Futile search for ‘secret’ Eurobond prospectus
What you need to know:
Treasury borrowed Sh210 billion in a third Eurobond in May, but a key document on the loan has never been made public.
For over a month, and weeks even before government set out to go for the third loan, the Nation made several inquiries to the National Treasury seeking the prospectus to be made public.
We have also separately contacted the lead arrangers of the Eurobond who have refused to share the prospectus on the grounds that they were made to swear secrecy on the document and any leakages from their part would put their future business in jeopardy.
On May 16, 2019, Kenyans woke up to the news that the government had secured Sh210 billion in a third Eurobond loan after a largely quiet borrowing process.
The National Treasury made the dawn announcement from London in the United Kingdom, catching many Kenyans unawares that their government officials were out in the international market soliciting for a fresh Eurobond.
Treasury nicknamed the new Eurobond the kachumbari bond, and explained that it will be used to repay other loans and fund unspecified infrastructure projects.
Kachumbari is a Kiswahili word that describes a freshly cut tomato and onion salad, and the bond was immediately listed for secondary trading at the London Stock Exchange.
In its characteristic tone announcing the loan, the National Treasury came out excited, saying how the new loan triggered an ‘overwhelming response from investors’ resulting in an order book of Sh950 billion, which was an oversubscription by 4.5 times.
From this oversubscription, Treasury had accepted offers of Sh210 billion.
The pricing of the Eurobond was 7 per cent for the seven-year tenor and 8 per cent for the 12-year tenor.
What is the Eurobond and why has the Kenyan government opted for it?
A Eurobond is a financing tool issued in foreign currency outside the borders of a borrowing country. It does not necessarily mean the bond is issued in Europe or denominated in the euro currency.
For instance, the Kenyan bond is denominated in US dollars and is issued across investors from Europe and the US. A bond is simply a promise that one will be repaid their debt at a future date at a particular interest rate.
The money raised through Eurobonds forms part of the foreign debt stock for a country.
Eurobonds have been gaining traction in African countries in recent years since they are very flexible and offer investors the ability to pick the country of issuance based on the existing regulatory environment, the interest rates on offer and the depth of the market in general.
Another reason they have become attractive to investors is that they can have small par values, making them accessible to investors who are not deep pocketed.
This was the third Eurobond after the first one taken in 2014 (Sh280 billion) and 2018 (Sh202 billion).
Before a Eurobond is taken, there is usually a roadshow and a prospectus explaining to investors why the money is being sought and the terms and conditions.
In the latest bond, Treasury said the issuance followed consultations with over 100 investors in the US (Los Angeles, Boston and New York) and in the UK (London).
The roadshows, also known as beauty parades, began on May 8, 2019 and ended on May 14, 2019.
What is a prospectus and why is it important?
A prospectus is a formal document that provides details about an investment offering for sale to the public. It is used to help investors make a more informed investment decision and that is why it is usually released before the transaction starts.
Though now cleared, the first Eurobond was dogged by controversy given that the government could not provide a list of the projects that the loan was to be used for. In the previous Eurobonds, the Treasury has only released the prospectus after public pressure even though the document is a public one. Since taxpayers shoulder the burden of repayments, it is a constitutional requirement that the government makes public the documents for members of the public to know the terms and conditions under which their government is borrowing. The document also makes important public disclosures on the state of the government’s finances and projections.
The prospectus also includes forward-looking statements, which involve risks and uncertainties. It also states in more details the use of the proceeds, the balance of payments, how public debt will be affected, terms and conditions of the notes, clearing and settlement arrangements, transfer restrictions, taxation as well as a plan of distribution among other details.
Who should provide the prospectus and is there an obligation?
The National Treasury is the custodian of all financial information relating to debt and is the institution that should release it. Article 35 of the Constitution gives effect to the right of access to information by citizens.
The Access to Information Act, 2016, provides a framework for public entities and private bodies to proactively disclose information that they hold and to provide information on request in line with the constitutional principles.
Parliament is expected to be the public watchdog in matters debt, but it has often been caught sleeping on the job and never acting on recommendations from the Auditor-General.
What steps have we taken to try and get the prospectus?
For over a month, and weeks even before government set out to go for the third loan, the Nation made several inquiries to the National Treasury seeking the prospectus to be made public.
We have also separately contacted the lead arrangers of the Eurobond who have refused to share the prospectus on the grounds that they were made to swear secrecy on the document and any leakages from their part would put their future business in jeopardy.
