Treasury eyes more sovereign bonds after successful debut

Treasury CS Henry Rotich and Korean Minister for Political Affairs Lee Kyung Soo exchange documents to promote bilateral trade at Treasury recently. Rotich roots for alternative funding from the East. [PHOTO BY GEORGE NJUNGE]

Move aims to diversify sources of international funding, reduce domestic borrowing and control bank rates

The National Treasury has set its eyes on Asia and Middle East in its efforts to diversify the Government's sources of international funding. The move is part of the State's bid to reduce its domestic borrowing requirements, control interest rates and stabilise the shilling and exchange rate.

Cabinet Secretary Henry Rotich said the State is working on the modalities of issuing Samurai (Japanese Yen denominated) Bonds, Sukuk (Shariah) compliant Bonds and Diaspora bond in the current financial year (2014/2015). "We are exploring new products as a way of borrowing from the international markets. We want to look at Samurai Bonds, Sukuk bonds and Diaspora bonds. With these, we would have diversified our market sources for funds," Rotich told The Standard last week.

"This financial year, we are going to revise our domestic borrowing downwards," Mr Rotich said. He however could not disclose the amount of money to be raised from the international markets through the country's second sovereign bond saying the scenarios are still being worked out.

"We are still working on the scenarios of how much would be raised through these bonds," he said. This comes after the Government successfully raised $2 billion (Sh176 billion) from a sovereign bond that was fully taken up by investors from Europe and the US. The funds will be used to fund infrastructure investments as well as pay off the $600million (Sh52.2 billion) syndicated loan acquired from Citi Bank (London), Standard Bank (South Africa) and Standard Chartered Bank (London).

ADDITIONAL PENALTIES

The loan's repayment was extended by three months to August 15, costing the exchequer an additional Sh1.2 billion in interest and penalties for deferment. The bond is also expected to act as a benchmark bond to catalyse private sector participation in the international financial market, where market conditions are currently favourable for investors in the country.

The high interest-rate regime in the country has left commercial banks reeling under the weight of Sh80 billion worth of non-performing loans (NPLs). The situation has been compounded by the government's increased borrowing from the domestic market to offset perennial budgetary deficits.

This has seen commercial banks scramble to offload their excess liquidity in treasury bills and bonds, thereby starving the private sector of the critical funds required for investment. The Central Bank's Monetary Policy Committee has repeatedly lowered the banks' prime lending rate to promote household and business spending but majority of banks tend to ignore the signals, citing high cost of funds and the overall cost of doing business.

Kenya's rating in terms of ease of doing business worsened last year after it appeared to have overlooked key business reform programmes, according to the World Bank's latest Doing Business Report (2014). Rwanda, the region's fastest growing economy, topped the list of 50 world economies that made significant improvement in business reform initiatives over the last eight (2005-2013) years.

According to the report, Kenya slipped eight positions, falling to position 129 from 121 last year. A total of 189 countries were sampled with Singapore being the best country to do business in with Chad emerging the worst.