Treasury eyes Japan, Middle East for next sovereign bond

Treasury Cabinet Secretary Henry Rotich briefs the press on the successful subscription of the eurobond at State House last month. Central Bank Governor Njuguna Ndung’u (right) and Solicitor General Njee Muturi look on. [PHOTO: FILE/STANDARD]

The National Treasury is now targeting Japan and countries in the oil-rich Middle East as the next market for its new sovereign bond.

Kamau Thugge, the Principal Secretary at National Treasury told MPs that following the successful launch of the Euro bond in the West, the Government is exploring new opportunities and is confident it would raise more capital for the many pending infrastructure projects.

“We want to explore the Sukuk bond in the Middle East and the Samurai bond in Japan,” Thugge said yesterday at a meeting with the Public Accounts Committee at Parliament buildings.

He did, however, not disclose the amount Treasury seeks to raise, but given the infrastructural appetite in Kenya, notably the new port in Lamu, a new railway line and power generation projects, the amount is estimated at tens of billions of dollars.

Thugge said the Sukuk bond does not attract interest, but Treasury is yet to understand the way it operates and the conditions attached to such issues.

“We have to read the fine-print,” explained Thugge when MPs sought to know why the National Treasury had gone for European and American markets when it issued the $2 billion (Sh174 billion) bond.

The MPs were of the opinion that it would have been cheaper to go for the Sukuk, which is Shariah-compliant. The chairman of the PAC, Ababu Namwamba (Budalang’i), reckoned that the oversubscription of the Euro bond was a strong indication that there was a good market for Kenya’s debt instrument.

John Mbadi (Suba) sought to know if the $2 billion sovereign bond had a possibility of a rollover.

“If the debt matures, it will have to be paid, and it cannot be converted into a new debt,” explained Thugge. The MPs noted that with the absence of such arrangement, Treasury must ensure that the debt is paid on time.

Thugge said the way the bond was structured is that $500 million would be paid within five years, and the remaining $1.5 billion over a ten-year period.

The MPs were informed that part of the $2 billion received from the Euro bond was used to pay-off the remaining balance of the syndicated $600 million loan the Government had secured.

The MPs wanted to know if queries about Angloleasing controversy had come up in the discussions with investors. “Of course they knew about the debate, but it was not a very big issue,” explained Thugge.

The worry for investors, he reckoned, was how a country could fail to account for billions of money allocated to ministries.

“How can Sh500 billion be missing from your budget? Was amongst the questions posed by investors. It’s always good to have those issues sorted out before these reports come out,” explained Thugge.