The secondary market yield on Kenya’s 10-year Eurobond has fallen to within 0.4 percentage points of coupon value since the beginning of the year, indicating improved investor confidence in the economy.
Data compiled by UK-based investment bank Exotix Partners shows that the yield on the debt currently stands at 7.2 per cent, falling from 8.9 per cent at the beginning of the year during a raging debate on the use of proceeds and the volatile shilling.
Kenya issued the $1.5 billion bond in 2014 at a coupon rate of 6.785 per cent, alongside another $500 million five-year bond at 5.875 per cent.
“Even in an environment of deteriorating market sentiment, we think that Kenya stands out as a relatively solid credit in the African space, with the potential to offer continued improvement on fundamental metrics,” says Exotix in a fixed income strategy note.
The country’s debt is attracting lower premium compared to other African Eurobonds, majority of which above 10 per cent in yield.
Mozambique and Republic of Congo Eurobonds are offering yields of 17.8 and 13.4 per cent respectively, that of Zambia 10.3 per cent, Angola 10.1 per cent, Ghana 9.8 per cent and Cameroon at 8.4 per cent.
The falling yields make for good reading for the original investors who may wish to sell in the secondary market, given that it has resulted in a rise of price from $88.90 to $96.90 per $100. Yields and prices move in opposite directions, with the seller discounting on the initial buying price when selling bond if the price is below 100.
A new Eurobond
If Kenya (or Kenyan companies) were to issue a new Eurobond now, they would also pay much less in coupon interest compared to what they would have been charged by the market in January.
Kenya’s interest burden on the loan is however not affected by falling or rising yields, purely a factor of the secondary market between buyers and sellers.
Exotix says a number of macroeconomic conditions have changed for the better for Kenya since the beginning of the year hence the lowering of the risk profile of the debt.
The country’s gross domestic product (GDP) improved to 5.9 per cent in quarter one this year compared to five per cent in the same period last year, a rate that is nearly twice the average for sub-Saharan Africa.
Inflation has come down since the year began, standing at 6.39 per cent compared to 8.01 per cent last December.
The country has also built up its forex reserves in recent months to the current level of $7.77 billion, representing a healthy 5.08 months of import cover.
This level of implied support has been among the factors that have kept the shilling stable this year at a range of 100.40-102.40 units to the dollar since January even with shocks like the Brexit hitting the market.
Credit: Business Daily