Kenya Plans to Sell Inaugural Eurobond to Fund Rail, Energy

Kenya plans to sell its first Eurobond by the end of September to help finance the budget deficit and invest in transport and energy infrastructure, Treasury Secretary Henry Rotich said.

The budget shortfall may reach 7.9 percent of gross domestic product, or 329.7 billion shillings ($3.9 billion), in the 2013-14 fiscal year, Rotich said yesterday in his budget statement in Nairobi, the capital, without providing a year-earlier figure. The fiscal gap including grants will be 6.7 percent in 2012-13, according to the Finance Ministry.

“Getting money offshore will give a favorable difference in price compared to domestic borrowing,” Robert Bunyi, managing director of Nairobi-based Mavuno Capital, said yesterday by phone. “But the deficit is still worrying.”

President Uhuru Kenyatta, 51, won elections in March with a promise to accelerate the pace of economic growth to as much as 10 percent by 2015, create a million new jobs a year, ensure every Kenyan has access to electricity by 2020 and build a new terminal and runway at the main airport in Nairobi.

Rotich didn’t divulge the amount Kenya is seeking to raise on international debt markets.

Kenya’s plan to issue a sovereign bond, which has been delayed since at least 2007, follows sales by other African nations that were oversubscribed as governments in the world’s poorest continent take advantage of record low interest rates.

The shilling weakened 0.1 percent to 85.45 a dollar by 3:29 p.m. in Nairobi., extending its decline to 0.7 percent this week, according to data compiled by Bloomberg.

Bumpy Recovery

Zambia’s $750 million offering for 10-year sovereign debt last year was 20 times oversubscribed, while Namibia’s sale in 2011 of $500 million in bonds due 2021 attracted 5 times more bids than the amount for sale, Moody’s Investors Service said.

Rwanda, Nigeria, Ghana, Gabon and Senegal are other sub-Saharan African nations that also sold overseas debt.

Standard & Poor’s and Fitch Ratings’ credit assessment for Kenya is B+, the fourth-highest non-investment grade level, on a par with Zambia and Cape Verde, while Moody’s rates Kenya at the same level.

Gross domestic product in East Africa’s largest economy will probably expand by 5.8 percent this year and 7 percent in the medium term from 4.6 percent in 2012, Rotich said.

The government will allocate 78 billion shillings for renewable energy projects and 22 billion shillings for the construction of a railway from the Indian Ocean port of Mombasa to the western city of Kisumu, Rotich said.

Domestic Borrowing

State spending in 2013-14 will be 1.6 trillion shillings and the target for domestic borrowing is 106.7 billion shillings from 165 billion shillings this year, Rotich said.

Debt yields in Kenya have fallen as the central bank eases monetary policy to spur the economy. Yields on 91-day Treasury bills fell to 4.74 percent at a sale yesterday from 5.42 percent last week and compared with 8.14 percent in January.

“Kenya’s deficit to GDP of 7.9 percent is on the high side of expectations,” Razia Khan, head of African economic research at Standard Chartered Plc in London, said in an e-mail. Kenya will need “to control the pace of spending growth, in order to create more comfortable buffers and reassure investors on Kenya’s public debt profile,” she said.

EAC Budgets

Kenya is a member of the five-nation East African Community, a customs union whose governments, with the exception of Burundi, deliver their annual budget speeches on the same day. Burundi, the smallest economy in the region, runs on a calendar year.

Tanzania plans to increase spending by about 20 percent to 18.2 trillion shillings ($11.1 billion) next year and it will seek 1.2 trillion shillings in non-concessional, external borrowing, Finance Minister William Mgimwa told lawmakers yesterday. The process of obtaining a sovereign-debt credit rating should be completed by the end of June 2014, said Mgimwa.

The country is moving ahead with projects that include building a gas pipeline from Mtwara to the commercial capital of Dar es Salaam, Coordination Minister Stephen Wasira said yesterday in parliament in the capital, Dodoma. Its offshore fields contain East Africa’s second-largest natural gas reserves.

Uganda expects to get external financing of 2.7 trillion shillings ($1 billion) and collect 10.5 trillion shillings from domestic sources including the sale of securities, in the fiscal year from July 1, said Finance Minister Maria Kiwanuka.

Stolen Aid

The economy may expand 6 percent in 2013-14 from 5.1 percent a year earlier, she said. Budget support will decline by 84 percent to $19.4 million over “governance issues,” according to budget documents. Uganda in January committed to refund stolen aid after donors slashed funding.

Tullow Oil Plc, based in London, expects oil production to start in Uganda next year from fields it estimates contain 3.5 billion barrels of crude. The government will seek to “fast track” the development of pipelines to Kenya and Rwanda in the next fiscal year, Kiwanuka said.

Rwanda’s budget will climb to 1.65 trillion francs ($2.5 billion) in 2013-14, up 6 percent from a year earlier, Elias Baingana, director-general of the national budget, said in a statement distributed in Kigali, the capital. The country plans to raise 658.6 billion shillings from external sources.

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