Category Archives: NSE bonds

Kenya Eurobond 2018 A to Z (Part II)

Excerpts from reading the prospectus for Kenya’s 2018 Eurobond issues totaling $2 billion (~Kshs 202 billion). 

Advisors:  joint lead managers were Citigroup Global Markets, J.P. Morgan Securities, Standard Bank of South Africa and Standard Chartered Bank. The fiscal/paying agent was Citibank (London), Registrar was Citigroup Global Markets (Deutschland), legal advisors were White & Case LLP and Allen & Overy LLP (English and US law), and Coulson Harney LLP and Kaplan & Stratton Advocates (Kenya Law) and the listing agent was Arthur Cox (Dublin).

Citigroup, J.P. Morgan Securities, Standard Bank of South Africa and Standard Chartered Bank each committed to subscribe for $250 million of the 2028 and $250 million of the 2048 bond issues

Codes: for the 2028 Notes: 491798 AG9 / US491798AG90 / 178426192 XS1781710543 / 178171054 and for the 2048 Notes: 491798 AH7 / US491798AH73 / 178426478 XS1781710626 / 178171062

Debt Rescheduling: Kenya has approached the Paris Club three times to seek debt relief and rescheduling; in January 1994 for $535 million, in November 2000 over $301 million and in January 2004 over $353 million. Also to the London Club 1998 over $70 million and in 2003 over $23 million.

Default (defined as): Failure to pay 15 days after due date, or issuer (Kenya government) ceases to be a member of the IMF.

Denomination: The Notes are issued in registered form in denominations of US$200,000 and integral multiples of US$1,000.

Disclosure: The Issuer will publish all notices and other matters required to be published (regarding Condition 14, 10, 13: on the website of the National Treasury.

Finance Management: Kenya’s law provides that: over the medium term, a minimum of 30% of the national budget shall be allocated to development expenditure and the national government’s expenditure on wages and benefits for its public officers must not exceed 35%  per cent. of total national government revenue and over the medium term, the national government’s borrowings should be used only for the purpose of financing development expenditure and not for recurrent expenditure. .

IMF: The second and third reviews of the IMF programme due in June 2017 and December 2017 could not be completed on time due to the prolonged election period. Accordingly, no funds under the SBA-SCF 2 facility are available to Kenya until it has reached certain targets to the satisfaction of the IMF, which will be assessed at the next review. But, even if the IMF agrees to make this or another programme available upon conclusion of their review, the government intends to continue to treat the arrangements as precautionary and does not intend to draw on the facility unless exogenous shocks lead to an actual balance of payments need.

Income tax (enhancement of): A review of the Income Tax Act is ongoing and is targeted to be completed by mid-2018. In an effort to boost domestic revenue mobilisation, the government is undertaking reforms to bolster revenue yields  including roll out of the integrated customs management system, implementation of the regional electronic cargo tracking (RECTS) to tackle transit diversion; data matching and use of third-party data to enhance compliance, integration of iTax with IFMIS to ensure timely collection of withholding VAT and other withholding taxes; expansion of tax base by targeting the informal sector, betting, lotteries and gaming; pursuit non-filers and increased focus on taxation of international transactions and transfer pricing and enhance investigations and intelligence capacity to support revenue collection.

Informal economy: A significant portion of the Kenyan economy is not recorded and is only partially taxed, resulting in a lack of revenue for the government, ineffective regulation, unreliability of statistical information (including the understatement of GDP and the contribution to GDP of various sectors) and inability to monitor or otherwise regulate a large portion of the economy.

Interest Rates: The yield of the 2028 Notes is 7.25% and the yield of the 2048 Notes is 8.25% in each case on an annual basis. The yields were calculated at the issue date.

Listing: The Eurobond Notes will not be issued, offered or sold in Kenya, and the notes may not be offered or sold in the United States. Applications have been made to the Irish Stock Exchange at a cost of 5,500 euros and the London Stock Exchange for GBP 4,200.

Litigation:  The Issuer has appointed the High Commissioner of the Republic of Kenya in London, presently located at 45 Portland Place, London W1B 1AS as its agent for service of process in relation to any proceedings (“Proceedings”) before the English courts permitted by

Indebtedness:  Total national government debt stood at US$41.2 billion as at 30 June 2017, representing a 17% increase from June 2016. The government is permitted under the terms of the PFMA to incur debt within the limits set by Parliament, currently set at 50% of GDP in net present value terms. Following the issue of the (Eurobond) Notes, the total net present value of debt as a percentage of GDP is expected to nearly reach the 50% limit. Although the government may be restricted from incurring further public debt under such circumstances, the Government will be seeking to refinance or repay near-term maturities, and therefore expects to maintain the ratios within the set limits.

Total multilateral debt increased by 15.8% to stand at US $8.0 billion at 30 June 2016 while total bilateral debt increased to US $5.3 billion at 30 June 2016, mainly driven by a rise in stock of debt from the People’s Republic of China, which increased by 21.2%. Also, as at 30 June 2017, the national government guaranteed approximately KES135.1 billion of the indebtedness of the non-financial public sector include Kshs 77 billion to Kenya Airways last year.

