Category Archives: World Bank

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

Economic Forecasts from Citi, Barclays, World Bank, Brookings, Oxford

A roundup of recently published economic forecasts, reports, and surveys.   

AfDBThe African Development Bank’s interactive platform, #MapAfrica, maps the locations of the bank’s investments in every country across Africa.   

Also the AfDB launched their 2018 African Economic Outlook report. 

Barclays: In Nairobi this week, Barclays Africa launches the 2017/18 macro-economic report as well as the Africa Financial Markets Index,  which is a survey of 17 African stock markets.

Citi: Citi Research has just published two reports on frontier markets and one on food inflation in AfricaCiti found that frontier markets did better than developed markets and that Kenya did well (36% return on equities) despite the banking interest cap law and the prolonged election season which has now ended.

Citi’s forecasts of top picks for frontier markets in 2018 are Sri Lanka, Romania, and Kenya and they see weaknesses for Argentina, Morocco, and Egypt. The Citi rankings consider six factors: macro growth, macro imbalances, monetary factors, valuations, earnings momentum and price momentum for their forecasts. Citi also ranked five top stock for frontier markets BGEO Group (Georgia), Humansoft (Kuwait), IDH (Egypt), KCB (Kenya) and MHP (Ukraine). For KCB they like the growth profile of corporate and salaried customers from which the bank will grow market its share even if the banking law remains the same.

The Citi forecasts also looked at the Kenyan currency (shilling) which has remained stable relative to other African currencies and how it will continue to do so even with the country’s balance of payments deficits and heightened politics. But they found that one problem with making Kenya predictions is that a significant portion of inflows that offset the current account deficit is classified as other flows, and their timing is not predictable. They assume that the inflows are from the East and Central Africa region that sees Kenya as a safe haven, despite the politics of the second half of 2017. Another finding was that devaluation of currencies have a bigger impact on food inflation in sub-Saharan Africa but Kenya which had drought and food security issues in 2017 is able to draw on food production from its neighbors (Ethiopia, Tanzania, Uganda) that keeps food inflation in check even though the food trade data is not captured in official statistics.

World Bank: Meanwhile the World Bank is taking heat after one of their economists admitted that the WB “Doing Business” rankings for Chile had been manipulated for political reasons. The Doing Business reports are cited by leaders of several countries such as Kenya, Rwanda, India as indicators of their good performance in office, But this one admission of political interference could trigger fall out as to the credibility of other reports, country economic forecasts, growth statistics, inflation measures and discussions with governments that the World Bank does.

The Oxford Business Group: The Oxford forecasts reviewed the year Kenya in 2017 in which growth was expected to be about 5% (down from an initial forecast of 5.8% for 2017), but still above the sub-Saharan Africa average of 2.7%. It noted the mixed agriculture performance was due to the drought that affected maize, sugar, tea. Also that Kenya’s Supreme Court decision to nullify the presidential election set a good path for the country in 2018 despite the added cost of staging two elections in 2017 affecting the government’s ability to meet budgetary targets and which later resulted in Moody’s considering a downgrade of Kenya’s debt rating.

Brookings: The Brookings forecasts are contained in Foresight Africa, an Africa-focused report  that celebrates Africa’s growth and highlights priorities for the continent. For Kenya, it contains a sum up of the ability of the country to leverage technology and innovation for things like revenue collection and uptake of products and mobile bonds (M-Akiba), M-Tiba, and IFMIS. It mentions that Kenya can balance the impact of special economic zones and infrastructure from China against politics and that the successful launch of the SGR in May 2017 could one day serve Uganda Rwanda, Burundi and even Tanzania South Sudan and Ethiopia. It has special sections on the 2017 Kenya election and the M-Akiba bond (“The KSh 150.04 million (approximately $1.5 million) uptake of the M-Akiba bond was mainly dominated by small investors who invested less than KSh 10,000 (approximately $100)”)

Idea Exchange: Startup Roundup

Recent and upcoming startup events around Africa

AVCA Nairobi: The African Private Equity and Venture Capital Association (AVCA) cordially invites you to an informal evening of networking over cocktails on Wednesday, 22nd November 2017 5:30 – 9:00 pm Sarabi Pool & Supper Club Sankara Nairobi. AVCA Members and Qualified LPs: FREE, Non-AVCA Members: £25

ABLAA Africa: 7th All Africa Business Leader Awards will feature winners from West, Southern and East Africa at the AABLA Finale on November 30th in Sandton, which will be broadcast on CNBC Africa on December 7th. West Africa will be represented by Alloysius Attah, Co-Founder and CEO of Farmerline (Young Business Leader of the Year), Oluwatoyin Sanni, Group CEO of United Capital Group (Business Woman of the Year), Mustapha Njie, CEO of TAF Africa Homes (Entrepreneur of the Year), Guaranty Trust Bank (Company of the Year) and Herbert Wigwe, CEO of Access Bank (Business Leader of the Year).

