June 25, 2014 / 12:56 PM / 5 years ago

UPDATE 1-Kenya eyes new international issue after Eurobond

* Government to cut domestic borrowing after Eurobond

* Cutting local borrowing seen lowering rates

* Eurobond gives firms benchmark for foreign borrowing (Adds details on planned new international issue)

By Duncan Miriri

NAIROBI, June 25 (Reuters) - Kenya plans to tap international markets again in the new financial year and may opt for an Islamic bond after its debut $2 billion Eurobond was heavily oversubscribed, the finance minister said on Wednesday.

President Uhuru Kenyatta told the same news conference that funds raised via last week’s Eurobond would cut the government’s local borrowing requirement, which would in turn help reduce interest rates.

The Eurobond, split into a $500 million five-year tranche and a $1.5 billion 10-year tranche, drew bids of $8.8 billion. The president and finance minister described the sale as a vote of confidence in Kenya’s economy and said it showed there was international appetite for Kenyan debt.

“In the next financial year, we have programmed some amount we would like to borrow externally through the capital markets,” finance minister Henry Rotich said. Kenya’s new financial year begins on July 1.

“But we are going to diversify, we may look at other (types of instruments) that is like sukuk bond, diaspora bonds or other denominations. So we are still engaging on what other financial products are out there,” he added.

Rotich and the president both said the Eurobond would provide a benchmark for Kenyan firms seeking to access funds on international markets, while also helping the government cut the amount it needs to raise on local markets to fund the budget.

“By accessing these external funds, we will reduce government borrowing from the domestic markets, thereby helping drive down interest rates which should boost investment, spur economic growth, provide more employment opportunities to our people,” said Kenyatta.


He said the government would revise down its domestic borrowing plans for the year starting on July 1, but did not give figures. Rotich said it was not yet possible to say by how much the target would be lowered.

The budget for 2014/15 announced in June anticipated a budget deficit of about 7.4 percent of gross domestic product and local borrowing of 190.8 billion shillings ($2.18 billion), or 4.1 percent of GDP.

External financing was seen at 149.6 billion shillings ($1.71 billion), or 3.2 percent of GDP.

Rotich said a new reference rate for banks, called the Kenya Banks Reference Rate, would be set by the central bank and would lead to a reduction in commercial lending rates. The central bank has said the rate would be set for the first time July 8.

All lenders would be required to use that as a base rate, in a departure from the current system where banks set their own base rate, before adding a premium based on credit profiles.

“Banks will have that latitude to vary (the premium) depending on the creditworthiness of any customer so that does not force them to price all customers the same,” Rotich said.

The new rate would be calculated by looking at the average of the central bank’s main lending rate and the average yield on the benchmark 91-day Treasury bills every six months.

$1 = 87.5500 Kenyan Shillings Additional reporting by Drazen Jorgic; Writing by Edmund Blair; Editing by Catherine Evans

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