Kenya will defy fears of tightening liquidity in the global economy and issue its debut $1.5 billion eurobond no later than January 2014, Cabinet Secretary to the National Treasury Henry Rotich told Emerging Markets.
Over the past two years, frontier market issuers had been profiting from a surfeit of liquidity due to the US Federal Reserve’s programme of quantitative easing (QE) and a lack of high yield debt instruments.
African governments have taken advantage of the market conditions to take on well-priced debt. Zambia went to market with a eurobond in late 2012, followed by Rwanda, Nigeria and Ghana in 2013.
Although the Fed has now said that it will delay the “tapering” of QE, the bipartisan standoff which resulted in the government shutdown in the US has raised worries of an American default and hit confidence in the global economy.
“So far we haven’t seen a tightening of liquidity globally, despite the exit of easing. Of course we are now aware of the US shutdown and its likely implications, but we are optimistic that a solution will be found soon,” Rotich said in an interview. “Our thinking is that we still feel that when there is an exit of monetary easing, we won’t see a rebound in interest rates very soon [afterwards], not for a year or so.”
The eurobond had been slated for November, but a delay in finding the lead counsel and lead arrangers has pushed the process back, he said. While the country could go to market before the end of the year, Kenya does not want to risk floating in December’s typically thin markets, Rotich added.
Another frontier market issuer, Ghana, took a $750 million eurobond to market in July. Analysts said at the time that poor timing – during the quiet summer period – contributed to the country paying over the odds for its debt. Similarly, the exact size of the bond will depend on market conditions, Rotich said.
Kenya, which has made a series of oil and gas discoveries over the past few years, has earmarked the money for spending on infrastructure, including expanding existing port facilities in Mombasa, building a new port in Lamu and modernizing the Jomo Kenyatta International airport in Nairobi—a regional transport hub that was partially destroyed in a fire earlier this year.
The country will also invest in power distribution and electrification as well as in road and rail networks as it tries to strengthen its economic diversity ahead of its first hydrocarbon revenues, Rotich said. Regional pipeline networks are also under discussion.
Kenya first sounded out the market about a eurobond in 2007, but the violent aftermath of its 2007 election delayed the issue. The onset of the economic crisis then further delayed the process.
Tourism, which is a small but significant contributor to the Kenyan economy, had rebounded strongly in 2012 after a few difficult years, and was looking healthy in the second half of 2013 until the high-profile terrorist attack on the Westgate mall in Nairobi in September.
Rotich is optimistic that the damage to the industry will be limited. “We don’t expect much impact,” he said. “Of course, we’ve seen some countries issue travel advisories, but we will recover, because it’s not the first time we’ve been hit... We have managed to be resilient and come out fairly well.”