Monday, 23 June 2014

Kenya's Eurobond success indicates improved appetite for African debt

Kenya's Eurobond success indicates improved appetite for African debt

Kenya has pushed ahead with its Eurobond while Nairobi's officials negotiated with their Nigerian counterparts on preferential pricing for oil and gas purchases. Market watchers are drawing attention to the parallels between Nigeria and Kenya in that they are politically important and dynamic economies facing growing security risks.

Kenya's Eurobond has gone ahead with outsized interest for the US$2 billion bond, apparently more than four-times over-subscribed. International investors seem prepared to accept yields of less than 6% for a five-year tranche and less than 7% for the ten-year tranche of the issuance. These rates were significantly below analyst expectations of 7.5% or more if Kenya were to raise as much as US$2 billion.

Eurobond issuances are less of a factor for Nigeria - which issued a US$1 billion Eurobond in May 2013 - than for smaller economies seeking to announce their impact on the capital markets. The low yields are, however, a notable indicator that - despite the US Federal Reserve tapering earlier this year - investor interest in emerging and frontier market (including African) debt is increasing which, in turn, may have implications for even non-sovereign African fundraising.

Africa may also be fortunate that the highest profile emerging market debt negotiations are currently in Argentina, as ruthless bondholder "vulture funds" circle. This continues the saga that once led to the 2012 impounding of an Argentinean navy training vessel at a Ghanaian port in 2012 following a pro-bondholder ruling by a US court.

Kenya, following Nigeria's lead, has also announced its revised GDP figures following its "rebasing" exercise. Its 20% revision increase is proportionally less than Nigeria's GDP rebasing announced earlier this year. The revised calculations of the Kenya National Bureau of Statistics indicates, however, that Kenya's 2009 GDP was US$37 billion rather than US$31 billion which implies that its current GDP is around US$50 billion. This is according to investor disclosures in its Eurobond prospectus.

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2014 Menas Associates

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