Saturday, June 07, 2014

Kenya Euro Bond A to Z

Excerpts from the prospectus for the 'Eurobond' being floated by the Kenya Government. 

Advisors: Include two Kenyan law firms (Kaplan & Stratton, Anjarwalla & Khanna) and 3 UK ones. Citibank are the registrars and paying agents and lead managers are Barclays, JP MOrgan, QNB, Stanchart and Dyer & Blair is a co-manager. The prospectus notes that while no person has a material interest in the offer, the advisers may perform banking transactions with the Kenya government.

Also the Kenya High Commission in London is the process agent and the Court of International Arbitration in London will resolve bond investor disputes. 

Anglo Leasing There is mention of the status of 18 contracts unearthed following a passport deal that was found to be irregular. The prospectus notes that 4 worth Kshs 19B were canceled (with Kshs 1B recovered?!), and 3 worth Kshs 6.8B were completed. Of the other 11 worth Kshs 30 billion, 2 were settled directly, 2 received payments of $16.4M in May 2014 after a court judgment, 6 had not started (but what happens?), and on the last one (security equipment to the NIS) the company has made a demand of Kshs 3B but has not sued. 

China:  Few mentions about the country in terms of trade balance, debt, and the railway. 

Denominations: The bond is  issued in denominations of $200,000 (~Kshs 18 million)

Dublin:  The bond will be listed on the Irish Stock Exchange  

 Euro Bond: The phrase does not exist in the document

Interest Rate is not stated

Investors: The offer is meant for qualified institutional investors (QIIs) and bond notes may not be issued offered  or sold in Kenya, South Africa, Qatar, UAE, Singapore, Hong Kong, USA.

Debt Performance:  Total debt at the beginning of 2014 owed by the Kenya (central) government was $24 billion.  Debt service is expected to drop from Kshs 200B this year to  about Kshs 150 billion for the next two years.

Also the Kenya government believes its current account deficit of (cited at $3.7 billion) is overstated citing, among other reasons; The shilling has remained relatively stable , the measures excluded unclassified services (which have quadrupled) and the amount of foreign direct investment is under-reported (by up to 50%?!)

The government has guaranteed debts to among others; Kengen $250M, Kenya Ports $140M, Kenya Railways $45M  and Kenya Broadcasting corporation $39M. Kenya has a history of debt re-schedules at Paris (1994, 2000, 2004), and London (1998, 2003) and has had some debts canceled by China, Holand, and Finland 

Purpose: Funds will be used for infrastructure projects and to pay off a $600M loan that matures in August 2014.  Some major infrastructure projects include railway expansion (new wide gauge railway will be built in 3 phases at a total of $13 billion) LAPSSET (with a new port at Lamu, railway, road, oil terminal & pipeline and resort cities at Lamu, Isiolo, Lake Turkana), 4 dams at a cost of $16.8 billion and the replacement of the Mombasa-Nairobi oil pipeline.

Risks  Insecurity is cited. Another is the ICC for which the political implications of a conviction can not be predicted. 
Taxes Payments will be made to bondholders without deducting any witholding taxes. However, the the prospectus has tax advice for US, UK and Kenyan investors who may buy. For Kenya investors, interest payable on the Notes has been exempted from income tax - but that is yet to be approved by parliament, who may revoke that)  

Document found via @alykhansatchu  

More at the WSJ who expect the bond to be at about 7% 

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