Bond Bubble Goes Full-er Retard: 4x Oversubscribed Kenyan Bond Orderbook Is 20% Of Country's GDP

Tyler Durden's picture

It was just over a year ago when we wrote "Bond Bubble Goes Full Retard", specifically looking at Africa where previously 'Rwanda had issued USD-denominated debt at 7% (lower than Spain yields less than a year ago) just as bond yields of 90% of global sovereign bonds are at or near all time lows. And now, moments ago, we just learned that Ghana (nominal 2013 GDP: $42.8 billion) has just upsized its dollar-denominated $750MM bond issue to $1 billion."

That was then. This is now.

As Deutsche Bank summarizes, an indication of just how off the charts the 2014 edition of the full retard bond bubble is comes from Kenya which priced a debut $2bn eurobond yesterday and in the process managed to break the record for the largest debut for an African country in the sovereign bond market. One tranche of the offering was a $1.5bn 10 year note that priced at a yield of 6.875%.

Kenya is rated B+ and the deal came several days after a large-scale terrorist attack in Kenya.

The punchline: according to the FT, the orderbook was more than four times oversubscribed which is roughly equivalent to around 20% of the country’s GDP according to Bloomberg data.

But don't worry: taking a page out of Europe where GDP has become a meaningless metric, adjusted by such estimates as the size of the prostitution and illegal drug markets, Kenya has gone one step even further.

To wit:

Nairobi is expected to revise its GDP calculation methodology later this year that may result in the size of Kenya’s economy being revised upwards by 20%.

At which point it will issue even more debt, and even more other people's money will be sunk in a mirage of fundamentals, as GDP has to be revised ever higher to accomodate demand for the African offshot of the global bond bubble.

In short: full retard has just gone full-er retard.

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ZeroPower's picture

Here's a small hint from someone who's worked the debt syndicate desk before - virtually ANY issue will always come in oversubcribed. XYZ wants to sell $500mm? Let's aim to get $1bn of bids. Company is looking for $5bn? Let's get $15.

Nobody who enters bids on the day of the issue expects to get full allotment, hence the oversubscribed "phenomena".

Peter Pan's picture

Sometimes I wonder if these countries including the US, actually take a good slice of the over subscription money but enter it into another off the books ledger.

It's not as if the government of any country maintains a publicly available register where you can see exactly who the bond holders are.

Hippocratic Oaf's picture

Nobody who enters bids on the day of the issue expects to get full allotment, hence the oversubscribed "phenomena".


I agree. Most orders I put in, I get about 30 to 40%. Unless it's shit, then I get stuck with full allotment.

We have 6 new issues today, all OIP's, high dollar price.

Usually that is a sign of int. rates going higher, but in this rigged mkt, nothing is a given.

Dubaibanker's picture

I agree ZeroPower.

Meanwhile, here is some data and statistics on Kenya for all. 

The GDP growth rate of Kenya which has been dubbed the fastest growing country in Africa is astounding.

Until 1996, Kenya's GDP was below USD 10bn.

It rose to USD 15bn by 2004.

It crossed USD 20bn by 2007.

It touched USD 30bn in 2009.

It exceeded USD 35bn in 2012.

As of Dec 2013, Kenya's GDP was at USD 37.23bn.

Even the Americans are bullish on Kenya and Tanzania and according to Brookings:

Kenya's GDP accounts for 40 percent of the region's GDP, followed by Tanzania at 28 percent, Uganda at 21 percent, Rwanda at 8 percent, and lastly Burundi at 3 percent.

The yields across Africa have been coming down which shows increasing strength as compared to many other economies globally because 1) most of them are resource oriented economies (gold, oil and minerals etc) and 2) have a small base due to under development over the past few decades.

The population of Kenya has barely grown from 27m in 1994 to 41m today in 2014. However, their GDP has risen 400% from less than USD 10bn to USD 37bn today during the same period.

We cannot compare Germany or any other nation like Britain with any African countries. Europe and US have participated in wars, created conflict around the world, and had advantage of industrial revolutions and low populations which all the countries in the world did not have and have benefited by being blessed with ample natural resources in the past. However, in future, low populations are becoming a panacea and we see in front of our eyes how in the past 10-15 years, while India, Russia and China have grown but Eurozone and US are stagnant at best or are in a state of terminal decline across various metrics. Some like Spain, Ireland and Greece have lost 25% of their GDP in the past 5 years while Kenya and some others keep ploughing ahead.

Also their currency in the last 3 years, when most other currencies around the world have depreciated including large ones such as Indonesia, India, Brazil, South Africa, Russia, Thailand etc by a hefty amount while Kenya's currency has appreciated from above 100 to the USD to just 88 level today.

