Bank of America projects Kenyas potential Eurobond to outperform peers

Kenya is more receptive of investments to its external debt market issues placing the country at the peak of regional Eurobond issuers, a new report shows.

The report by the Bank of America acknowledges Kenya remains well isolated from the anticipated slowdown in global economic growth for the year in comparison to peers in Sub-Saharan Africa (SSA) to give the country an over weighted ranking.

Kenya’s less dependence on exports outside the regions is highlighted in the country’s defensiveness to global growth risks with the only potential for pitfalls likely occurring from a slowdown in remittances and tourism receipts.

Kenyan exports as a share of Gross Domestic Product (GDP) only represent a mere seven percent of output in contrast to countries such as Angola, Zambia and Ghana where exports transcend the 25 percent mark.

Further to the external sector shelter, the reports expects ongoing policy reforms to boost the performance of near-term bond issues to encompass ongoing fiscal consolidation efforts and renewed talks between the government and the International Monetary Fund (IMF) on the issuance of a new credit stand-by facility (SCF).

“The economy is less vulnerable to a global slowdown in comparison to other SSA countries. In our view, we see a positive catalyst from an IMF programme in the near term,” notes part of the report.

“Following previous reforms such as the rate cap removal, we are increasingly optimistic that a deal can be reached for a standby agreement.

In contrast, regional peers remained curtailed by uncertain macroeconomic environment and other distresses to render potential external debt issues less appealing.

Angola for instance faces deteriorating debt metrics and a slow oil output, Ivory Coast stares at a complex poll with the potential for political upheaval while Ghana and Zambia face fiscal slippage risks and declining mineral receipts respectively.

Interestingly, the report further classifies Kenya’s local debt market as a top differential for domestic investor participation in spite of the limited foreign holding while backing the appraisal to predictable inflation, expected monetary policy easing and lower financing needs

Nevertheless, the report urges investors to run through frontier specialists for decisions bound for the Ksh.2.67 billion domestic bond market.

Risks tied to the fiscal side however remain prevalent with public debt as a share of GDP sitting at 63.2 percent while efforts to narrow the fiscal deficit are seen stuck in the year at 6.6 percent.

Kenyan Eurobond valuations have however remained attractive with yields on all the three previous issues being retained on a general slide trend.

In May last year, Kenya booked a third dual tranche Ksh.210 billion ($2.1 billion) Eurobond priced at a relatively seven and eight percent amortization rate after an oversubscribed issue which saw investors line up bids worth Ksh.950 billion ($9.5 billion)

The 2019 issue was preceded earlier by the issuance of another dual tranche bond worth Ksh.200 billion ($2 billion) in 2018 and the tapping of equal sum in 2014 which later tied up a tap sale of Ksh.75 billion ($750 million).