Kenya May Raise More Than $1 Billion in Debut Eurobond Sale

Kenya is considering raising more than $1 billion in its planned debut Eurobond sale that will take place by the end of this year, Treasury Principal Secretary Kamau Thugge said.

The government plans to use part of the proceeds to help repay a $600 million syndicated loan that falls due in May, Thugge said in an interview today in the capital, Nairobi. The funds will also be used for infrastructure projects and the Treasury is yet to decide on the exact amount of money it will eventually seek, Thugge said.

Borrowing costs have jumped since Federal Reserve Chairman Ben S. Bernanke hinted at a tapering of monetary stimulus, signaling the end of a flood of cheap money that filtered through to emerging markets. Yields on dollar-denominated African bonds have jumped 219 basis points, or 2.19 percentage points, since May 22 to 6.76 percent through yesterday’s close, according to JPMorgan Chase & Co. indexes. The average rate rose as high as 6.9 percent on Aug. 22, the worst since the end of November 2011, the JPMorgan data show.

Kenya may pay a higher “all-in rate” as the market for emerging-market debt has deteriorated, Aly-Khan Satchu, the chief executive officer of Rich Management Ltd., a Nairobi-based adviser to companies and high net-worth individuals, said in e-mailed responses to questions. “Kenya is determined to lay down its marker in international capital markets and without any further delay.”

Economic Expansion

Kenya’s government forecasts East Africa’s largest economy will expand 5.8 percent this year, the fastest pace in six years, from 4.6 percent in 2012. Kenya, the world’s biggest black-tea exporter, is following other African nations including Zambia and Rwanda debuting dollar debt, which will help plug a fiscal deficit and finance construction of ports, railway and power-generation projects.

Yields on Rwanda’s 10-year bonds have jumped 189 basis points to 8.81 percent as of 3:34 p.m. in London since becoming the first East African country to sell a Eurobond by raising $400 million at the end of April. Ghana, the continent’s biggest gold producer after South Africa, sold $750 million of debt last month at a yield of 7.875 percent, while Nigeria raised $1 billion of five-year and 10-year Eurobonds on July 2 to help finance power projects.

The Kenyan government is “still in the process of recruiting lead managers for the transaction,” the Treasury’s Thugge said. “We want the disbursements definitely before the end of the year.”

Election Pledges

About half of Nairobi’s 3.1 million residents live in slums and 70 percent of people are unemployed, according to the city, while poorly maintained roads and drainage cause regular traffic jams and flooding. President Uhuru Kenyatta pledged to build a railway from the Mombasa port to Malaba on the Ugandan border and more than double paved roads to 24,000 kilometers (14,900 miles) before winning elections in March.

Kenya’s shilling weakened 0.2 percent to 87.60 per dollar as of 5:53 p.m. in Nairobi, the worst on a closing basis since Aug. 14. The currency has lost 1.7 percent this year.

“The government clearly has a larger appetite” for international debt, Satchu said. Dedicating more funds to infrastructure “is absolutely the right thing to do,” he said.

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