Tag Archives: Eurobond

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

EuroBond & Mindspeak with Henry Rotich

Last weekend, the Mindspeak series had National Treasury Cabinet Secretary Henry Rotich

Treasury Cabinet Secretary . There was a lot of expectation that he was there to talk about Eurobond but that wasn’t the case and it was merely one subject he touched on his talks about his role and functions in the government, and economic outlook for Kenya.

In his intro, host Aly-Khan Satchu said that the Kenya Eurobond which was the perfectly timed and a stunning issue at 6.875%, the largest SSA bond perfectly times. It has helped the shilling  – stunning issue outperform many currencies – only losing 11% against the dollar, compared to the Rand (-39%) , Angola (-50%) and Kwacha (-73). KCB CEO Joshua Oigara noted that people outside Kenya are more confident than people within, and people who are doing great things, should know that a certain percent will not agree with you.

CS Rotich at Mindspeak

Excerpts of the CS presentation, remarks, and Q&A session 

  • Kenya Outlook China slowdown to focus on domestic and US exit from international market will have an impact on the world, but Kenya with a diversified economy and strong private sector should be resilient
  • Challenges include to reduce poverty, and inequality, and also create employment. The economy needs to grow faster than 5-6% and not getting enough innate employment. 1 million a year. 6% will only create 600,000 jobs. so need 10% growth to create jobs 1 million per year. 
  • Agriculture has not been modernized for a long time. these services sector (ICT, financial). manufacturing has been flat for two decades (10% of GDP) – and this needs to be 20%. That’s  why they are support leather & textile, and working to lower energy costs and , improve the business environment through special economic zones.

The Job 

  • He is guided in his job by three measures of economic health – interest rates, exchange rates and inflation (stable, single digits).
  • The ministry has undertaken fiscal reforms, and the budget is more policy-based.They pay suppliers with Gpay and IFMIS, new procurement laws are in place, the auditor general reviews expenditure, and there are quarterly reports on the website and which are submitted to parliament.


  • Kenya still has low and sustainable external debt levels. It did not get HIPC debt relief, unlike other countries and has paid debts on time – this was a big selling point when marketing the Eurobond.
  • The current account deficit gone from 10% to 7% of GDP mainly because of lower oil prices, and less thermal energy generation and slowdown of consumer imports  (good, as the focus should be  on investments not consumption)
  • You cannot be a growing economy if you can’t borrow from outside – you need to safeguards.  The bond was oversubscribed and when it traded favorably, they also did a tap sale that picked another $750m. Aly-Khan said the government actually got $815 million and only has to pay back $750 million.
  • Explanations and documentation about the bonds are on the treasury website.
  • Euro bond proceeds received have been spent on 2013-15 budget programs like infrastructure projects. The bond was not specific, and not earmarked to any project. it was for budgetary support of programs, some initiated by the previous government, such as roads and electrification
  • We will remain as participants in the international market and soon intend to borrow more


  • Need to raise Kenyan savings from 12% to at least 30% of GDP – perhaps through more innovative finance products (from insurers  & capital markets) to save.
  • M-akiba bond launch has been delayed. It was meant to come out last October, but interest rates were still high and volatile.
  • They have also sorted issues with Safaricom and CDSC  – all that’s left is to set the price and launch.
  • Kenyans will be able to buy government bonds of amounts of Kshs 3,000 (~$29) by phone.


  • Wants to raise tax to GDP ratio to 25%, but people say there are too many taxes already
  • Wants to keep government wages below 35% of revenue.
  • New VAT and excise bills have come, but we are yet to modernise income tax. That should happen by the next budget with a view to expanding tax base (very few people pay tax now).
  • They will also support county governments to implement and collect taxes assigned to them like property tax.

Local Banks

  • Wants to reduce bank interest rate spreads from 17% to 8% – we’ve been asking banks what is this 8%? Can they share infrastructure, reduce the cost of perfection securities etc.
  • There are too many banks that are not offering competition;  5 banks control 70-80% – the other 30 are competing for 30% market share. Parliament stalled a move to increase bank capital, but his aim is for 15-20 banks which actually compete.

 Oil & Petrol

  • It’s good that Kenya did not discover oil early – and was thus able to diversify and develop agriculture, and services, and its only now that oil & minerals are being discovered.
  • The petrol pump price would be lower if exchange rate was 88-90. Now the rate at 102 has eaten a lot of  savings.
  • When oil prices fall, we should  actually keep the petrol price the same and transfer the savings to a fund


  • There has been no government privatization since Safaricom — the current law is a hindrance rather than  facilitator as there are too many lengthy requirements and safeguards. We may have to amend the law if you wants to see more privatization transactions, and need to trust the government by not requiring too many consultations.
  • There’s a pipeline of projects to sell,  starting with sugar companies, then a few banks (government owns 4 banks), hotels stakes etc.