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Kenya may sell Samurai bonds in drive to boost external debt

Bloomberg

Kenya, East Africa’s largest economy, is considering selling Samurai bonds this fiscal year as the government prepares to raise its target for borrowing on external markets, Treasury Secretary Henry Rotich said.

In addition to yen-dominated notes, the country may also offer foreign investors sukuk and diaspora bonds in the year through June 2015, Rotich said in a phone interview on July 25 from Nairobi. A decision on the type of debt and the amount to be issued will be made in “weeks,” he said.

Kenya is considering plans to diversify international borrowing after selling $1.5 billion in 10-year notes and $500 million in five-year securities in an offering last month in which demand exceeded supply five times. Unprecedented stimulus from central banks including the Bank of Japan, Federal Reserve and European Central Bank, is spurring demand for riskier debt to boost returns.

“Diversifying sources of funding is the right thing to do,” Robert Bunyi, managing director of Nairobi-based Mavuno Capital Ltd., said by phone. “You never (know) what happens to the markets. Different markets can change.”

Kenya is grappling with a deterioration in its economic outlook as tourism wanes after foreign governments issued travel advisories highlighting growing insecurity in the nation. The warnings were prompted by a series of gun and grenade attacks across the country, including a deadly raid by the Islamist militant group al-Shabaab on a Nairobi mall in September.

The yield on June 2024 Eurobonds dropped 85 basis points, or 0.85 percentage point, since they were sold last month to 6.03 percent by 6:15 p.m. in Nairobi, a record low.

The World Bank has lowered its forecast for expansion this year and next to 4.7 percent from as much as 5.2 percent. Kenya’s credit rating was affirmed at B+ with a stable outlook by Fitch Ratings on July 25. The shilling weakened 1.6 percent this year against the dollar.

Kenya plans to reduce its 2014-15 domestic borrowing target of 191 billion shillings ($2.2 billion) and tap the difference from outside markets to fund the budget gap, said Rotich. In his June budget statement, Rotich said the nation will raise 150 billion shillings from external sources.

The revised external borrowing goal “will depend on how much we reduce domestic borrowing by,” Rotich said. “My team is working on some scenarios informed by things like available viable projects that will attract external funding, and ensuring our domestic debt market also remains vibrant.”

Kenya, which is the biggest black tea exporter in the world and supplies one third of flowers traded in Europe, targets to produce its first oil as early as 2016 after finds by Tullow Oil PLC and its partner Africa Oil Corp.