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Africa: Post-election peace brings new hopes to Kenya

Stock market reaches all-time high; long-awaited Eurobond debut expected.

Tatu City is Kenya’s largest private urban development, originally backed by Russia’s Renaissance Capital. The site sprawls over 1,000 hectares just north of the capital, easily accessible from the city centre and airport on the eight-lane Thika Highway, opened in February.

Once Tatu City is completed, developers say it will be the “first holistic lifestyle city” in Africa, with retail, recreational, commercial and residential areas. There have even been suggestions that the Nairobi Securities Exchange might relocate there. Roads have been carved out and plots have been assigned for each purpose.

When Euromoney visited in early April, however, there were few workers on the site, and development seemed to have almost halted. An ownership dispute with a minority shareholder was resolved in January. But uncertainty over March’s presidential election appears to have prolonged inertia at the site.

Yvonne Mhango, sub-Saharan Africa economist, Renaissance Capital

It is a situation repeated across Kenya. “In the run-up to the election, FDI and other investments had to wait,” says Daniel Connelly, Citi’s CEO for east Africa. “No one will want to take long-term bets on the economy’s performance if there is a risk of violence.” The country breathed a sigh of relief, however, after the election appeared to be resolved peacefully. Following the Supreme Court ruling on March 30 that Uhuru Kenyatta had been elected in a free and fair election, the Kenyan shilling reached six-month highs, appreciating to just under 85 to the dollar.

“This year, the elections went ahead peacefully and, as a result, set up a stable environment for further investment in Kenya,” says Craig Young, CFO of Tatu City, implying that work will now continue at his development too.

Yvonne Mhango, sub-Saharan Africa economist at Renaissance Capital, gives a similar message for Kenya as a whole. “Now the country can move forward, and the economy is not in limbo any more,” she says.

Although there has subsequently been some profit-taking, Nairobi’s stock market rallied immediately after the ruling. The market closed at an all-time high of 5,031 points on April 2 when the country returned fully to business after the Supreme Court ruling and the Easter break.

“We haven’t seen these sorts of numbers since 2008 when the index last crossed the 5,000 mark,” says Donald Ouma, head of market and product development at the Nairobi Securities Exchange. “Now that the election is over we will see a lot more activity on the equity side.”

In particular, local supermarket chain Nakumatt might now reconsider an IPO, says Ronak Gadhia, associate director at London broker Exotix. Gadhia also says increased political stability might encourage Airtel Kenya to list as a way of fulfilling regulations stipulating that locals must own at least 20% of the telecoms firm.

It is a far cry from the situation after Kenya’s presidential election in 2007. Then, 1,100 people were killed in post-election violence, exacerbating the effects of the global financial crisis and accompanying investor flight. The stock exchange plummeted; annual GDP growth dropped from 7% in 2007 to 1.5% in 2008.

In 2013, the World Bank expects Kenyan growth to be roughly similar to the year before at around 5%. And, perhaps most important, bankers hope post-election relief will facilitate a long-awaited debut sovereign Eurobond this year.

“There has been talk over a Eurobond for the last three or four years, but the chances of it happening this year are high,” says Gadhia at Exotix. “We predict that the fiscal deficit could reach around 7%; Kenya’s current account deficit is nearly 10%, so the bond will be a good way to get in some much-needed cash.”

Citi’s Connelly says: “Kenya issued a syndicated loan in May last year for $600 million, so we expect that the bond will be more than this to refinance the existing loan as well as to raise funds for upcoming aggressive government spending.”

Kenya needs the funds partly to implement a new decentralizing constitution, which aims to devolve political power as well as economic wealth, both concentrated in Nairobi up to now. The government also has ambitious infrastructure plans, such as those related to another real estate development, Konza City, which the government is promoting as an IT and outsourcing centre.

Bankers hope that Kenya’s sovereign debut will facilitate international debt issuance by state-backed infrastructure companies such as electricity firm Kengen, as well as by ports and pipeline companies. One banker compares it to the situation in Zambia, where state electricity firm Zesco as well as Zambian Railways have sought to issue Eurobonds after Zambia’s sovereign debut in September.

Landlocked Rwanda marketed its debut sovereign Eurobond last month. But in Kenya, transport infrastructure developments are particularly urgent as the country aims to nurture its status as a transit country after oil discoveries in Uganda and as sub-regional trade grows.

“Now that the election has been concluded, the flood gates have opened,” says Greg Brackenridge, CEO of CfC Stanbic, the local unit of South Africa’s Standard Bank. “Investors are looking for opportunities and Kenya is in their sights. I would be really surprised if a Eurobond didn’t happen this year.”

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