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Kenya raises $2bn in long-dated debt despite IMF row
East African nation taps bond markets after Fund withholds credit facility
Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Share on Whatsapp (opens new window) Save Save to myFT Kate Allen in London and John Aglionby in Nairobi 3 HOURS AGO
Kenya has raised $2bn of long-dated bonds, including 30-year debt, despite an ongoing wrangle with the International Monetary Fund over a standby credit facility.
The Fund ended Kenya’s access to the $1.5bn facility last June but the country’s central bank continued to report as recently as last month that the money was still available.
Today’s $1bn, 10-year bond was priced at 7.25 per cent, while the $1bn, 30-year debt was priced at 8.25 per cent. Both were slightly below the initial guidance set out by bankers working on the deal, of 7.625 per cent and 8.625 per cent respectively.
Aly-Khan Satchu, an investment adviser in Nairobi, said the bond was “priced to clear — they want to raise a lot and they want to raise it quickly”.
The government’s motivation for raising so much dollar-denominated debt is to inject liquidity into the economy, Mr Satchu said. “This economy needs liquidity like a shot in the arm to get going again. Pricewise it’s very generous in order to get the amount they want.”
The bond issuance came despite credit rating agency Moody’s downgrading Kenya last week.
Moody’s cut Kenya’s rating from B1 to B2 and assigned a stable outlook, as Kenyan officials were marketing the bond issue to prospective investors.
The rating agency said it expected Kenya’s government debt to increase due to public spending plans and difficulties in raising revenues.
Kenya’s economy is relatively diversified compared to many in sub-Saharan Africa and was one of the best regional performers for many years. It grew 5.8 per cent in 2016 but a severe drought, massive slowdown in lending to the private sector and the worst political crisis for a decade saw it slow markedly last year.
Most analysts expect the 2017 growth figure to be around 4.6 per cent. The political crisis was triggered by the supreme court nullifying the result of the August presidential election and ordering a fresh vote. The opposition boycotted this and refuses to recognise President Uhuru Kenyatta’s victory in the October rerun.
Kenya has said that some of the new bond proceeds will be spent on paying off a $750m syndicated loan that matures in June.
Kenya’s rising debt level is of increasing concern in the markets. The finance ministry is currently expecting to spend 45 per cent of tax revenue on paying off loans.
Moody’s has forecast government debt will increase to 61 per cent of GDP in the 2018/19 financial year from 56 per cent in 2016/17 and 41 per cent in 2011/12.
Short-term debt rose to 9.4 per cent of gross domestic product at the end of June 2017 from 3.3 per cent five years earlier, Moody’s wrote in a report last week:
“The risk of financing stress will increase as more commercial external borrowing, denominated in foreign currency, begins to mature over the next few years, particularly in an environment of rising global interest rates and a number of sub-Saharan African sovereigns seeking refinancing at the same time,” Moody’s said.
Kenya’s opposition has repeatedly criticised the government for a lack of transparency over how the last $2bn bond issued in 2014 was spent.
Politicians have argued most of it cannot be accounted for but they have failed to pinpoint specific corrupt acts. The government has admitted much of the money was deposited into its consolidated account and so it is impossible to specify what it was spent on.
Citi, JPMorgan, Standard Bank and Standard Chartered Bank acted as bookrunners on this week’s deal. In addition to Kenya’s rating from Moody’s, it is rated B+ stable by S&P and B+ stable by Fitch.
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East African nation taps bond markets after Fund withholds credit facility
Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Share on Whatsapp (opens new window) Save Save to myFT Kate Allen in London and John Aglionby in Nairobi 3 HOURS AGO
Kenya has raised $2bn of long-dated bonds, including 30-year debt, despite an ongoing wrangle with the International Monetary Fund over a standby credit facility.
The Fund ended Kenya’s access to the $1.5bn facility last June but the country’s central bank continued to report as recently as last month that the money was still available.
Today’s $1bn, 10-year bond was priced at 7.25 per cent, while the $1bn, 30-year debt was priced at 8.25 per cent. Both were slightly below the initial guidance set out by bankers working on the deal, of 7.625 per cent and 8.625 per cent respectively.
Aly-Khan Satchu, an investment adviser in Nairobi, said the bond was “priced to clear — they want to raise a lot and they want to raise it quickly”.
The government’s motivation for raising so much dollar-denominated debt is to inject liquidity into the economy, Mr Satchu said. “This economy needs liquidity like a shot in the arm to get going again. Pricewise it’s very generous in order to get the amount they want.”
The bond issuance came despite credit rating agency Moody’s downgrading Kenya last week.
Moody’s cut Kenya’s rating from B1 to B2 and assigned a stable outlook, as Kenyan officials were marketing the bond issue to prospective investors.
The rating agency said it expected Kenya’s government debt to increase due to public spending plans and difficulties in raising revenues.
Kenya’s economy is relatively diversified compared to many in sub-Saharan Africa and was one of the best regional performers for many years. It grew 5.8 per cent in 2016 but a severe drought, massive slowdown in lending to the private sector and the worst political crisis for a decade saw it slow markedly last year.
Most analysts expect the 2017 growth figure to be around 4.6 per cent. The political crisis was triggered by the supreme court nullifying the result of the August presidential election and ordering a fresh vote. The opposition boycotted this and refuses to recognise President Uhuru Kenyatta’s victory in the October rerun.
Kenya has said that some of the new bond proceeds will be spent on paying off a $750m syndicated loan that matures in June.
Kenya’s rising debt level is of increasing concern in the markets. The finance ministry is currently expecting to spend 45 per cent of tax revenue on paying off loans.
Moody’s has forecast government debt will increase to 61 per cent of GDP in the 2018/19 financial year from 56 per cent in 2016/17 and 41 per cent in 2011/12.
Short-term debt rose to 9.4 per cent of gross domestic product at the end of June 2017 from 3.3 per cent five years earlier, Moody’s wrote in a report last week:
“The risk of financing stress will increase as more commercial external borrowing, denominated in foreign currency, begins to mature over the next few years, particularly in an environment of rising global interest rates and a number of sub-Saharan African sovereigns seeking refinancing at the same time,” Moody’s said.
Kenya’s opposition has repeatedly criticised the government for a lack of transparency over how the last $2bn bond issued in 2014 was spent.
Politicians have argued most of it cannot be accounted for but they have failed to pinpoint specific corrupt acts. The government has admitted much of the money was deposited into its consolidated account and so it is impossible to specify what it was spent on.
Citi, JPMorgan, Standard Bank and Standard Chartered Bank acted as bookrunners on this week’s deal. In addition to Kenya’s rating from Moody’s, it is rated B+ stable by S&P and B+ stable by Fitch.
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