@ alchemist

japans q3 gdp grew by + 1.2 pct while everyone was predictin -ve growth..in addition the japs learnt their lessons about leverage durin the asian economic crisis thus very little delevaraging occured in japan....will the yen rally against kes...well jpy/kes is a function of the usd/jpy and usd/kes rate...i think japan is better off than the US so its highly likely we see a usd/jpy rally....

on the jpy liquidity bit..lets just say that there are folks including one local bank that are able and willing to source these funds for the purposes of the swap...eapc hav no excuse not to buy the swap

back to kengen...their fcy loans are unhedged ...we both agree on that...again a currency swap wud suffice for their purposes...this hogwash of GoK ownership is unfortunate but i gues u hav a point...the exec mnmgt probably wudnt kno where to start

@ kizee - RE all time high.....Check out the 5 year chart JPY/KES



http://finance.yahoo.com...&z=m&q=l&c=




also,while it's true that Japan's economy grew in Q3 if you break it down,it's largely attributed to
+ Increase in Capital Spending ?↑1.6% = Govt

+ Business investment ? ↑ = Govt has been buying corporate bonds!

+ Consumer spending ? ↑0.7% = Govt incentives/subsidies on purchases

@ VVS

RE pay high rates for local bond.

+The option to convert the bond into equity means that the bond's yield needn't match or be as high as similar tenor bonds (MTN's?).

+The disadvantage would actually be to the current shareholders because of the dilutive effect of conversion if the option is exercised.

*If Japan's interest rates remain unchanged while Kenya's interest rate decreases,the shilling should depreciate against the Yen. It should be interesting to see this play out in real-time now that CBR has been cut by 75bps

http://futuresource.quot...ts.jsp?s=JPYKES%20A0-FX




Be that as it may,my call would still be for a SWAP deal.

As KQNA can testify hedges don't always work like you would want them to and in doing this,EAPC would be adding more risk to the balance sheet; punting that savings from hedging activities will be sufficient to cater for coupon payments and the costs of actively managing hedged positions.

Currencies move relative to each other and if a swap deal were actually impossible,my play would have been to hedge the Yen against a basket of currencies (instead of JPY/KES or KES→USD/JPY since what EAPC are looking to do is SMOOTH their interest payments anyway. Also with a basket,it's possible to effectively use options to minimize risk.

http://www.cmegroup.com/trading/fx/


@mozenrat ; another feather in SK's cap.

It often happens that a trader carries out a deep and complicated calculation,but fails to spot something elementary right at the first move!

Japan's economy is growing thanks to government stimulus,but real economic growth is yet to pick. Yen has been pushed to the current highs mainly by risk aversion,and the government ammunition seems to be overstretched,with interest rates at 0.1% and public debt (one of the highest in the world,if not the highest),hovering at 200% of the GDP. Current deflation doesnt seem to be hlping things either. Actually they have never fully recovered from the 90's Asian crisis.

Might be the wrong timing to try and hedge the Yen now when its at such highs,it might turn to be another KQ case (when oil was rallying). It may be wise to,however,enter some cheapening options to mitigate the losses.

My 2 cents....

The cost for a ccy swap is just the intr rate differential and of course the bank spread.

Actually a swap is a money market instrument,and it couldnt have hedged their currency exposure,apart from managing repayment cashflows,since their local operating cash is in KES by locking in future rates for cashflows. The other way could have been using plain forwards. But overall,this could have beaten the purpose they borrowed in Yen (low interest rates),since the KES intr rate is incorporated in swaps/fwds.....

Bottom line,they entered into a transaction without some proper hedge for the future (thought USDJPY n USDKES were to maintain some stable levels).

Today Yen is rising on risk aversion (currently 86.75 on the USD),after last night Dubai rattled the debt market (emerging) by announcing a debt reschedule (people have been really waiting to see whether it will pay Nakheel's $ 3Bn maturing next month). This is technically a default! CDS have shot up (Dubai CDS is up 1.31% to 5.71%),and stocks are slumping! Seems financial shocks are still abound.

Nakheel (real estate co building the dubai palms) bond price due Dec was going at 111 on Monday,is now down to 75.

@ Toni,

Just a small correction on Dubai World and Nakheel. Nakheel is owned by Dubai World. Both companies defaulted on bond issued to financial institutions and the public. Same reason why the Nakheel bond lost its value.