Startups that use drones are welcomed.

The Airbus BizLab initiative in Africa, launched in August this year, targeted African startups innovating for future applications in the aerospace business. Startups that use Unmanned Aerial vehicles (UAVs), satellite Operations and Imagery, 3D Printing, Smart sensors, Internet of Things (IOT), smart energy and Artificial Intelligence (AI) were encouraged to apply. There were 11 finalists who were shortlisted included Aerobot Technologies – Kenya, ESIPPS International – Uganda, Kuunda Three Dee – Kenya, Maisha – Ethiopia, QTRON Industries – Kenya, Swahili Box – Kenya, Savannah Circuit Technologies – Kenya, Startup Lions – Kenya, Track Your Build – Sierra Leone, UAV Kenya – Kenya and the overall winner of the Airbus Bizlab  was lluminum, an Agri-tech startup that uses connected sensor technology with its solar panels to automate and enable remote control of greenhouses. Illuminum greenhouses will get a 10-day trip to Europe to meet with Airbus experts as well as present to Airbus Executives and investors.

I Love Black People Tour & Pitching Competition: Blockchain startup BitMari has teamed up with the National Society of Black Engineers to bring you a unique opportunity to tackle financial challenges across the global African Diaspora and has been inviting undergraduate students, graduate student, and professionals across all fields, including developers, designers, product developers, and entrepreneurs, plus businesses that want to embrace the idea of social innovation or initiatives that combine a positive mission with business. Students can now enter the pitch competition and win up to $5,000 for sending a youtube link with a 60 seconds pitch on an idea that uses Bitcoin technology which will qualify them for a hackathon at the end of November.

Innovate Ventures, the leading Somali tech and business startup accelerator launched in partnership with VC4A, Telesom the Work in Progress! Alliance, had their second cohort of 10 startups from Somaliland and Somalia graduate from their programme. This year’s accelerator saw over 400 applications received and the seed investment given doubled from $15,000 last year to $30,000. First place went to Bilan Baby, a startup that sells baby furniture, accessories and baby clothing as well as maternity products. Bilan Baby received $7,000 in seed investment. Second place went to SAMS, an agritech marketplace for farmers and buyers and Almijet, a digital printing company who received $5,000 each. Finally, Brandkii, an online marketing and advertising startup, received $3,000. Further investment was provided to Muraadso, an e-commerce startup and last year’s winners; they received $10,000.

Kenya Bankers Catalyst Award nominees include Barclays, Commercial Bank of Africa, Cooperative Bank, Diamond Trust, Equity, KCB, Kenya Women’s Finance Trust, Lendable /Levanter, National Bank, NIC, Prime, Safaricom, Standard Chartered, and Stanbic among others.

MasterCard Foundation sponsored ‘Client at the Centre’ Prize which highlights best practices in financial services where client satisfaction is a priority. Jumo, a South African based company beat close to 100 financial services firms to win the$150,000 prize in recognition of its innovative and impactful low-cost financial services that serves poor people. The winner was picked by a 400-person audience during the ongoing Mastercard Foundation’s Symposium on Financial Inclusion  2017 Symposium on Financial Inclusion in Accra, Ghana. The other two Prize finalists were ftcash, one of India’s fastest-growing financial technology ventures which aims to empower micro-merchants and small businesses with the power of digital payments and loans, and Destacame, a free online platform in Latin America that empowers users by giving them control over their data to build their financial capabilities and to access financial products.

Orange  announced the winners of the 7th Orange Social Entrepreneur Prize 2017 in Africa and the Middle East. 49 local winners who were drawn from Orange’s 17 subsidiaries in Africa and the Middle East were entered into the international contest. The winning projects this year were: 1st prize was awarded to Manzer Partazer in Madagascar, a startup that aims to reduce food waste by sharing excess food from restaurants, hotels or supermarkets.  2nd prize was awarded to City Taps which has developed a solution which bridges the gap between water services and the most disadvantaged citizens.  3rd prize was awarded to eFret.tn in Tunisia a website that links up foreign exchange senders with transport and transit professionals in Tunisia .Also a Special Content Prize was awarded to Génie Edu in Cameroon, an e-learning platform which aims to help students having problems by providing online video courses and Internet users were also invited to choose their “User Favourite” project and this was the Malagasy project Majika that facilitates access to renewable electricity and support for rural entrepreneurship.

Reuters Journalism Training Programme (Middle East & Africa): The Reuters Journalism Programme is an opportunity for recent graduates, early career reporters, or professionals with proven experience who are looking to switch careers into journalism. The programme in 2018 will consist of 6 months of formal and on-the-job journalism training, initially in our London newsroom, followed by one of our other main reporting newsrooms or bureaus in the Middle East or Africa.

