Eurobond – A Journey of Kenyan discovery

The self-centered woman knelt in the confessional. “Bless me, Father, for I have sinned.”
“What is it, child?”
“Father, I have committed the sin of vanity. Twice a day I gaze at myself in the mirror and tell myself that I am the most beautiful woman who ever walked the face of the earth.”
The priest turned, took a good look at the woman and said, “My dear, I have good news. That isn’t a sin – it’s only a mistake.”

Kenyans are extremely vain. We bash each other in political rallies and on social media platforms strumming up the guitar strings of tribal hatred. We dismiss our verbal intellectual engagements with each other with such summary barbs as “your name says it all”. We yell. We scream. We thump our chests with the fighting spirit of our tribal kinsmen. We mope about in our houses at the thought that our country is going back to the brink of chaos. We are extremely vain. Vain at the thought that we have come to the end-of-our-world-as-we-know-it, once again, at the behest of politicians on both sides of the divide and their pathetic, puerile war mongering. Our vanity stems from the thought that the self-centred, round-the-clock guarded, filthy-stinking-rich political elite will drive us over a bloody cliff.

Well, the investors in Kenya’s debut Eurobond just gave us a reality check. They just told us: “Well that’s a mistake, it’s never going to happen and here is $8.8 billion proof that we’re putting our money where our mouth is!” What in heaven’s name is going on with international investors? Have they gone mad? Did they not read the 139-page Republic of Kenya Eurobond Prospectus? A prospectus for any publicly traded debt or equity issue must clearly articulate the risks faced by the issuing entity. The Eurobond prospectus takes a no-holds-barred approach and tells investors what we Kenyans already know. We are two cents short of a third world basket case with identified risks such as a significant unrecorded economy, unreliability of our statistical information, corruption and money laundering, untested legal reforms that can adversely effect the Kenyan economy, internal security issues, political instability from the ICC, shilling depreciation risk….you get my drift (and if you don’t, grab yourself a copy of the prospectus).

A seasoned Kenyan banker will tell you that nothing gives an international lender more sleepless nights than what is called cross border risk, that is, that the government of a foreign currency borrower will put in place restrictive policies on the convertability of local currency to foreign currency or the transferability of that foreign currency to a jurisdiction outside the home country. (In case of any doubt, ask the Zimbabweans). Sure, of course you will say that this is Government of Kenya borrowing themselves and they will always ensure that the foreign currency is available to repay the debts. However as a net generator of local currency, the Government has to purchase that foreign currency in the open market. If it can’t then the risk of government debt default becomes clear and present as happened in Russia in 1998, Argentina in 2001 and Greece in 2012. There’s not enough space to write what happened in each of those cases but the upshot is the same: those governments simply ran out of money to pay their international debt obligations.

The impact on such default is immediate in the international markets with regards to the country’s credit rating. The Fitch rating (where Fitch are one of those chaps who put a ton of data into a computer that generates a risk rating algorithm whose outcome is bible truth to investors) for Kenyan sovereign international debt is B+. The Kenyan rating is higher than that of Greece at plain B and Argentina at CC. Which explains why it was imperative that the Anglo Leasing payments be made as non-payment of a Kenyan sovereign payment obligation would definitely drive the credit rating, which in turn drives the pricing and placement of the debt in the international market. But why would the international investors want to buy Kenyan paper on the day after one of the most vicious attacks on Kenyan citizens made headline news globally? Why would they want to buy Kenyan paper when there are several other emerging market economies with higher credit ratings and therefore less perceived credit default risk? Because these savvy investors have seen it all. From wars in the Middle East to sluggish economies in the west. From octogenarian dictators in teetering Zimbabwe to who-the-heck-is-in-charge of the profligate government of Greece. But as my favorite investment banker told me last week, it comes down to one thing: Kenya is one of the highest performing non-resource economies on the continent. We are not (yet) producing oil, gold, diamonds or copper but continue to grow at a 4% GDP rate and blaze the trail in telecoms and banking penetration. The investors see a steely resolve in the Kenyan economy, a resolve to continue at growing despite ICC tribulations. They see a necessary pressure valve called loud, unfettered political rhetoric combined with a vibrant national assembly both of which help to release pent up political frustrations rather than going the South Sudan way of the gun. The investors see an economy that has, since 1992, consistently had five-year knocks and positive rebounds in line with the multi-party electoral cycle. The investors see a well-educated populace that does not need to import talent for management of key economic sectors. The investors see a commitment to infrastructure roll out that continues to make Kenya the country of choice for establishing a regional presence. We don’t see it. All we see is noise, death, destruction and a bleak future. Well we’ve just witnessed $.8.8 billion reasons why perhaps it seems brighter from the outside. The Eurobond investors have told us what is we are too blind to see. Kenya rocks! Congratulations are due to Henry Rotich and his Treasury team for an excellent outcome.
Twitter: @carolmusyoka

  • Anthony E. Muhindi

    Ha ha ha
    I like the way you have put this, $8.8 billion reasons to look again and see that Kenya is indeed great!
    I asked earlier who we expect to make our families have a good name, in the same manner I guess that it is up to Kenyans to make Kenya have a good name, not to leave it to government to do!
    Well done!

    • Carol Musyoka

      Anthony, you’re so right. At some point we will have to become like the Italians who had was it 60 governments in as many years! We have to get to the point of moving on despite and in spite of the (nonsensical) politics of the day!

  • Jamo

    Very well put!

  • bankelele

    Nice recap. Yes investors know the risks & returns as compared to other nations that they can invest in to get 7%

  • Andrew

    The eurobond was extremely good business on both ends of the deal. Kenya gets finance at 5.875% and 6.875%, that’s remarkably low compared to the local debt costs. Plus the investors get a relatively stable bond at a time where bond yields have been quite low excluding the distressed bonds of Greece. Kudos to Rotich and crew for this.