Purpose Kenya expects the net proceeds of the issue of the Eurobond Notes, before expenses, to amount to approximately US$1,999,600,000 which it intends to use for financing development expenditures and to refinance part of its obligations outstanding under certain syndicated loan agreements. According to the “Plan of Distribution”, Kenya syndicated loans of from October 2015 (debt now $646 million) and March 2017 ($1 billion)  and proceed from the new February 2018 issue will be used to pay all of the 2015 loan and part of the 2017 loan and  to “manage the maturity profile of the government’s debt.”

Repayments: (for both issues) payable semi-annually in arrears on 28 February and 28 August in each year commencing on 28 August 2018. The Eurobond Notes are not redeemable prior to maturity.

Withholding Taxes: All payments in respect of the Eurobond Notes by or on behalf of the Issuer shall be made without withholding or deduction of any present or future taxes,

See Part I about the 2014 Eurobond issue. 

1USD  = Kshs 101, 1 GBP = Kshs  139, 1 Euro = Kshs 123

Kenya Eurobond 2018

Kenya’s National Treasury has just announced a new $2 billion Eurobond which was seven times oversubscribed amid concerns about the country’s debt levels and intrigues about the availability of an IMF financing line.

The official Kenya Government statement reads: The fact that we got $14billion in investor appetite reflected the continued support the country receives. We now have a dollar yield curve stretching out to 30 years, making Kenya one of only a handful of government’s in Africa to achieve this. 

The funds are earmarked for development initiatives, liquidity management, and ambitious infrastructure programs. It goes further to add that the Eurobond issue will be listed on the London Stock Exchange and that the joint Mandated arrangers were Citi, J.P. Morgan, Standard Bank, and Standard Chartered Bank.

There was little awareness about the bond, no prospectus was publicly released, and there was no indication on which investors the Eurobond was being pitched to, but it appears that the successful issue will be dated February 28, 2018. 

The Eurobond breakdown is for a mix of two equal halves of 10 year and 30 year bonds, priced at 7.25% and 8.25% respectively.

The announcement comes after some potentially embarrassing news reports that the International Monetary Fund had cut off a line of funding, a statement which was later retracted, and others that Moody’s had downgraded Kenya’s ratings, a claim which the government also disputed.

But the ratings cut, and the mysterious IMF news (and retraction) did not appear to have an impact on the pitch to investors.

This is the second Eurobond after another set of bond issues in 2014.
$1 = Kshs 101.4

Barclays launches the Africa Financial Markets Index 

Barclays launched their first edition of the African Financial Markets Index (AFMI) that ranks and compares the depth of financial markets in seventeen African countries. The countries were score against six broad pillars of (1) Financial markets depth, (2) Access to foreign exchange,  (3) Market transparency & the regulatory environment, (4) Macroeconomic opportunity, (5) Enforceability of agreements and (6) Capacity of local investors.

South Africa came out on top of the AFMI with 92 out of 100. It was classified as a highly developed market but (with a) challenging macroeconomic outlook; It was followed distantly by Mauritius (66), Botswana (65) and Namibia (62).

Kenya was ranked fifth (59), just ahead of Nigeria (53) Ghana (49) and Rwanda (48), and Kenya was found to be the most sophisticated in East Africa due to innovations and reforms by the Nairobi Securities Exchange (NSE) and the Capital Markets Authority (CMA).  Kenya’s scores were quite consistent across the six pillars with recent developments including the de-mutualization and the IPO of the NSE, the launch of a first exchange-traded fund by Barclays Kenya, and the launch of the M-Akiba bond.

Kenya is the seventh largest stock exchange by market capitalization and sixth by bond listings. But George Asante, Managing Director and Head of Markets at Barclays Africa said that Kenya lacked deep-pocketed market-makers who could broker deals, and take price risks and also that Kenya needed to develop a primary dealership network. He added that the participation of local investors in long long-term investing was quite limited and local investors are critical as they buffer volatility caused by foreign investors. Assets were concentrated among buy-and-hold investors, rather than pension funds and insurers. Kenya’s domestic institutional investors have $12.6 billion of assets but this only works out to  $173 per capita and he suggested that Kenyan markets and regulators needed come up with more securities listings, instruments, and innovations.

Barclays Bank of Kenya Managing Director Jeremy Awori said that “The AFMI will be produced annually to drive conversations, track progress and address gaps in financial markets.” Already countries like Rwanda and Morocco want to use the index data to improve their financial markets.  At the tail end of the AFMI was Egypt, Mozambique, Seychelles and Ethiopia. Ethiopia was scored as “a fast-growing economy but with no financial markets depth or local investor capacity.”  

Guests at the launch included Jeffrey Odundo, CEO of the NSE, and Paul Muthaura, CEO of Kenya’s CMA. Muthaura said the CMA had a master plan to make Kenya a choice destination for capital flows by 2023, while Odundo said the NSE has broadened its  revenue and product base (by introducing REIT’s, ETF’s, M-Akiba and next derivatives, and a new law to govern securities lending), and was working to make Kenya more visible. They are active members of the Africa Securities Exchange Association and will host a “Building African Financial Markets” seminar in Nairobi in April 2018. They also plan to join the World Federation of Exchanges.

