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| National Treasury Cabinet Secretary Henry Rotich. The proceeds of the bond will be deployed for infrastructure programmes. |
By James Anyanzwa
KENYA: Fitch Ratings has issued the green light for the Government to issue its debut US$1 billion (Sh87 billion) sovereign bond scheduled for this year.
But the international credit rating agency has sounded the alarm over the country’s widening current account and budgetary deficits.
The agency attributed the two problems to higher import bills, shrinking exports and increased public spending.
“Kenya like other issuers of sovereign bond in Africa has a very strong record of prudent macroeconomic policy management and from our perspective that is a plus for us as a credit rating agency and also for the international investors,” said Ms Carmen Altenkirch, director, Sovereign Group, Fitch Ratings.
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“I think it is probably better to issue this bond sooner than later,” she added.
Altenkirch however, warned that the government’s burden of servicing the loan could be much heavier if the shilling weakens against other international currencies.
“Interest serving costs could be much more than what you anticipated due to currency depreciation,” she said.
Economic successes
Altenkirch was speaking yesterday in Nairobi at a conference organised by the Government and the International Monetary Fund (IMF) to assess the country’s economic successes, challenges and prospects in achieving middle-income status by 2030.
She noted that 40 per cent of Kenya’s import Bill is due to importation of oil and manufactured capital goods while foreign direct investments (FDIs) only constitutes less than one per cent of the country’s gross domestic product (GDP).
Kenya’s budget deficit for the 2013/14 financial year stands at a colossal Sh330 billion while its current account together with FDIs expressed as a percentage of the GDP stands at negative 10.6.
African states are increasingly accessing the international capital markets to take advantage of the lower interest rates. According to Kitili Mbathi, Standard Bank Group’s regional chief executive for East Africa and Mauritius, the US Treasury rates are still historically low and it will be advantageous for Kenya to go for the Eurobond.
“Investors are now looking for the frontier/emerging markets due to falling rates in the US bond market,” he said. Other African nations seeking to tap into the international debt market for funding include Senegal, Ghana, Nigeria, Tanzania, Angola Rwanda, Gabon, Republic of Congo and Zambia.
New administration
Cabinet Secretary for the National Treasury Henry Rotich said the proceeds of the bond would be deployed for infrastructure programmes in line with the priorities of the new administration.
It will also help in refinancing the short-term syndicated loan of US$600 million acquired from Citi Bank (London), Standard Bank (South Africa) and Standard Chartered Bank (London).
The loan was priced at 4.75 per cent per annum above LIBOR repayable from mid-2014.
The sovereign 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 Government suspended its plans to borrow from the international markets because of the volatility in the global economic environment. Treasury’s idea for a sovereign which has been in the pipeline for close to five-years seeks to create more opportunity for parastatals and the country’s private sector players to access foreign funds at low cost.
