Regional economies bank on bonds

Saturday November 01 2014
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Newly-built Terminal 1A at Jomo Kenyatta International Airport. Kenya has invited bids for a bond to fund expansion of the airport. PHOTO | JEFF ANGOTE |

Kenya has invited bids for a 12-year infrastructure bond worth $224 million in a tap sale to, among other things, fund expansion of the Jomo Kenyatta International Airport at a cost of $72.3 million.

“The bids will be received up to November 20, or until the amount is allocated to bids once they are submitted, or whichever comes first,” Kenya’s Central Bank said in a statement.

The Kenya Airports Authority has been under pressure to complete the project, which will see the airport’s overall passenger capacity rise to more than 30 million per year, up from 7 million.

In October, the first tranche of $169 million of the bond, with an average yield of 11.263 per cent, was oversubscribed.

The Central Bank said it was in the money market to mop up $112.17 million in excess liquidity, using repurchase agreements and short term auction deposits.

Ally Khan Satchu, a financial analyst with Rich Management, said that by mopping up liquidity, the bank makes it relatively costlier to hold on to long dollar positions, which helps strengthen the shilling.


The Kenya shilling strengthened in October, helped by importers’ low demand for the dollar and expectations of hard currency inflows from offshore investors in government securities: It closed at 89.25/35 to the dollar last week, firmer than the month’s average of Ksh89.45/20.

The shilling has performed dismally against the dollar for much of the year, largely because of the high demand for dollars by importers against the low-performing tea and tourism sectors.

Last week, the government rejected more than half the bids for an infrastructure bond. The demand for Kenyan Treasury bills is likely to rise as investors seek new berths for their funds.

The Central Bank intends to sell Treasury bills of all maturities worth $134 million in two separate auctions. Last month, Kenya sold 182-day and 364-day Treasury bills worth a total of $101 million.

Kenya debuted in the Eurobond market this year, bringing in $2 billion.

Last week, Tanzania announced plans to allow foreign investors to participate in the purchase of government securities through Treasury and infrastructure bonds without restriction starting next year.

Bank of Tanzania associate director of Domestic Markets Department Paul Maganga said the move will open up the market to competition leading to increased borrowing.

Tanzania also issued 364-day Treasury bills last week worth $45 million, with a weighted average yield per annum of 13.96 per cent; the country accepted bids worth $32 million.

The Bank of Tanzania also issued a 15-year Treasury bond at 17.9 per cent, up from 17.5 per cent in August.

“The Bank of Tanzania plans to issue 2-year, 5-year, 7-year, 10-year and 15-year Treasury bonds during the second quarter covering October to December 2014,” a statement from the Bank said.

The 2-year bond tenures coupon rate will be 7.82 per cent, 5-years at 9.18 per cent, the 7-year bond will be 10.08 per cent and the 15-year bond will be at 13.50 per cent.

“We are studying the outcome of the current set up to assess the demand for our government securities from within the EAC. Once we see the outcome, we will open up participation to the rest of the world,” Mr Maganga said.

Currently, Tanzania only allows investors from within the EAC to purchase up to 40 per cent of offered government securities; individual countries are not allowed to purchase more than two thirds of the 40 per cent quota.

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Meanwhile, the Ugandan shilling lost ground, pressured by a demand for hard currency from manufacturing and energy firms.

Despite this drop, Finance Minister Maria Kiwanuka last week said the country’s economy will grow at 7 per cent per year in three to five years.

“This growth is buoyed by investments by oil explorers and by expansion in the services sector. Uganda has scaled up public infrastructure investments with various multibillion-dollar investments in roads, railways, electricity and the oil sector. We have also managed to keep inflation under control at 5 per cent, through a tight fiscal and monetary policy,” Ms Kiwanuka said.

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Rwanda’s Finance Minister Claver Gatete said the country plans to launch another Eurobond to fund infrastructure projects; the size and timing is still being worked out.

Speaking at the UK-Rwanda investment conference in London a fortnight ago, President Paul Kagame said Rwanda’s successful Eurobond offering last year showed that the trust in Rwandans is shared by financial markets as well.

“The confidence of both local and foreign investors in Rwanda is a key component of our economic growth and investment strategy,” President Kagame said.

Last year, Rwanda issued a $400 million Eurobond issued on the Irish Stock Exchange in the UK. The Rwandan government used the proceeds to fund mega projects.