Thirdly, their export partners are India and China who are strong and stable partners and they export pretty stable things like tea, horticulture, fish, coffee, petroleum etc. All these are high demand items and have not suffered the same fate as gold or most commodities like aluminium or iron ore etc which have declined in price for over 5-8 years now, except gold that has declined for the last 3 years.

Finally, due to their growth and lack of tax revenues from the poor people they need money for infra spending which is better to obtain by issuing bonds to create liquidity rather than bend over in front of IMF or World Bank or any other 'donor' nation who themselves are looking for donations these days..

Africa is the only continent which will grow next few years without over reliance on FDI or FII but purely on infra development and self growth, oil and gas finds and new revenues because their base has been so low for so long!

Despite everything like oversubscription of this debut bond and reducing the coupons, the 5 year bond traded above USD 101.50 and 10 year bond traded at USD 102.50.

What this article also does not hint at, is that money is chasing growth and hence international investors with their billions are giving just USD 2bn to the rapidly growing Kenyan economy who are not borrowing from China or IMF and holding their ground on their own standing while investors are happy to lend them. If the price falls, it will be the investors loss and if the price rises, it will be their gain. But one must have a view and what the money chasing this fast growing economy suggests that there is some juice there. The main issue here could be whether Kenya can repay the bond holders upon maturity which only time will tell. Putting some context, some of America's neighbours such as Argentina and Dominica, some of Germany's/UK's neighbour's such as Ireland, Moldova have defaulted but we have not heard of defaults from Africa since early 2000's such as Gabon and Ivory Coast etc. 

It is all a question of comparison today....African nations are growing while European and American nations are being bailed out. There was a time, about a decade or two ago when money was chasing US and Europe, now it is going for greener pastures...until the next default...which no can predict when and where it will happen!

If I had to place a bet, I would say a default would come in the next decade most likely from US or a European nation than an African or a Middle Eastern or Latin American one. US dollar's demise is staring at us with their lowered rating to AA, lower influence on price of gold and oil, lower trade in USD, more and more unfriendly countries every passing year and a gargantuan USD 17 trillion debt to foreigners which 330m Americans cannot pay back in this century. So question is whether USA will default first or will Kenya be first?

Peter Pan's picture

"Even the Americans are bullish on Kenya and Tanzania and according to Brookings"

That should scare the hell out of Kenya because it won't be long before the USA begins to interfere in the running of their country and not long to go before they start to milk that nation with the use of debt, bribes and surveillance blackmail.

Dubaibanker's picture

USA has being giving aid of about USD 1bn for last several years and Kenya ranks in Top 10 recipients globally on aid by America. However, from what I hear that Kenya does not like US interference and does not allow spying etc. But who knows what happens....I believe they are not allowing US businesses and are not leaning towards US much.

Kenya's PM went to China first instead of USA last year:

Kenya concluded a USD 13bn railway project deal thanks again to China that had not been workable for over 3 decades due to disputes with its neighbours.

I dont believe US has much scope here....

Peter Pan's picture

I appreciate you taking the time to fill me on the detail. Sounds good. Let us hope is stays good.

MisterMousePotato's picture

"If I had to place a bet, I would say a default would come in the next decade most likely from US or a European nation than an African or a Middle Eastern or Latin American one."


Richard Chesler's picture

That's it. I'm never again voting for another Kenyan.


Zerozen's picture

We cannot compare Germany or any other nation like Britain with any African countries. Europe and US have participated in wars, created conflict around the world, and had advantage of industrial revolutions and low populations which all the countries in the world

Yes, because Kenya (along with other various African statelets) are such paragons of peace and prosperity.

I love the way you reference the Industrial Revolution, as if the white West won the Industrial Revolution lottery by chance and got lucky. It's not like those whiteys created new inventions and made scientific discoveries, building on the work of prior generations over a few centuries, right? But for the capriciousness of the gods, the Industrial Revolution could have happened in Africa too, right? Right?

Protip: population growth of 50% over 20 years is not "nothing". Kenya is already overpopulated.

Another protip: GDP of $40 billion among a country of 40 million is $1000/capita, it's basically laughably small. The GDP of the country of basically generated by 40 million people just existing, surviving, and exporting whatever extra food they can. That's basically what $1000/capita gets you.

OK, last protip and then I'll stop: Africa hasn't seen defaults because almost no one lends in Africa, because there is little reason to lend/little to lend against.


Dubaibanker's picture

Dont think you get around much of reading history...thanks for your 'pro' tips!

