Kenya's Eurobond curse: borrowing to repay loans

Marketing its fourth sovereign bond in less than a decade to repay debts

In Summary
  • Kenya expects to borrow at least $1 billion before the end of this month 
  • The country has been in the habit of taking sovereign bonds to repay debts
Treasury building
Treasury building
Image: FILE

Kenya is marketing its fourth sovereign bond in less than a decade to repay due loans in what has become a familiar scenario.

Early this week, the East African economy is said to have appointed Citi and JP Morgan as joint book-runners for a dollar-denominated sovereign bond issue, and I&M Bank as co-managers for credit facility expected before the end of this month. 

Early this year, the National Treasury hinted at borrowing $1 billion (Sh107 billion) before the end of the current financial year and another facility worth billion (about Sh128 billion) in the fiscal year starting July 1. 

While the Treasury has cleared some of its international debt, several others that were restructured under the G20 and Paris Club arrangement are due at the end of the month besides domestic debts. 

Kenya has always floated sovereign bonds to clear maturing debts, a move criticised by several international and domestic players, a situation likened to borrowing from Tom to pay Peter—a debt trap. 

In May 2019, Kenya raised Sh210 billion sovereign debt to be paid in two tranches at seven and 12 years. The Treasury used Sh75 billion or 35 per cent of the money to service part of the inaugural sovereign bond taken in 2014.

Coincidently, Kenya launched the debut bond of Sh200 billion and tapped a further $750 million (Sh76.5 billion) in 2014 of which it used $600 million (Sh60 billion) to clear a syndicated loan taken in 2012.

According to the prospectus used to secure the second Eurobond worth Sh200 billion in February 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 had taken a $1 billion (Sh100 billion) syndicated loan from a consortium of banks in March 2017, which matured in April.

While 2022 and 2023 will be relatively easy for Kenya in terms of debt obligation, the following year will be tough, as some of the initial Eurobond issues will be reaching maturity. 

These maturities are associated with the upcoming retirement of International Sovereign Bonds issued in 2014, 2018 and 2019, in addition to Treasury bills and bonds due in the same period.