The government is set to issue another Eurobond in 2018 in an attempt to raise money to fund its projects. As at now the government has a deficit of over Ksh 100 billion in its budget for the financial year ending June 2017, domestic markets are not deep enough for the government to borrow this amount of money. This explains why the government has to borrow outside the country.
The government is expected to have Roadshows in Europe and North-America in mid-February in a bid to sell the Eurobond. A roadshow is a presentation of an issuer of a security like a bond to potential investors. In these roadshows, the government of Kenya will be explaining the projects they are going to channel the borrowed money, the expected returns from the projects at various times.
The government will ride on the credit rating it has been given in the international market to get a low coupon rate. Kenya’s credit rating stands at B+, this is a good and stable credit rating compared to credit rating for other developing markets.
The government has set on two renown firms, CitiGroup and JP Morgan, to advise it on issuance on the Eurobond sale. The government is likely to raise around $3 billion in this transaction with a maturity of ten years.
In light of this amount and maturity date, this Eurobond is likely to be more expensive than the Eurobond sold in 2014 that has a maturity of 5 years.
The 2014 Eurobond has a unique maturity feature, where $750 million will mature in 2019 and $ 2 billion maturing in 2024. The maturity effect influences the coupon payments. The longer the maturity dates the higher the coupon rate to cater for the risks in the long period.
However, Kenya’s credit rating that stands at B+ stands will enable Kenya buy the bonds at a relatively low coupon rate. This is because the investors will consider the bond as being less risky.
The government is as well likely to sell dollar-denominated debt to hedge against currency fluctuation. The dollar is among the most stable currencies in the global economy and is less volatile. When a debt is issued in a currency that easily fluctuates, the debt may be more expensive than expected when the value of the currency weakens against the dollar.
If the government diligently invests the raised funds in the agreed upon projects it will easily repay the debts and will have high returns on investments. Among the projects that the government is likely to invest in is the Standard Gauge Railway (SGR) which is to be extended from Syokimau to Naivasha. Though such projects take long before they breakeven, they are likely to give high returns in future growing the country’s Gross Domestic Product (GDP).