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Kenya's Eurobond debt up Sh70bn on weak shilling

Yields on the bond have since skyrocketed to 22 per cent.

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by VICTOR AMADALA

Business31 October 2023 - 01:00
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In Summary


  • The country is expected to make the bullet payment to retire the 10-year sovereign bond which was issued in 2014.
  • Yields on the bond have since skyrocketed to 22%.  

Taxpayers will cough Sh70 billion more for Kenya's first Eurobond payment that matures next July.

The country is expected to make the bullet payment to retire the 10-year sovereign bond issued in 2014.

It took $2.75 billion (Sh413 billion) in two tranches consisting of a 10-year paper and a five-year issuance ($750 million), at interest rates of 6.78 per cent and 5.87 percent respectively.

Yields on the bond have since skyrocketed to 22 per cent.  

The five-year paper was repaid partly using the proceeds of another $2.1 billion Eurobond issued in May 2019.

To clear the maturing loan, which was largely used for infrastructure projects like the Standard Gauge Railway (SGR), the government has made major changes in provisions for debt redemption in the latest supplementary budget. 

Data from the National Treasury shows the country will pay Sh311.6 billion to clear the initial Eurobond in July, up from the initial Sh240 billion.

This is after Kenya revised its currency from Sh120.80 to Sh155.81 against the US dollar. The value of the shilling against the greenback has been dropping since 2020, hitting an all-time high of Sh150 on Thursday last week.  

"This change accounts for 77 per cent of the upward revision in debt redemptions in the Supplementary Budget,'' the exchequer says. 

The repayment of the inaugural Eurobond continues to disturb the minds of Kenya's debt managers at the National Treasury, with a number of proposals on the table. 

In 2021, the country had planned to float the fifth Eurobond to settle the inaugural one but shied away from high yield in the international market. 

It scrapped plans to issue a $1 billion Eurobond that was expected by the end of June as the rising cost of financing foreign debt coupled with a relentlessly depreciating currency dampened the sustainability of the planned issuance.

In March, the National Treasury said it would tap concessional external loans to fund the $2 billion bullet repayment of its debut Eurobond.

National Treasury PS Chris Kiptoo told the Parliament that the state had started talks with the International Monetary Fund (IMF) and other development financial institutions for a new loan to help it settle the $2 billion.

"The government is leaning to the multilateral institutions following tightness in the global markets which has rendered the issuance of fresh debt to refinance maturing debt an improbable route to settle the maturity which is eight months away,'' he said. 

Early this month, IMF’s deputy director for Africa Catherine Pattillo told the Business Daily that Kenya had requested additional financing and the amount Kenya is seeking would be a key item during the upcoming review mission expected in December.

The country plans to buy back part of the inaugural Eurobond issued in 2014.

According to CBK governor Kamau Thugge, the country will pay accrued interest and postpone repayment of part of the $2 billion loan that was largely used to finance infrastructure, including the Standard Gauge Railway (SGR) during the Kenyatta regime.

He told Reuters at the on-going IMF/World Bank summit in Morocco that the country plans to buy back up to a quarter of its $2 billion in 2024.

"The country is in talks to raise between $500 million and $1 billion in commercial loans from two regional policy banks, the Trade & Development Bank and the African Export-Import Bank," Thugge said.

Apart from Eurobond, the country was also forced to revise a syndicated loan taken from TDB by 23 per cent to Sh99.96 billion. It has also revised loans from the Exim Bank of China by 12 per cent to Sh99.96 billion.

To balance the budget, President William Ruto's administration has raided the development expenditure, cutting it by Sh40 billion.

It has, however, increased its maiden budget by Sh187. 3 billion in an effort to confront economic headwinds related to missed tax targets, huge debt repayment obligations, and spending pressures from critical sectors such as education and health. 

This now pushes the total budget to Sh3.9 trillion, raising the budget deficit forecast for the 2023/24 (July-June) financial year to 5.3 per cent of GDP from 4.4 per cent. 

 

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