New law was Kenya’s strong selling point in getting Eurobond

NAIROBI, KENYA: When National Treasury Cabinet Secretary Henry Rotich arrived in California to market the Eurobond, he was shocked at the scanty information potential investors had on Kenya. Many did not even know where the country was located on the world map, and he had to do a lot of explaining.

But, most important, most serious investors were aware of available opportunities in Kenya. “I told them I was the minister for Finance and how the economy was being managed. I literally presented to them our business plan, just like anyone going for a loan from a bank does,” said Rotich.

The CS was amazed by an in investor in San Francisco who quickly bought a ten-year bond based on trust after listening to Rotich’s story, yet many Kenyans are too sceptical to even open a fixed deposit account.

In the United States, many investors challenged the Kenyan delegation to explain how devolution was being managed.

They were concerned because many Latin American countries that devolved their governments ended up with huge debts after county units went on free-for-all borrowing sprees. Most ended up spending the money on luxury and consumerism, and then left the central governments with huge debts.

Fortunately, according to the Constitution, the Kenyan county governments cannot borrow without authority from the Minister of Finance: “The Constitution was also our big selling point because the Latin American county governments created a big mess and had to be rescued by the central government, thus creating a big risk.”

During the road shows in the US and Europe, the team explained the security and political situation in Kenya. They talked about the terror attacks, but were encouraged when many investors said such incidents are now commonplace.

The Kenyan merchants were impressed with the confidence the investors had in the country, which is perhaps one of the biggest assets Kenyans must guard jealously.

“It emerged that although many remain cynical over corruption, negative ethnicity and bad governance in the country, there are some people out there who have a lot of confidence in us,” said Rotich.

And although political bickering captures headlines in Kenya, Rotich and his team were happy that investors have a completely different view. “It is not the Kenya that I get scared of when I open the papers because of stories on insecurity, and that was a powerful story to me,” said Rotich.

It also emerged investors are more concerned about the fiscal positions of countries seeking assistance and how the money will be invested. Kenya’s Gross Domestic Product (GDP), slightly better than that of Ghana (which was among the first African countries to go for the Eurobond), and many other African countries, impressed many investors.

“They had done their due diligence and were aware that our GDP is better than Ghana’s, although I also talked about it at every available opportunity,” said Rotich.

Among the questions frequently expressed by investors at most stops in Europe and America was whether their money would be spent wisely to raise living standards. They were also keen on the strength of the Kenyan shilling and appeared impressed with how it had performed over the years.

The exchange rate stood at Sh87 to the dollar when the bond was being floated, and many investors appear to have been convinced it would remain steady.

“We are borrowing $2 billion when the exchange rate  is Sh87, which translates to about Sh175 billion, and we expect to pay that in 10 years,” said Rotich.

Should the exchange rate slump to Sh100 per dollar, then Kenyans could find themselves forking out Sh200 billion to repay the debt.

Rotich’s task is to make sure that the exchange rate is managed well, and investors will react positively again when Kenya returns to the market in future.

He is convinced that as long as Treasury and other ministries that will take charge of projects will manage the money well and not consume instead of putting it in development, the future is bright for Kenya’s financial stability.

TANGIBLE RETURNS

In Ghana and Zambia, the cede and the kwacha depreciated shortly after they entered the Eurobond market: “They said Ghana used the money to party. Investors are worried about countries using their money for consumption instead of putting it into development.”

As for Kenya, apart from managing the exchange rate and ensuring that tangible development returns are made from the proceeds, there is also the concern of tampering of major currencies in western countries.

The US Federal Reserve can for example, through the Federal Open Market Committee shock the Forex market by making changes to its monetary policy, creating stimulus tampering and pushing up the dollar as a result.

But Rotich said that is also well cushioned because the repayment will be at the current exchange rate whatever happens later.

“We can only change the rate if we enter the market again, but look, today our bond was trading at 103.5 points on the Irish stock exchange, where we are listed.”

The smiling CS explained that the Kenyan Eurobond was already selling at a premium and if they went back to the market, they would buy at 3.5 points lower.