Bloomberg News

Kenya May Sell at Least $500 Million of Eurobonds in 2012-13

June 30, 2011

(Updates with analyst’s comment in the seventh paragraph.)

June 30 (Bloomberg) -- Kenya, East Africa’s biggest economy, may revive plans to sell at least $500 million of Eurobonds in the fiscal year that begins on July 1, 2012, said a senior Treasury official.

The possible sale is intended to set a benchmark for corporate borrowers seeking loans abroad, John Murugu, director of the Finance Ministry’s debt-management department, said in a phone interview today from the capital, Nairobi. The proceeds will be spent on infrastructure and energy projects, he said.

Kenya joins other African nations such as Zambia, Angola and Rwanda that plan to raise capital in global markets. Kenya is rated B+ at both Standard & Poor’s and Fitch, which is four steps below investment grade and on par with assessments assigned to Cape Verde, Zambia and Georgia.

Nigeria, rated B+ at S&P, in January sold its first dollar- denominated debt. The Eurobonds due 2021 of Africa’s biggest oil producer fell, raising the yield three basis points, or 0.03 percentage points, to 6.13 percent by 7:08 a.m. in London.

Kenya has been considering when to raise money in international capital markets since shelving plans to sell $500 million in Eurobonds three years ago due to the global financial crisis which tightened credit markets.

The yield and maturity of the planned overseas debt issue will largely depend on a review of the country’s credit rating due next month, as well as perceived political risks as the country approaches general elections in 2012, Murugu said.

Yield Estimate

Kenya’s proposed Eurobond will probably yield more than Nigeria’s because its economy is not as robust, Yvonne Mhango, a Johannesburg-based economist with Renaissance Capital, said in an e-mailed response to questions today.

“Kenya’s large current deficit, slower economic growth, wide fiscal deficit, relatively higher public debt and elections in 2012, raises the economy’s risk profile and thus the cost of borrowing,” Mhango said.

Kenya’s government projects economic growth will slow to 5.3 percent in 2011, from 5.6 percent the year earlier, and accelerate to 6.1 percent in 2012. Nigeria’s economy is expected to grow 8 percent this year, the statistics bureau said April 18.

A disputed presidential election in December 2007 sparked two months of ethnic violence that killed 1,500 people and drove 300,000 from their homes. The violence abated after President Mwai Kibaki signed a power-sharing accord with his political rival Raila Odinga, who was named prime minister, promising changes including a new constitution that was enacted last year.

Rating Improvement

“Looking at the various issues at the international level and domestic level I would expect in due course our rating will start to be much better,” Murugu said. “We have done very well with the new constitution. It’s a very good platform of certainty in the future, a bed-rock for future economic growth.”

Once the Eurobond offering has been completed, Kenya is planning “consistent” sales of the securities, he said.

This month, Kenya’s Finance Minister Uhuru Kenyatta said the country would seek 119.5 billion shillings ($1.3 billion) from domestic investors in 2011-2012 and 116.7 billion shillings in net foreign financing to help fund a 1.15 trillion-shilling budget, a 15 percent increase from the year earlier.

If Kenya’s debut sale of Eurobonds goes ahead as planned, the funds generated would be factored into the budget for the fiscal year ending June 30, 2013, Murugu said.

To contact the reporter on this story: Sarah McGregor in Nairobi at smcgregor5@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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