable economy in which long-term investments are safe. It also shows investor comfort with the continuity of government following elections last year.”

However, an IMF mission led by Ben Clements, Resident Representative for Kenya Jan Mikkelsen and Senior Economist Niko Hobdari tore into Kenya growing fiscal deficit that has led to ballooning of the public debt.

Appearing before the Nation Assembly Budget and Appropriation Committee led by Kimani Ichung’wa, the Mission raised issue with the rising fiscal debt.

“We are concerned with the size of the fiscal deficit and our advice to the government is to lower the deficit to ensure that public debt is not increasing any further. If the deficit we have seen in last few years continues then the economy will not be able to sustain the debt,” said Mikkelsen.

The country’s fiscal deficit last financial year stood at nine per cent and is expected to reduce to eight per cent once the budget for the current year is implemented.

IMF Senior Economist Niko Hobdari said that although the current public debt is sustainable, the government should check on its expenditure in the short term and in the long term, to put in place solid measures to increase revenue collection to meet expenditure targets.

The Mission also told the MPs that while the IMF cautionary credit programme ends next month, they are reviewing the programme with an intention of agreeing with the government to come up with a new programme.

“We are reviewing the current programme ending in March and then hopefully we will get to an agreement for a new programme going forward. Money for the current credit facility was only made available to the government as a buffer and the new facility will be the same,” said Mikkelsen.

“Kenya’s economy is resilient and strong and CBK has put in place sufficient reserves to withstand any shocks. That is why the government did not go for the precautionary credit,” he added.

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