Kenya Eurobond Pricing ‘Favorable’ Despite Lack of IMF Deal

(Bloomberg) -- Investors didn’t punish Kenya in its latest Eurobond placement and demanded relatively low premiums despite the East African nation’s lack of precautionary measures to guard against exogenous shocks to its balance of payments.

Kenya’s $900 million seven-year bonds were priced at 7% and its 12-year paper for $1.2 billion received 8%. Following in Ghana’s footsteps, the East African nation went to the market without a standby facility from the International Monetary Fund.

“It’s a very favorable rate given that Kenya hasn’t finalized an agreement with the IMF,” said Vinita Kotedia, macro-strategist for sub-Saharan Africa at EFG-Hermes. “It looks like investors were more focused on the credibility of debt issues out of Kenya, and they aren’t too worried.”

The pricing was much lower than the initial pricing thoughts of 7.5% and 8.5% and the fair-value prices of 7.125% and 8.125%, the Treasury said Thursday in a statement on its website.

Order Book

Ghana’s seven-year Eurobonds issued in March were priced at 7.875% while its 12-year securities were at 8.125%. The West African oil and cocoa producer received almost $20 billion in offers and took $3 billion in three-tranche maturities that included 31-year paper.

Investors placed bids for a total $9.5 billion, an “indication of Kenya’s good macro-economic backdrop as well as broader appetite for African paper,” according to Neville Mandimika and Celeste Fauconnier, analysts at FirstRand Ltd.’s Johannesburg-based Rand Merchant Bank unit.

While Kenyan Treasury officials begun the roadshow last week, the ongoing dispute between the U.S. and China over tariffs could have delayed the issue, they said.

“However, given the current yield curve, the pricing is favorable and provides a conducive backdrop for the new issuance to compress in the secondary market,” the RMB analysts said in an emailed note.

IMF Facility

Kenya should ideally have gone to market two months ago, according to Jibran Qureishi, a regional economist at Nairobi-based Stanbic Holdings Plc. Investors haven’t shrugged off IMF concerns, but rather consoled themselves that Kenya failed to meet fiscal targets set out in the previous precautionary arrangement, he said.

“There’s a broad consensus and agreement that Kenya does not face a balance of payments crisis similar to a country like Zambia,” he said by phone. “The market will still pay close attention to the IMF in the coming months and they’ll probably be keen to see whether Kenya gets the IMF facility back on board,” Qureishi said.

Kenyan Eurobonds due next month added 3 basis points to 6.248% by 3:56 p.m. in Nairobi, while those maturing in June 2024 lost 6 basis points to 6.346%.

What Bloomberg’s Economist Says

“The pricing and the shorter maturities than originally planned indicate a decreased appetite for Kenyan debt among investors. This could be due to concern about the debt buildup and the cost-efficiency of flagship projects such as the standard-gauge railway.”

--Mark Bohlund, economist

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