Nairobi – Kenya’s $1.5b (about Sh132b) sovereign bond offer is expected to go on sale later this month. Investors will, however, need at least $200,000 (Sh17.5m) to participate. The preliminary prospectus for the sovereign bond says the debt will be sold in tranches of $200,000 or Sh17.5m and in multiples of $1,000 (Sh87,000) thereafter. 

The country’s first sovereign bond will be listed on the Irish Stock Exchange, but there is a possibility that the notes will be listed on the local bond market.

"In addition, the issuer intends to make an application, after the notes are delivered against payment, for the notes to be listed on the Fixed Income Securities Market Segment of the Nairobi Securities Exchange (NSE),” said the prospectus.

The preliminary prospectus, however, says amendments will be made before the notes can trade on the NSE. The notes are only redeemable at maturity. Additionally, no price or tenor of the bond has been indicated but the Treasury secretary Henry Rotich had earlier said the bond will have a maturity of 10 years and will be priced at between seven and eight per cent.

"The international sovereign bond will have a maturity of 10 years, with a bullet repayment. The credit spread is set at between 475 and 525 basis points,” said Rotich in the Medium-Term Debt Strategy (MTDS) 2014, which was released in February. The MTDS guides the government on handling its debts over the medium-term.

Yields on 10-year US bonds are at around 2.5 per cent, which implies that if the sovereign bond was sold today it would be priced at between 7.25 per cent and 7.75 per cent. Rotich was, however, cautious at the time due to an unfavourable market that was making it costlier to issue bonds.

"The recent tapering of quantitative easing in the US suggests Kenya’s sovereign bond may be priced between 7.625 per cent per annum and 8.125 per cent per annum,” said the MTDS. 

Prior to that Rwanda had successfully sold its 10-year $400m sovereign bond at 6.875 per cent in April 2013.

Analysts expect the bond will be priced at around the 7-8 per cent level due to expectations that rates on the international market will not continue to rise. "Also, despite the cut back in US monetary easing, interest rates are expected to remain low throughout 2014, which means the Eurobond will still come off as an attractive investment. Therefore, we still retain our target range at seven per cent and 8.5 per cent for the Eurobond financing cost,” said a fixed income report by Genghis Capital released on Thursday.

To finance infrastructure

The sovereign bond will also offer investors a premium above the coupon in the form of tax savings. The preliminary prospectus says the bond offer will not have withholding and other deductible taxes and that the government will compensate where investors have to make the legal payments. 

Proceeds from the bond will be used to finance infrastructure payments and pay a $600m syndicated loan borrowed in 2012.

The Treasury officials have already begun roadshows that will see them market the bond in the US, the UK and the United Arab Emirates.

A successful sale of the bond is expected to make it easier for State-owned enterprises and other companies to borrow from the international market.