LOAN

Forex reserves shrink 9.2% on Eurobond 1 payments

In Summary

• The first installment of the inaugural Sh200 billion Eurobond is due today.

• The sovereign bond was split into two phases - a $500 million five-year bond and a $1.5 billion 10-year phase due in June 2024.

CBK governor Patrick Njoroge
CBK governor Patrick Njoroge
Image: ENOS TECHE

Foreign reserves at the Central Bank of Kenya on dropped by a whooping Sh930 million as the country moved quickly to clear the first phase of the inaugural Eurobond due today.

A weekly bulletin by CBK shows usable foreign exchange reserves dropped to $9.153 billion (Sh915 billion) from $10.083 billion (Sh1.08 trillion) last week, representing a 9.2 per cent drop.

Although CBK did not offer the reason for the significant drop, experts are of the opinion that a huge chunk of reserves were used to settle the first trench of the inaugural $2 billion (Sh200 billion) Eurobond Kenya took in June 2014.

 
 

CBK governor Patrick Njoroge had in May, during the a post Monetary Policy Committee press briefing indicted that the government will spend up to $800 million (Sh80 billion) to clear the first trench of the first Eurobond due June 24.

"The first installment of the first Eurobond of about $750 million ,which plus interest of about $80 million, will come to just about $800 million is due on June 24,’’ Njoroge said.

The sovereign bond was split into two phases - a $500 million (Sh51 billion), five-year bond at an interest rate of 5.875 per cent; and a $1.5 billion (Sh153 billion), 10-year phase with a yield of 6.875 per cent.

Assuming that the principal amount of $750 million and an interest of $80 million was paid, the total adds to around $830 million, $85 million lower to the foreign reserves drop recorded last week.

Yesterday, financial and economic experts took to Twitter to scrutinize the sudden shrink in foreign reserves that were strengthening in the past three weeks.

"Eurobond repayment was $750 M. Was the remaining $180 million spent on interest repayments or to defend the shilling?,’’ Mombasa based financial risk management expert Mihr Thakar tweeted.

Mohamed Wehliye, advisor to Saudi Arabian Monetary Authority wondered if the difference was for interest repayments, adding that another $300 million for Standard Gauge Railway payments is needed next month.

 

The monetary regulator, however, downplayed the significant drop, insisting that the 5.8 months of import cover meets the statutory requirement of maintaining at least four months of import cover.

"The CBK usable foreign exchange reserves remained adequate at 5.8 months of import cover. This meets the statutory requirement of maintaining at least 4 months of import cover, and the EAC region’s convergence criteria of 4.5 months,’’ CBK said in the weekly bulletin.

While Kenya has started to repay the maiden Eurobond, doubts still hang on how the loan was spent. Opposition chief Raila Odinga has insisted that the money did not arrive at Treasury. Auditor General Edward Ouko, who had earlier cast doubts on how the money was spent recently gave the process a clean bill of health.

The country has so far floated three sovereign bonds, with the recent on being Sh210 billion Eurobond sold in last month.

The dual-tranche of seven-year and 12-year tenors are priced at 7 per cent for the seven year tenor and eight per cent for the 12-year tenor.

Part of the amount raised will be used to settle the Eurobond installment due today as the National Treasury indicated it its prospectus.