Treasury targets Sh132bn in Eurobond offer

The government has mounted a campaign to get investors buy into the Sh132 billion Eurobond, saying, there is little to fear in terms of political risk.

In marketing the first of the country’s borrowing overture in foreign countries, the team led by National Treasury Cabinet Secretary Henry Rotich has singled out a bullish market and expected high economic growth as key safeguards to investors.

The brochure to prospective investors also lists at least 20 risks inherent in Kenya, among them the cases facing President Uhuru Kenyatta and his deputy William Ruto at the International Criminal Court in The Hague.

SYNDICATED LOAN

Mr Rotich, flew to Los Angeles, United States on Tuesday with a four-member government delegation for road shows together with the managers of the campaign, JP Morgan and Dyer and Blair.

They will conduct road shows in San Francisco, Boston and New York before flying across the Atlantic Ocean to London, United Kingdom to conclude the campaign on Friday next week.

The government wants to raise between Sh132 billion ($1.5 billion) and Sh175 billion ($2 billion) to finance mega infrastructure projects and pay off a Sh52 billion ($600 million) syndicated loan it borrowed from private banks in 2012.

The success of the Eurobond is vital in the push by government to lower cost of lending to the public by reducing borrowing from local market. It is also expected to stabilise the shilling against other hard currencies, and check the spiralling cost of living.

The government has been forced to extend the deadline for repaying the loan from last month to August at a cost of Sh1.2 billion ($13.7 million).

However, the successful campaign and launch of the Eurobond will require investors to trust that the risks enumerated in the brochure about investing in Kenya’s economy would not come to pass.

The brochure cautions that political instability, which does not augur well for investors, is likely to occur should the ICC convict either Mr Kenyatta or Mr Ruto.

“Political instability may ensue if the International Criminal Court at The Hague decides against President Uhuru Kenyatta and Deputy President William Ruto,” it states.

The President and his deputy are on trial at The Hague for on charges of crimes against humanity stemming from the 2007/8 post-election violence in which 1,133 people were killed and an estimated 650,000 uprooted from their homes.

But the statement also says the ongoing trials have not interfered with the running of the country.

This is followed by the admission by the government that Kenya has a history of election-related violence which, if it recurs, could hit the financial sectors, send tourists and investors fleeing and in the process, block the country from attaining the economic growth rates placed at 5.8 per cent this year and 6.4 per cent next year.

IMF growth projections are, in fact very close — 5.9 this year and 6.3 per cent in 2015.

“Kenya has in the past experienced volatility and violence related with acquisition or maintenance of political power.

If significant political violence occurs again, Kenya’s capital markets, level of tourism and foreign investment, among other things, may suffer and potentially affect the stability of the Kenyan economy,” the brochure cautions.

The risk posed by internal security weakness in terms of terrorism and crimes is also raised as a factor that potential buyers of the sovereign bond have to contend with.

Kenya has been a theatre of terrorist attacks by Al-Shaabab members in response to the decision by the government to send its troops to Somalia in 2010.

One of the hallmarks of the terrorist attacks was the Westgate Shopping Mall attack in Nairobi in September last year in which more than 70 people were killed and at least 200 injured.

ANGLO LEASING

The brochure alluded to the insecurity situation that is compounded by tribal gangs roaming areas such as Baragoi and Bungoma and urban crime, which tests investors’ trust. Internal security continues to be a challenge.

Massive corruption and money laundering are raised as risk factors, with the attendant warning that they affect the economy by reducing Kenya’s appeal to foreign investment.

It is significant to note that the Eurobond was cited as the reason President Kenyatta decided to pay Sh1.4 billion to two Anglo Leasing related projects — a scheme in which it is estimated the country may have lost Sh59 billion to phantom companies.

Devolution too is raised as a risk with the government warning that if it fails, it could lead to weak financial management and control systems, open windows for corruption and even increase the cost of implementation.