Treasury sets high Eurobond returns as IMF row rages on

Kenya has promised potential investors huge returns on its latest eurobond issue even as the debate on the country’s financial health rages.

The sale of the 10-year and 30-year dollar bonds comes at a time when reports have emerged that the International Monetary Fund (IMF) has denied the country access to its standby credit facility and its creditworthiness has been downgraded by rating agency Moody’s.

News agency Reuters reported yesterday the country would sell the 10-year bond at an indicated yield of 7.625 per cent, which is 75 basis points above the 2014 rate when the country sold a $1.5 billion 10-year bond at a yield of 6.875 per cent. The 30-year note, on the other hand, will sell at yields of 8.625 per cent. The National Treasury expects to raise between Sh150 billion and Sh300 billion from the issue, with much of the money expected to settle some debts set to mature this year.

The IMF issued a clarification on media reports that it had withdrawn its standby credit facility to Kenya, with its resident representative in Nairobi, Jan Mikkelsen, saying while the facility was still in place, access had been limited since June last year.

 “The precautionary SBA/SCF arrangement remains in place until end-March 2018. The second and third reviews of the programme, due respectively in June and December 2017, could not be completed on schedule as agreement could not be reached on stronger fiscal policies and discussions were postponed due to the prolonged election period. Kenya continues to have access to resources since June subject to policy understandings to complete the outstanding reviews,” said Mr Mikkelsen. 

Experts said it was too early to tell whether the bonds were too expensive, but added that Treasury might be pricing the bond high in a bid to hit the Sh300 billion mark. Johnson Nderi, manager, corporate finance and advisory at ABC Capital Ltd, said it was still an 'open gambit'.

“The roadshows will let us know,” said Mr Nderi, noting that the country was still trying to attract investors.

Eventually, he added, the bond will be sold at either a discount or premium, thus the yield might go up or down. 

Other experts, however, said they thought the country’s growing fiscal deficit might spoil the party, with the IMF having removed the country’s access to a Sh150 billion standby credit facility in what is a reproach on the country’s failure to meet its conditions. 

According to experts, the country needs the standby facility as it is critical to its refinancing effort or borrowing to pay maturing debts. “If we sign up for an IMF programme, we will be signing up for a requirement of fiscal policy and that will provide reassurance to investors. So the risk premium that we have to pay on our debt declines,” said Standard Chartered Chief Economist Razia Khan recently.