Plan outlined for Kenya bid to float Sh172bn cash call

By  RAMENYA GIBENDI

What you need to know:

  • The Public Finance Management (Amendment) Bill, 2014 was published in the Kenya Gazette on April 4 paving the way for a change in law to allow the government raise funds from the international markets.
  • The Treasury had last month petitioned Parliament through the Budget and Appropriations Committee to have the amendment so as to facilitate the country’s plan to float Sh172 billion Eurobond.
  • The money is expected to finance infrastructure projects such as the Lamu transport corridor, new railway and roads.

The National Treasury has published a Bill that will create the legal framework required for Kenya to float a Sh172 billion sovereign bond.

The Public Finance Management (Amendment) Bill, 2014 was published in the Kenya Gazette on April 4 paving the way for a change in law to allow the government raise funds from the international markets.

The Treasury had last month petitioned Parliament through the Budget and Appropriations Committee to have the amendment so as to facilitate the country’s plan to float Sh172 billion Eurobond.

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The money is expected to finance infrastructure projects such as the Lamu transport corridor, new railway and roads.

DELAYED BUDGET

“The presentation by National Treasury on PFM highlighted that there was need for the Public Finance Management, 2012, to be amended so as to allow the issuance of the sovereign bond,” read minutes of the meeting between the Treasury and the committee in part.

The cash call plan, which was slated for September last year, to plug the huge funding gap in the Sh1.64 trillion budget had delayed but is poised to start if Parliament approves the amendments.

Plans for the country to undertake the cash call have been delayed severally since 2007, mainly due to political turmoil and financial headwinds abroad.

In February, Treasury Cabinet secretary Henry Rotich said that failure to issue the bond last year meant Kenya would pay more for the funds after the US government cut down on its bond buying programme — tapering.

PAID MORE

The tapering increased the cost of raising money from the international market with Mr Rotich saying that investors will be paid more for the 10-year sovereign bond.

Analysts have also previously said that companies may pay the price for the delay as the Eurobond serves as a benchmark to lenders.

The Treasury had also indicated delaying to pay an expensive syndicated loan borrowed from 13 international banks among them The Hong Kong and Shanghai Banking Corporation, FBN Bank, Bank of India, BankMuscat and British Arab Commercial Bank.

This was because it expected proceeds from the sovereign bond to go towards offsetting the Sh52 billion loan priced at a premium of 4.75 per cent above the London Interbank Offered Rate (Libor).

US PROGRAMME

“It is envisioned that the loan (syndicated loan) will be repaid with proceeds of the Eurobond,” said Mr Rotich in an earlier interview.

The first ever bond is primed to put the country at the heart of the global financial system.

If successful, Kenya will join Rwanda, Ghana and Zambia that went to the international market, albeit before the US government tapering programme started.

Rwanda placed its $400 million sovereign bond at 6.875 per cent while Zambia raised $750 million at 5.4 per cent against a target of $500 million and orders of $12 billion.

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