Kenya has raised $2bn from international investors, the largest debut for an African country in the sovereign bond market amid strong demand from pension funds, insurers and sovereign wealth funds seeking higher-yielding assets.
The much-delayed fundraising effort puts Africa on track to beat the record $11bn it raised last year from the international capital markets, after Zambia, Morocco and South Africa also issued bonds in recent months. Investors anticipate that Ghana and Ivory Coast will tap the capital markets before the end of July.
Investors placed orders for more than four times the amount that Nairobi finally raised, suggesting strong appetite for higher risk assets. The strong demand came in spite of a terror attack that killed at least 48 people in Kenya on Sunday night.
Bankers on Monday said the capital raising yielded two notes: a $500m, five-year bond paying an interest rate of 5.875 per cent, and a $1.5bn 10-year note with a yield of 6.875 per cent. The yields were lower than initially thought.
“Kenya’s gotten really, really lucky with the yield, there’s been a humungous rally . . . and there’s very strong global demand for African sovereign paper,” said Aly-Khan Satchu, a Nairobi-based investment manager who bought the bond on behalf of several clients.
He said a rally in Egypt following elections that returned Abdel Fattah al-Sisi to power, combined with the intervention of the International Monetary Fund in ailing Zambia, had turned round Kenya’s prospects.
Officials had initially been nervous they had missed the most opportune window to turn to the international markets once the US Federal Reserve began tapering its bond buying programme, a move likely to send initial repayment rates higher than hoped.
“Basically in comparison to what one would have expected four to six weeks ago, Kenya is looking very attractive at these rates,” said Mr Satchu. “Kenya should say a big thank you to Sisi and Madam Lagarde [the head of the IMF].”
Kenya’s low yields and high investor interest reflect not only lucky timing but also overall growing appetite for exposure to growth in some of the world’s fastest growing frontier markets. Bond funds dedicated to emerging and frontier markets have seen strong inflows recently as pension funds and insurers, sovereign wealth funds and even retail investors search for the higher-yielding securities.
The strong bond debut will boost Kenya’s finance team, which has undergone a rollercoaster roadshow, during which finance minister Henry Rotich had to leave part way to announce how a $3.8bn budget deficit would be addressed, and ended with news of a massacre claimed by al-Qaeda-linked jihadis, al-Shabaab, who killed 48 people in an overnight raid on a coastal town.
Kenya says it will use the money to repay a $600m loan that expires, following a painful last-minute three-month extension, in mid-August, as well as for general budgetary spending with a focus on grand infrastructure to boost growth rates.
Still, Kenya counted on many positive developments. Its bond prospectus for the first time officially touted a larger economy than previously estimated – 20.6 per cent bigger in 2009 than earlier estimates – and Mr Rotich last week forecast that Kenya would grow 5.8 per cent this year and 6.4 per cent next year.
Source: Financial Times/OTCEER