DEBT MARKET

The ‘Kachumbari bond’

In Summary

• Kenya sold $2.1bn of 'Kachumbari' Eurobonds last week.

• It's not clear where the naming impulse came from but for clarity's sake, kachumbari is a fresh tomato and onion salad dish that is popular in the cuisines of East Africa.

Treasury Cs Henry Rotich. Photo/Enos Teche.
Treasury Cs Henry Rotich. Photo/Enos Teche.
Image: FILE

Its not often that the Annals of Gastronomy and Finance meet unlike in the days of yore when I traded the French markets and Sherveen used to put me up in a suite in The Meurice and we would both quaff some very fine wine [Chateau Margaux to be precise] at the Jules Verne restaurant which was half way up the Eiffel Tower.

Kenya sold $2.1b of 'Kachumbari' Eurobonds last week. Its not clear where the naming impulse came from but for clarity's sake, kachumbari is a fresh tomato and onion salad dish that is popular in the cuisines of East Africa.

It is an uncooked salad dish consisting of chopped tomatoes, onions, and chili peppers. The Swahili word kachumbari originated from the Indian word cachumber.

Therefore, I approve of the appellation because it speaks with some subtlety to an Indian Ocean heritage and in a circular manner brings us to Andrew Korybko's point that

The "Indian Ocean region" is expected to become the geostrategic center of gravity and that Kenya is not only a land based Transit State but also a Gateway to the Indian Ocean economy.

Linguistics and gastronomy aside, Kenya sold $900 million seven-year bonds priced at 7 per cent and $1.2b 12-year paper at eight per cent.

These rates were achieved without the IMF's Precautionary Facility. The pricing was much lower than the initial pricing thoughts of 7.5 per cent and 8.5 per cent. Investors placed bids for a total $9.5 billion.

It would be churlish not to recognise this as frankly an outstanding outcome especially when you consider the International backdrop. The tariff war has intensified and the worry is that the curve continues to accelerate.

Emerging and frontier markets are shivering as they start to factor in the China - Emerging and Frontier Markets [Add Germany to that mix] feedback loop phenomenon. If China sneezes a whole lot of countries are going to get a very serious bout of influenza.

Interestingly, In our case, we are relatively immune to this phenomenon because China is not a big taker [avocado hopes aside] of our exports.

Therefore, when you contextualise the Bond I find myself agreeing with Vinita Kotedia, macro-strategist for sub-Saharan Africa at EFG-Hermes who said:-

“It’s a very favorable rate given that Kenya hasn’t finalized an agreement with the IMF, It looks like investors were more focused on the credibility of debt issues out of Kenya, and they aren’t too worried.”

“There’s a broad consensus and agreement that Kenya does not face a balance of payments crisis similar to a country like Zambia,” Qureishi told Bloomberg.

What is clear to me is that There is a significant perception Gap between what International Investors are seeing and the domestic perspective.

The proceeds will be used to fund infrastructure projects, general budgetary spending and refinance part or all of a $750 million dollar bond that will mature on June 24, the ministry said. Net new money is $1.35b. How this is now deployed is crucial. 

What was also interesting is that both tenors of the new bond will be amortized at $300 million and $400 million respectively for the 7- and 12-year tenors annually in the last three years to maturity in order to avoid a surge in repayments, the Treasury said in the statement.

This is a welcome more sophisticated nuance from the Treasury because it significantly reduces the ''bunching effect'' risk [the bullet repayment risk] and I am sure went some way to boosting the price.

Bond holders the world over are known as ''vigilantes'' So what do they see? that we are not seeing? They see 51m Kenyans [future taxpayers, of course] , good quality human capital [evidenced in the ever rising remittance curve which is exactly the monetisation of human capital] and a wide-open Opportunity.

When I first arrived on the Trading Floor at Credit Suisse First Boston, every desk station had a Sun Microsystems computer and the Big Swingers had three in fact.

Vinod Khosla who was one of the Founders of Sun Microsystems and bagged more than a $1b said this

''The Future is not seen in the Rear View Mirror''