COSTLY LOAN

Fresh Eurobond drives up Kenya's indebtedness

In Summary

• Kenya will be using at least Sh75 billion or 35 per cent of the third Eurobond to service part of the 2014 sovereign bond.

Treasury Cs Henry Rotich. Photo/Enos Teche.
Treasury Cs Henry Rotich. Photo/Enos Teche.

The new Sh210 billion Eurobond raised by Kenya on Wednesday is most expensive of all, putting to question the government’s promise on debt sustainability.

According to the 2019 medium-term debt management strategy issued by the government in February, Treasury CS Henry Rotich promised to cutback on expensive foreign loans to ease the repayment fears.

However, according to the third Eurobond statement released by Treasury on Wednesday, interests on the two trenches of the bond have been priced at seven and and eight per cent respectively, higher than those charged on earlier sovereign bonds.

 

"The seven-year portion of the latest issue was priced at seven , while the longer-dated tranche was priced at eight per cent , well below the initial guidance price of 7.5 per cent and 8.5 per cent respectively,’’ Rotich said.

Even so, the inaugural Eurobond of Sh200 billion raised by Kenya in June 2014 in two splits of notes five and ten years attracted an interest of 5.87 and 6.87 per cent respectively.

At least Sh75 billion of the new debt will be used to partly settle the first tranche of the 2014 Eurobond of $1.5 billion (Sh150 billion) which is due on June 24. The 10-year note is due in June 2024.

Although interests on the latest issue is 25 basis points lower compared to the second bond of Sh200 billion floated in February last year, it has lower tenure, making it more pressing.

The second Eurobond was split in in two equal but longer tranches of 10 years at a coupon of 7.25 per cent and 30 years at a coupon of 8.25 per cent.

Borrowing from Tom to pay Peter

Yesterday, some twitter users reacted angrily to the news that the government had yet another international debt, largely to repay maturing loans.

 

"Borrow money to pay loans. If past issues were invested correctly to create money there is no need of borrowing to pay the other loan. Getting independence was painful, but now driving the country back to dependency is deadly,’’ a twitter user Patriotic Kenyan said.

‘’Kenya selling new Eurobond, the third since 2014 to partly finance another bond which is due to mature in June. As a Country, we are treading on dangerous grounds. We are at a point where we are taking loans to service other loans. It's very sad,’’ Barvin said on twitter.

Kenya will be using at least Sh75 billion or 35 per cent of the third Eurobond to service part of the 2014 sovereign bond.

This is not the first time the country will be borrowing to repay maturing loans.

The country used part of its debut Eurobond to retire a $600 million (Sh60 billion) syndicated loan taken in 2012.

The loan from international commercial lenders was due in August that year. The balance was to be pumped into infrastructure development.

According to the prospectus used to secure the second Eurobond worth Sh200 billion last year, the country was to spend at least 80 per cent of the proceeds on retiring syndicated loans contracted in 2015 and 2017.

The Treasury took a $1 billion (Sh100 billion) syndicated loan from a consortium of banks in March 2017, to mature in April 2019.

Surging public debt

The new Eurobond is likely to stretch further the ballooning public debt that was estimated at Sh5.4 billion by Central Bank of Kenya. This despite local and international outcry. 

Kenya’s public debt as a percentage of GDP has increased to 55 per cent from 42 per cent when Kenyatta took over.

The government has  however defended the increased borrowing, saying the country must invest in its infrastructure, including roads and railways.

Treasury has insisted that the country's debt to GDP is below the internationally set threshold of 74 per cent.