Thursday, 20 February 2014

Kenya's Eurobond to be oversubscribed-analysts

Railway construction: Will need cash
 KENYA WILL ISSUE A sovereign Bond worth US$2 billion before the end of next month. And analysts expect the bond to be oversubscribed by a wide margin. This is because of improved economic and Political risk which feed on growth prospects for 2014 and beyond.

And ahead of the floatation, visits by a number of high powered delegations of top guns in the financial world show a growing interest in Kenya. The delegations indicated that the bond was on their diary during the visit. Hence analysts in Nairobi are upbeat that the bond will be oversubscribed.

 They have a reason to be positive. Investor confidence in the frontier market is growing as investor move lower down the ladder to Frontier Markets. Investors are shifting funds from the emerging markets to the fast growing frontier markets.


Data available to this publication shows that all sovereign debt issued by African governments in the last two years was oversubscribed. In 2011 and 2012 a number of sub-Saharan African countries issued debt worth more US$2.2 billion-and all of it was oversubscribed.

Initially, the issuers restricted themselves to just about $500 million. Pioneers in sovereign debt issuing- Namibia, Nigeria and Senegal all tested the waters by asking for US$500million in 2011. In 2012,Zambia raised some US$750 million. The debt was subscribed at US11.9 billion forcing the country to up its uptake to $750 million from the initial $500 million.

This is why newer issuers such as Kenya are looking at larger figures. Kenya will issue $2 billion 10-year-Eurobond to finance its infrastructure expansion and pay off some nagging debt borrowed in 2012.  This is arguably the largest  single issue of a sovereign debt in the region and perhaps, the continent. Investors are impressed by Kenya’s infrastructure development programme and would like to fund a piece of the action, said some of the delegates.
Crude Oil Pipeline. Soon to be yawning for cash

 Even the visiting delegations have been upbeat about Kenya’s infrastructure development programme. Not only that, but Kenya’s economy is well-diversified which increases are credit rating say the financial Gurus in Nairobi.

  That crude oil has been discovered in commercial quantities has also been a plus for Kenya and some financiers are said to have held talks over the oil discoveries.  

 This is a sector that is looking at huge investments in the near future which are definitely not factored in the current Eurobond.

Analysts say, that the financiers could also be preparing to invest in the Pipeline construction but wanted to have a feel of the government position.

Analysts in the delegations were upbeat that despite the change of US policy on quantitative easing the bond will attract a good demand at a reasonable rate . It is being rumoured that the rate will stand at 6.5-7.5 per cent.


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