 

USAID: Enterprises within the Kenya Innovation Engine (KIE), a USAID-funded program Feed the Future initiative have leveraged $8.2 million worth of private sector investment, and created more than 6,000 jobs at the business and farm level. In the course of implementation, in order to ensure sustainability, KIE-supported enterprises formed 56 strategic public-private partnerships with progressive local and international organizations such as Safaricom, Equity Bank, Microsoft Corporation and VISA. Over 670 innovation applications received in four solicitation waves and over $4.2M invested in a total of 26 awards made to date. Project awardees: Stage I (proof-of-concept): M-Farm; Quest Agriculture; The Real IPM Company; University of Nairobi; Virtual City; Kenya Medical Research Institute (KEMRI); Maseno University; Caytree Partners; and Kenya Network for Dissemination of Agricultural Technologies (KENDAT). Graduated to Stage II (pilot-roll-out): Arid Lands Information Network (ALIN), Kenya Livestock Marketing Council (KLMC), iProcure, Amtech Technologies; Wanda Organic; and Kenya Biologics. Direct entrants at Stage II (pilot-roll-out): Lachlan ; Indicus Kenya.; Value Farms and Takaful Insurance.

Village Capital is launching the Fintech Africa 2018 program in collaboration with PayPal. The U.S. headquartered VC firm is recruiting a cohort of 12-14 early-stage fintech startups to go through a three-month investment-readiness program, early next year. They are recruiting from Ghana, Kenya, Nigeria, Rwanda, South Africa, Tanzania, and Uganda and are looking for startups that address insurtech, pensions and savings, cooperative finance, and financial literacy; leverage data for credit scoring and consumer insights; and apply fintech to other sectors of interest: agriculture, energy, education, and health. Two startups will be peer selected by fellow entrepreneurs to receive $50,000 investment each. The deadline for applications is November 24.

XL Africa: Twenty of the most promising African digital start-ups will take part in the XL Africa  residency, the flagship initiative of the business accelerator launched last April by the World Bank Group’s infoDev program. The residency will conclude with the XL Africa Venture Showcase, a regional event organized in association with the African Angel Investor Summit.  With support from African investment groups, XL Africa will help the startups attract early stage capital between $250,000 and $1.5 million. Selected from a pool of over 900 applicants, the startups participating in the event are: Aerobotics (Data, South Africa), Asoko Insight (Data), Coin Afrique (Marketplace, Senegal and Benin), Edgepoint Digital (Jamii) (FinTech – Insurance, Tanzania) , Electronic Settlement (FinTech, Nigeria), Lynk Jobs (HR, Kenya), MAX (Transport, Nigeria), ogaVenue (Venue Platform, Nigeria), Ongair (SME Services, Kenya), Pesabazaar.com (FinTech, Kenya), Prepclass (EdTech, Nigeria), Printivo (Printing, Nigeria), Rasello Company (SME Services, Tanzania), Rensource (Energy, Nigeria), Sendy (Delivery, Kenya), Snapplify (Publishing, South Africa and Kenya), Sokowatch (Delivery, Kenya), TalentBase (HR, Nigeria), Timbuktu (Travel, South Africa), and Tizeti Network (Connectivity, Nigeria)

WDR 2017: Governance and the rule of law

WDR2017, the World Development Report from the World Bank for 2017, looks at governance and the rule of law around the world and how they can impact countries and economic development.

Illustrative pic from the Star Newspaper to show what a large sum of cash will look like

some excerpts;

  • Elections alone are not enough to bring change – even when citizens manage to remove politicians whose performance is poor or diverges from their preferences, elections alone offer no credible guarantee that, once elected, new leaders will not shirk their electoral promises and credibly commit to citizens’ demands.
  • Local elites can capture public spending despite participatory programs; as they can disproportionately sway expenditure decisions
  • Inequality begets inequality In societies in which inequality is high as the effectiveness of governance to deliver on equity outcomes can be weakened structurally because those at the top of the income ladder not only have control over a disproportionate amount of wealth and resources, but also have a disproportionate ability to influence the policy process.
  • Devolve: By multiplying the number of more or less autonomous arenas within which public authority is exercised, decentralization increases the opportunities for policy innovations and the emergence of effective leaders. Often these innovations are spurred by political outsiders, who may not have access to the national policy arena but are more likely to acquire citizen support locally and spur local institutional reforms.
  • Female leaders are less prone to patronage politics and corruption.
  • Media content is often defined by elites leading to a bias, but new media can counteract this.
  • Political parties are on average the least-trusted political institution worldwide
  • Politically connected firms gain undue advantage in countries through using market regulations to favor firms, granting import licenses to favored firms, and diverting credit.
  • Land redistribution policies often fail due to transaction costs, incomplete contracts, and political agreements.
  • The Panama Papers highlighted legal and illegal ways in which assets found their way to 40 countries: Funds are legally earned through tax evasion and evading currency controls and shifting profits, but also illegally by exploiting natural resources, violating intellectual property rights, corruption, embezzlement, drug trafficking, and human smuggling etc.

See the 2016 WDR report.