When was the last time you checked the most important diamond in the crown of the Queen of England? Do you even know where it comes from?

Did you ever read a history book which state as to how the 'whiteys' looted China, India and African nations of their wealth? French ruled Ivory Coast and others.. There is a reason why history in Africa is called dominated by 'white colonies'.

The British did not build railways in Africa or India for charity....

In the 1500's Portuguese looted Angola, Mozambique, and Guinea-Bissau and ruled. They enslaved people and looted the gold. Slavery by Portuguese was rampant in Cape Verde, Sao Tome and Principe.

Then the British conquered Africa from Kenya to Ghana and Gold Coast and so much more and took slaves. Americans participated too. Until MLK got them all free.

So, yes, the gods were involved in their capriciousness but all the gods turned out to be whiteys and don't allow slavery any more! So, please.....whiteys did not let the Africans, Chinese or Indians live in peace and looted them over centuries and then called it an industrial revolution which could have happened anywhere else too if they were all equal countries!

Industrial revoluations happened because as I stated due to low populations, immense 'looted' wealth, education became easy and useful to become even more powerful and the state supported and then privatised much industries like railroads in America etc. Look at the tech revolution today, it is happening equally in China (with Tencent, Alibaba and Baidu and Lenovo) giving a run for their money to the Americans and the chinese owning all the US treasuries, mostly, or all the movie theatres (AMC) in America ...and the list goes on....while the IBM and Oracles of the world get thrown out of China where they went searching for growth. Whiteys are being taught a lesson this time around when Citibank and JPM are not allowed to massively enslave the Chinese any more nor are Apple products possible to be produced at such a scale outside of china where apple has more than 300k employees / contract workers.

Kenya may be overpopulated but so is China and so is India and so are many others. India's per capita GDP is below USD 1,500 with their billion people and all while China is around USD 6,500 per capita and rising like a maniac. GDP per capita does not mean much. Luxembourg ans Switzerland are slowing down and then Qatar and UAE have highest in the world and they keep buying assets overseas. Capital needs to be used wisely which some states do but most dont. It is due to corruption. Kenya has grown and it is a fact despite the 'over population'. Nairobi is choking with traffic. They need infra NOW. Slow base does help in growth if right situation is created and outside interference is not there. This is what may be happening in Kenya for more than 2 decades and now may be ripe to fasten more with some support from China and some with the bonds and some with new infra development with this money.

Kenya exports highest amount of tea on the planet. It is not a food of survival but this is their share of nature's wealth. Real estate is booming now and money is moving in. 

From a small base, Kenya has a better chance of rising further in the next few years than most other countries.

China has been providing free infra build up from railways to roads and power plants which has allowed several African countries to boom. This is what will keep occurring year after year in Kenya as it has over the last 2 decades (despite your pro opinion) and if bankers dont come (who needs bankers anyways) then the investors will lend directly to African borrowers.

firstdivision's picture

Kenya better hope for more Al Shareeb attacks so they can sell moar bondage.

Flounder's picture

They're good for it.  Would look good in any retirement fund.

Flounder's picture

"Fund managers say Kenya has a positive growth and monetary policy outlook, making it an attractive investment proposition, despite the attacks that are hitting tourism."

I wonder who will get their hands on that money in Kenya.  I know most of sub-saharan Africa could use a new sewer system.  So G.O. bonds then?

Spungo's picture

There were times when I was doing Jack that I actually felt retarded.

Spungo's picture

"Would look good in any retirement fund."

In my mind, I picture some 60+ year old fund manager who just got the internet. He writes in the quarterly report that he has lent several billion dollars to Nigerian royalty.

NoWayJose's picture

Fortunately, our Kenyan is just as good at fooling and manipulating bond buyers...

youngman's picture

They have to pay for those World cup tickets I guess...actually some deskie just saw that 6.75% and said that was good enough for his bonus...

Confundido's picture

Good morning, Tyler: Where is the the Tuesday 8:30am post on the gold slam down?

Peter Pan's picture

Spitting at gold has no effect. Tinkering with price is just an indication of how desperate they are to control it.

These slam downs don't mean anything to me anymore.

Dragon HAwk's picture

and what happened to the Central banks buy 29 trillion equities story.

guess the comments didn't fly past the Censsors.. to anti bank.

madcows's picture

US Treasuries,

Or Kenyan.

Which would you rather Hold?

jameswvu99's picture

It's like when my artist friend, who is in his 40's and never held a real job in his life, who said he had a plan to ask his mother to borrow $20,000 and just never bother paying her back.

JenkinsLane's picture

Ben Stiller's new film looks good.