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Kenya ups local borrowing with sale of 10-year bond

By Bloomberg and Standard Reporter | September 15th 2014
Treasury Cabinet Secretary Henry Rotich addresses the Press during the launch of the Eurobond at State House. With him are Central Bank Governor Njuguna Ndung’u (right) and Solicitor General Njee Muturi. [Photo: FILE]

Nairobi; Kenya: After its debut Eurobond in June, the Government is boosting domestic borrowing this month by reopening sale of 10-year bonds eight months after the debt was first issued.

The Central Bank of Kenya is offering Sh15 billion ($169 million) in notes, including a green-shoe option, which may see an extra Sh5 billion sold, it said in a e-mailed statement yesterday.

The notes have a 12.18 per cent coupon rate. Kenya is stepping up local borrowing as the shilling heads for its seventh straight weekly decline against the dollar, the longest stretch of losses in six years.

Demand for Kenyan debt has outstripped offers, with Sh102 billion of bonds sold in the first half of 2014, compared to bids of about Sh180 billion, according to data from the Capital Markets Authority.

Fixed-income trading

In the three months through September, Kenya planned to raise a surplus Sh26 billion after paying maturing securities, according to Alexander Muiruri, head of fixed-income trading at the Nairobi-based Kestrel Capital (East Africa) Ltd. The Government has sold Sh115 billion of debt in the period so far, while paying Sh142 billion notes, he said by phone.

“They really need the money because they are behind their borrowing target,” Muiruri said. “They have not spent much money in the last three months.” The shilling weakened less than 0.1 per cent to Sh88.86 per dollar by 11:32 am in Nairobi, bringing the week’s loss to 0.2 per cent. Yields on shilling notes due January 2024 rose three basis points to 11.93 per cent. Last week, a key parliamentary team charged with advising MPs on the budget warned the Sh172 billion Eurobond may fail to meet its objectives.

The Parliamentary Budget Office issued the advisory with a caution that the bond will turn out to be costly to the country, unless the government reviews its spending habits by not using the funds on recurrent expenditure.

They had expressed concern that part of the money, about Sh52 billion, had been spent in clearing another loan the Government had already taken from banks instead of funding development projects.

They reckon that the shorter grace period of the bond and given that the repayments will affect the foreign currency reserves at the Central Bank and have a bearing on the exchange rates, the National Treasury will have to be extra careful and restrict its spending on projects that can generate future income.

In the MPs’ Budget Watch 2014/2015, a report that MPs have to use to audit the spending of the Sh1.8 trillion, the budget technocrats in the House said the promise of low interest rates and more money available in loans for the private sector as a result of the Eurobond, is yet to materialise.

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