The AFMI report can be downloaded here from the Official Monetary and Financial Institutions Forum website; OMFIF produced the report with Barclays Africa

Moody’s places Kenya’s B1 rating on review for downgrade

Moody’s Investors Service has placed the B1 long-term issuer rating of the government of Kenya on review for downgrade.



The decision to place the rating on review for downgrade was prompted by the following key drivers:

  •  Persistent, large, primary deficits and high borrowing costs continue to drive government indebtedness higher
  • Government liquidity pressures risk rising in the face of increasingly large financing needs
  • Uncertainties weigh over the future direction of economic and fiscal policy, in part due to evolving political dynamics

Moody’s expects that Kenya’s government debt burden, which has risen to 56.4% of GDP in June 2017, up from 40.5% five years ago, will continue to rise due to persistently high primary deficits and borrowing costs. Pressures on the government primary balance, which posted a deficit of 5.3% of GDP in the latest fiscal year ending June 2017, come from elevated development spending and weak revenue performance. Unless a decisive policy response is introduced, the upward trajectory in government debt will see debt-to-GDP surpass the 60% mark by June 2018.

Due to the erosion in government revenue intake in the last five years and increased recourse to debt from private sources on commercial terms, government debt affordability has deteriorated. In the latest fiscal year, the government spent 19.0% of its revenues on interest payments, up from 10.7% five years ago.

A key focus of the review will be to assess the capacity and willingness of the government to address these budgetary challenges in a comprehensive, effective and timely manner.

What Next?

Moody’s would downgrade the rating if the review were to conclude that Kenya’s government debt and financing needs, and hence its fiscal strength and liquidity position, have eroded to levels no longer consistent with B1 rated peers. In particular, the rating agency would downgrade the rating in the absence of an effective policy response to these challenges.


Moody’s would confirm the rating at B1 if the review were to conclude that the policy response offers the prospect for tempering the currently-anticipated upward trend in government debt and that liquidity risks are being effectively managed.

Moody’s Debt Summit Nairobi

Moody’s 4th annual East Africa investor summit Kenya, held in association with Rich Management, looked at East Africa’s resilience in Sub-Saharan Africa’s low growth environment.


Economic growth:

  • Kenya and Nigeria summit audience think political risks are main challenge to credit in emerging markets. Dubai summit ones are watching USA (policies under Trump and China (economic slowdown) events
  • Between 2007-15, 6 of 10 fastest growing African economies were commodity exporters, but for 2016-18, 5 of fastest growing ones are in East Africa. While Sub-Saharan Africa growth is at a 20-year low, East Africa is attractive as their growth is not about commodities.
  • Kenya’s economy growing due to infrastructure, FDI, population but banks not benefiting, partly due to the interest rate cap.
  • Investors in Kenya want to see a benign August 8 election with a first round winner and a gracious loser.

Bank’s and interest rate:

  • Banks face a dilemma – on whether to lend to companies in the Kenya economy or to the Kenya government (where they can earn 10% per year short-term, or 14% in the long-term).
  • There was already a slowdown in bank lending (due to regulation and NPA’s) before the interest rate caps.
  • The Cost of borrowing in Kenya was too high; and even after interest rate caps, large banks are still getting good 20% returns on equity.
  • Some firms are opportunistically raising debt – locking in cheap funding ahead of the election e.g. East African Breweries announced they would build a brewery at Kisumu even as they are yet to agree on the financing. But the problems at Nakumatt are probably due to the drying up of their credit lines as banks feel 14% lending does not compensate their risk.
  • At Moody’s, they rate three large Kenya banks – Coop Bank, Equity Bank and KCB Group all equally. Equity has 55% SME exposure and KCB is big in property, while Coop is well-balanced between business and consumer lending – but they have all taken steps to mitigate risks from the interest rate cap law.

Africa Debt markets

  • While Moody’s recently upgraded Senegal and Ivory Coast and stabilized Ghana, 8 of 19 Sub-Saharan Africa economics are still rated negative.
  • South Africa preempts state corporation defaults through bailouts – e.g. at Eskom, SAA – but this doesn’t inspire business confidence.
  • East Africa economies have solid reserves (4-5 months of imports) but key risks are fiscal deficits and debt accumulation (50% debt to GDP is a warning point).
  • One of the best performing Eurobonds in Mozambique defaulted.. a flood of money can ignore fundamentals

Kenya’s Debt

  • Kenya has a history of debt going back over the last ten years.. it knows how to live with the debt. Currently 15 to 17% of Kenya’s income goes to pay debt – (Moody’s get data from government budgets or IMF)
  • The London Stock Exchange, and some European ones, are considering issuing some debt in Kenya shillings.
  • Kenya can do better in terms of exports & revenue e.g. by improving productivity – the government explained this to the IMF.