Kenya’s Opposition Warns Investors Against Next Eurobond

  • Former premier says $1 billion from 2014 sales unaccounted for
  • Kenya planning new issue to plug 9.3% budget deficit

Kenya’s main opposition party cautioned transaction advisers and potential foreign investors against participating in the nation’s next Eurobond offer as it revived allegations that almost $1 billion from a sale of the securities in 2014 remains unaccounted for.

“We caution the international markets that the government of the Republic of Kenya needs to account completely for the net proceeds of the Eurobond prior to the issuance of any new international sovereign bond,” Raila Odinga, the leader of the Coalition for Reforms and Democracy, said in a statement e-mailed Sunday.

Odinga, a former Kenyan prime minister, first alleged last year that some of the proceeds from the sale of $2.82 billion of Eurobonds two years ago were misappropriated. In May, the country’s director of public prosecutions declined to investigate the allegations, citing a lack of evidence. President Uhuru Kenyatta’s government has repeatedly denied any wrongdoing and said the funds were used to pay off a $600-million syndicated loan, finance road, rail and port construction and expand electricity generation.

East Africa’s largest economy is considering selling as much as $4.6 billion of debt including Eurobonds to plug a budget deficit expected to widen to 9.3 percent of gross domestic product this year from about 7.9 percent in 2015. Kenyan Treasury Secretary Henry Rotich and Principal Secretary Kamau Thugge didn’t immediately answer calls seeking comment about the latest statement by Odinga.

In it, the opposition leader cited the government’s “persistent” failure to completely account for the proceeds of the 2014 sale. He said the state has yet to deposit almost $1 billion of the proceeds into the government’s so-called Consolidated Fund maintained at the central bank, as required by law. Odinga also said that the Kenyan auditor-general’s report on the government’s financial statements for the 2014-15 financial year “does not support the government’s claims that it transferred” the $1 billion into the Consolidated Fund.

‘Odious Debt’

Any legal counsel, lead managers, transaction advisers and investors who take up Kenya’s new commercial debt without satisfactory resolution of the allegations “risk declaration of such debt as odious” by a future government, Odinga said.

Odinga, who is CORD’s likely nominee in elections scheduled for Aug. 8, urged the government to provide a list of projects that were financed by proceeds from the debut international debt.

Yields of 7.2 percent on Kenyan securities due 2024 favor a Eurobond issue before an anticipated rate increase by the U.S. Federal Reserve in December, Jibran Qureishi, an economist for East Africa at Stanbic Holdings Ltd., said by phone from the capital, Nairobi.

The opposition’s claims “could throw a spanner in the works” and force the government to explore sources of financing other than the Eurobond “to avoid the political noise,” Qureishi said. “This is exactly what the government didn’t want.”

Yields on the 10-year Eurobonds lost two basis points to 7.22 percent by 13:40 p.m. in Nairobi. International investors have learnt to discount Kenya’s “high voltage politics,” according to Ben Nyamweya, a director at the Nairobi-based Bonsai Investment Group.

“We have had this bond since July 2014, and we have been servicing the debt on a regular basis, so the dynamics that apply when you are evaluating whether it’s a worthwhile investment is far removed from a statement by politicians telling you not to invest,” he said by phone. 

“It is about the fundamentals for investors. If the people on the roadshow do a good job and are able to justify the expenditure, I don’t see why investors will not invest,” Nyamweya said.

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