News Column

Post-Eurobond Kenya Exists in a Goldfish Bowl

June 23, 2014

Aly-Khan Satchu

Kenya issued $2 billion (Sh174.82 billion) worth of Eurobonds last week spread over two tranches. The five-year, $500 million bond yielded 5.88 per cent and the 10-year, $1.5 billion issue yielded 6.88 per cent.

The $2 billion issue was the largest for a sovereign issuer from Africa. The order book totalled $8.8 billion, meaning that the $2 billion issue was more than four times oversubscribed.

According to my sources, more than $5 billion of orders came out of North America, which is something to consider. This was an optimal outcome for the Government of Kenya and I commend the National Treasury Cabinet Secretary Henry Rotich and his team for a job well done.

The signal in the noise is that capital is available and in a meaningful volume. Given our strategic position on the Eastern seaboard of Africa, as a gateway into this region, it is self-evident that in order to entrench our transit State advantage, we need to embark on an outsize infrastructure roll out.

The Eurobond markets are informing us that if we can get our ducks in a row, the capital can be availed. This has not been the situation previously, since independence, and is a popping over the radar moment.

Therefore, this is surely a time to dream big.

I believe we are in a secular bull market for sub-Saharan Africa's blue chip and sovereign credits as global investors continue to up-size their SSA allocation from nearly zero. This will remain a rising tide.

Serendipity also plays a role and a sharp rally in Egyptian bond yields to 2011 lows, and a similar rally in Zambia to record lows on news that it had called in the IMF, supported the pricing of the two issues at levels which did look a very long shot a few weeks before.

The net new add of liquidity (the $1.4 billion after deducting the $600 million to clear a matured syndicated loan) has already improved the shilling which was last trading at 87.35 against the dollar.

You will recall the shilling had printed 88-plus not so long ago. With the government not needing to call on the domestic markets, we should see a rally in interest rates. The one fly in this ointment is the current price of crude oil. Notwithstanding the news that Pancontinental Oil and Gas verified last week that the recently completed BG-operated Sunbird-1 well off the Southern Kenyan coast had intersected an oil column - the first-ever oil discovered off the East African coast.

"The Sunbird-1 oil is the historic first-ever oil discovery offshore Kenya. Now that we know there is a prospective oil system in the Lamu Basin...," said Rushworth.

Kenya remains very beholden to the price of oil. The price has rallied sharply to 2014 highs. Oil is a perennial risk that has reappeared with some violence.

Kenyan Assets have shown outstanding resilience in the teeth of increased insecurity levels and this trend has also been seen in Nigeria where the stock market has rallied close to 10 per cent over eight weeks when the news flow (Boko Haram) has been at a new level of intensity. This new resilience in African asset markets is noteworthy. This bifurcation needs to be watched. Of course, Ghana has gone from hero to zero.

We also need to appreciate that we exist now (and post the Eurobond sale we have allowed the markets to price us on a real time continuous basis) in a goldfish bowl. In such circumstances, it behoves us to sharpen up our messaging because right now it's very 20th century, very VoK (Voice of Kenya), oftentimes inconsistent and as if a preset narrative is being shaped to every set of events.

It is this disconnect (and in our new world each utterance is critiqued in real time) which erodes political capital.


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Source: AllAfrica

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