Bloomberg News

Kenya Considers $500 Million Eurobond Sale This Fiscal Year

September 15, 2011

(Updates with secretary’s comment in third paragraph.)

Sept. 15 (Bloomberg) -- Kenya may bring forward a planned sale of at least $500 million in Eurobonds to this fiscal year from 2012-13 to benefit from lower offshore borrowing costs.

“We are considering doing it this fiscal year,” Henry Rotich, the Treasury’s deputy director of economic affairs, said today in a phone interview from Nairobi, the capital. “Low interest rates in the U.S.” have spurred the department to revisit its plan, and pricing will be determined when a lead manager is appointed and officials meet with investors, he said.

The U.S. Federal Reserve in August pledged to keep its benchmark interest rate at a record-low 0.25 percent at least through mid-2013 to revive its economic recovery. Kenya raised its benchmark interest rate for the third time this year yesterday to help curb inflation which accelerated to 16.7 percent in August, more than triple the 5 percent target.

Kenya in June said it may revive plans to sell dollar- denominated debt international markets after shelving plans more than three years ago as the global financial crisis seized credit markets. The country joins other African nations such as Zambia, Angola and Rwanda that intend to raise capital in the global markets.

Kenya is rated B+ at both Standard & Poor’s and Fitch Ratings, the fourth-highest junk assessment by both companies, placing it on par with Cape Verde and Zambia.

Funding Needs

Kenya needs financing to tackle the worst drought in 60 years, meet growing wage demands after hiring thousands of new teachers, and increase spending on service delivery in line with surging inflation, Finance Ministry Economic Secretary Geoffrey Mwau said yesterday.

Kenya’s debt-servicing costs budgeted for in the current fiscal year are proving to be “significantly higher” due to an unexpected weakening in the shilling and soaring interest rates, Mwau said.

The currency has slid 15 percent against the dollar this year, making it the worst performer worldwide after Uganda’s shilling. Kenya’s currency climbed 0.3 percent to 94.93 at 1:13 p.m. in Nairobi today. Six-month borrowing costs rose to 11.935 percent at a treasury-bill auction yesterday, the highest in a decade.

To help ease liquidity and strengthen the shilling, the government has requested additional support from the International Monetary Fund and it will raise funding through infrastructure bonds, the central bank said yesterday. In January, the IMF approved a three-year arrangement under its Extended Credit Facility for Kenya, equivalent to about $508.7 million, with an initial disbursement of $101.7 million. An additional payment of $65 million was approved in June.

Growth Forecast

Kenya’s economy is expected to grow 6 percent next year, from an estimated 5 percent to 5.5 percent in 2011, while inflation may start slowing within three months as the onset of rains boosts food supplies following drought, Finance Ministry Permanent Secretary Joseph Kinyua said yesterday.

Kenya’s inaugural Eurobond sale is intended to set a benchmark for corporate borrowers seeking loans abroad and will be followed by similar offerings, John Murugu, director of the Finance Ministry’s debt-management department, said on June 30.

Kenya is targeting net foreign financing of 116.7 billion shillings ($1.2 billion) in 2011-2012, compared with an estimated 37.6 billion shillings a year earlier, Finance Minister Uhuru Kenyatta said in his June budget speech. The country’s domestic borrowing is targeted at 119.5 billion shillings, down from about 90 billion shillings a year earlier.

--Editors: Ana Monteiro, Chris Peterson

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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