Kenya prepares to test afresh Eurobond waters

National Treasury Cabinet Secretary Henry Rotich

NAIROBI: Kenya could become the first African country to tap global debt markets this year as it begins a bond road-show this week.

But Eurobond financing is likely to remain out of reach for most of its peers on the continent.
National Treasury Cabinet Secretary Henry Rotich is leading the Kenyan team on a road show to gauge investors’ appetite ahead of prospective international borrowing.

Should the marketing trip find positive feedback, it would be Kenya’s second time to float a Eurobond, after the initial one in 2014. How the proceeds of the initial sovereign loan were spent remains a hot subject for debate, pitting the Government against the Opposition.
Bond sales from sub-Saharan Africa, which had previously been booming, are yet to start in 2016 after a stormy start to the year for commodities and currencies that has left some countries on the brink of crisis.
Despite the difficulties, some African Eurobonds have been outperforming, thanks in part to the bounce in oil and metals but also on the back of some potential turnaround stories, something all investors love.
Back in January, investors were demanding record premiums of 620 basis points to hold African bonds rather than US debt.

That has now fallen back to 550 bps, with oil importers Kenya and Ivory Coast topping the list of winners.
An investor-friendly debt swap by Mozambique’s state-run fishing firm has also helped sentiment, as has struggling metal miner Zambia starting talks with the International Monetary Fund.
Now some countries could leverage the improved mood. Kenya’s presentation, led by Mr Rotich, is billed as a ‘non-deal’ roadshow but it is likely to be at least a test of the waters.

“(Kenya) could probably issue. Aside from the 8 per cent budget deficit, it’s a pretty good story,” said Kevin Daly, a portfolio manager at Aberdeen Asset Management.

“The currency is stable, domestic rates are coming down, inflation is starting to fall and growth is in the 5-6 percent range.”
The World Bank this year singled out Kenya as an African bright spot, with economic growth accelerating thanks to cheaper oil, a solid agriculture sector, and infrastructure investment.

The yield on its existing 2024 dollar bond is down to around 7.75 per cent from 9.8 per cent January high. But to warrant the extra cash, any new 10-year bond will need to have a premium of up to 50 basis points on that, investors say. But other African countries will have to pay much more.
Countries such as Ghana, which is also holding a road-show next week, could find itself having to pay double-digit percentage coupons.