Why a Eurobond issue is necessary

  

Date Posted: 9/28/2013 3:44:30 AM

Posted By: Moff J  Membership Level: Silver  Total Points: 485

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The government has been having plans to issue the first Kenya Eurobond for quite some time now. As a matter of fact, the cabinet secretary in charge of the national treasury, Mr Henry Rotich, has intimated that the issue will happen before the 2013/2014 financial year comes to a close.

A Eurobond is a financial instrument issued in the international capital markets with the aim of raising capital. It leverages on lower risk as compared to treasury bonds issued domestically and as such attracts a lower interest rate which is an advantage to the borrower. From the investor’s perspective, a Eurobond is favorable because it gives him/her access to international capital market and the investor’s funds are safe.

The Kenyan government plans to issue a $2 Billion Eurobond to finance various development projects. This is a bold move by the government which has been necessitated by the diminishing access to funds from traditional bilateral and multilateral partners and increasing interest rates being demanded by commercial lenders.

The government is also facing financing challenges owing to the ambitious development plans such as the Konza City project among other Vision 2030 projects. All of these projects are capital intensive with immense capital outlay requirements. The recent oil discoveries in Turkana also calls for further investment in infrastructure such as roads, electricity, hospitals, railway line (in the northern part of Kenya). Many indicators are pointing towards an exponential demand for capital and with the revenue collections falling below expenditure it is only prudent that the government seeks alternative ways to finance its activities and Eurobond is just one of them.

Therefore, the issue of a Eurobond was forthcoming and in as much this will be the first one, it is most likely that it will not the last. The question now is not as to ‘if’

but ‘when’, the issue is going to be made. Let us be prepared to support the government because these activities will ultimately be of advantage to us.

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