Kenya's likely slot on frontier bond spectrum

Kenya's planned debut 10-year dollar bond is likely to carry a yield of around 7.5 percent or more, based on current prices, due to the country's single-B rating, analysts say.

Kenya President

   Kenya expects to choose lead advisers for a debut Eurobond in the next two weeks, but will only launch when it can do so at a favourable rate, its finance minister said.
   The Federal Reserve's money-printing programme has encouraged frontier borrowers to take advantage of lower yields. But yields have risen in recent months on expectations of a slowdown in the printing process, the following graphic shows:
Stuart Culverhouse, chief economist at frontier markets broker Exotix, says sovereigns with BB-ratings are enjoying cheaper borrowing costs than lower-rated sovereigns.
   "Kenya is single B-plus, but it's well-known and people have been expecting the bond for a while," Culverhouse said, adding that a yield of 7.5 percent or more would be likely at current prices, around the mid-point for frontier bond yields.
   Kenya is rated B+ by Standard and Poor's and Fitch, and the equivalent - B1 - by Moody's.
   Debut borrowers such as B-rated Rwanda were issuing debt at yields below 7 percent earlier this year, but the prospect of a reduction in U.S. monetary stimulus has depressed bond prices.
   Most frontier bonds are now trading at yields of 6-8 percent, and Rwanda's $400 million bond is trading at 9 percent.
   Mozambique government agency Ematum this week set initial yield guidance of low to mid-8 percent on a 7-year dollar bond, according to Thomson Reuters news service IFR.