Kenya Debuts on International Capital Markets

Kenya has made a successful first appearance on the international capital markets, raising US$2bn from investors despite a weekend terrorist attack that killed 48 people and increased security concerns over East Africa’s largest economy.

Investors placed orders for more than four times the amount that Nairobi finally raised, indicating a continuing healthy appetite for higher risk assets.

The country’s debut surpassed that of Zambia in April and is the largest to date by an African country in the sovereign bond market. Kenya offered two bonds: a US$500m, five-year bond paying an interest rate of 5.875%, and a US$1.5bn 10-year note offering 6.875%. The yields were lower than had been predicted, with the latter rate comparing to a 7.1% yield on Zambia’s similar 10-year bonds.

The offering attracted strong demand from pension funds, insurers and sovereign wealth funds (SWFs) seeking higher-yielding assets, attracted by Kenya’s strong economic growth. A figure of 5.3% is expected for fiscal 2014 and the government expects this rate to accelerate to 6.1% in the year ahead, helped by exports of black tea and flowers.

Tourism is Kenya’s second-biggest source of foreign currency after tea, generating US$1.1bn in 2013. Data for 2013 from the Kenya National Bureau of Statistic suggests that the country’s fastest-growing industries have been wholesale and retail trade, financial services, transport and communications.

Kenya will use the proceeds for infrastructure projects and repayment of a US$600m loan that matures in August.

The country’s success makes it likely that the record total of US$11bn raised by African countries from the international capital markets last year will be surpassed in 2014. In addition to Zambia, Morocco and South Africa also issued bonds earlier this year and investors expect. Ghana and Ivory Coast will both test the markets next month with offerings.

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