News Column

Eurobond Yield Shows Kenya Still 'Low Risk'

July 18, 2014

Tom Witherow



The success of Kenya's first sovereign bond issued last month has confirmed the country's debt distress risk status as low, meaning it's borrowing is within sustainable levels.

A joint debt sustainability analysis by the World Bank and International Monetary Fund for low-income countries in April assessed Kenya as "low risk".

The country floated a $2 billion (Sh175.5 billion) Eurobond which was oversubscribed four-fold. The huge demand for the debt note priced has pushed the yields down to 6.2 per cent from 6.88 per cent.

Concerns have been that Eurobonds are more sensitive to political insecurity despite the relatively low cost of servicing the debts.

"The bond's higher subscription reflects the abundance of liquidity in global financial markets and the global investors' confidence in the Kenyan economy," fund manager Fusion Capital says in its July newsletter.

Max Wolman, a money manager who helps oversee $13.5 billion funds in emerging-market debt at Aberdeen Asset Management Plc in London, told the Star early this week that "Kenyan debt as a percentage of GDP still remains quite low, and their tax revenue is quite efficient."

"Things would have to deteriorate quite rapidly for any (debt) restructuring to be required," Wolman said.

The confidence exhibited contrasts credit rating agencies Fitch, Standard & Poor's and Moody's who judge Kenya's debt to be B+ or B1, which translate as 'highly speculative'.

Fixed-rate 10-year bonds issued in 2014 currently carry a coupon of 12.18 per cent, while 5-year bonds are trading with a yield of 11.50 per cent.

"The debt seems very manageable," Aly-Khan Satchu, managing director of Rich Management, told the Star in a phone interview.

"We are in a new normal... with debt levels we have not had since independence. Execution becomes key, if people snaffle money off the top of these contracts then we will have to reassess."

Satchu added that the ability of the markets to look through the security issues faced in both Nigeria and Kenya shows the resilience of the markets.

"They wouldn't handle another Westgate," he said.

Despite the vote of confidence on the Kenyan economy through the sovereign debt's success, its GDP is forecast to grow at a little under six per cent in 2014/15, lagging its East African peers expected to expand by between 6.5 per cent and 7.5 per cent.


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Source: AllAfrica


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