DEBT

Kenya to float $1 billion eurobond before July -Yatani

The country issued the first international bond in 2014

In Summary
  • Last year, Kenya raised $1 billion (108 billion) debt in a fourth  Eurobond that was oversubscribed fivefold
  • The new loan will be used to fill the 2022/23 budget deficit. 
Treasury CS Ukur Yatani reads the budget for the Financial Year 2021 in Parliament on June,10, 2021.
Treasury CS Ukur Yatani reads the budget for the Financial Year 2021 in Parliament on June,10, 2021.
Image: FILE

Kenya will be going for the fifth Eurobond as part of debt financing to fill the budget deficit for the upcoming financial year. 

The country has a significant budget gap of at least Sh862 billion for the financial year starting July that is expected to be funded through borrowing.

Addressing journalists after releasing the Economic Survey 2022 on Thursday, National Treasury CS Ukur Yatani said plans are still on course to source $1 billion (Sh115 billion). 

''We will have it before the end of this financial year,'' Yatani said.

The exchequer did not give reasons for the change of heart on subscribing to new debt from international commercial lenders considering that it had hinted at scraping it last week as reported by Bloomberg. 

It is alleged that the National Treasury had cited unfavorable conditions in the international market that have accelerated currency fluctuation as a reason for scrapping the new bond. 

Last year, in the Memorandum of Economic and Financial Policies (MEFP) to the International Monetary Fund (IMF), Kenya outlined a plan to issue a Eurobond by the end of December 2021 to provide financing for the 2021/22 budget.

Public uproar on the rising public debt that has since hit Sh8.2 trillion saw the government develop cold feet.   

According to the latest weekly data from the Central Bank of Kenya (CBK), yields on Kenyan Eurobonds have been on the rise so far this year with the 2019 7-year issue for instance recording a 3.6 jump in yields while the debut 2014 10-year issue posting a 3.2 per cent rise in interest. rates.

A financial market analyst Ken Ongoma attributes this to global uncertainties and exchange rate regime change especially in the US, pushing up investment risk costs in developing nations.  

''It is risky for the Kenyan government to float any commercial paper today considering a number of uncertainties including upcoming general elections. Although it may be oversubscribed, it will come at a higher rate,'' Ongoma said. 

Last year, Kenya raised $1 billion (108 billion) debt in a fourth  Eurobond that was oversubscribed fivefold. The 12-year loan and attracted the interest of 6.3 per cent. 

In May 2019, Kenya raised $2.1 billion from international capital markets to pay off other loans including a $750 million Eurobond that matured on June 24, 2019, and other debt obligations.

The bond was issued in two tranches of seven-year tenor and 12-year tenor priced at seven per cent and eight per cent respectively.

In 2014, Kenya issued a $2 billion Eurobond and tapped for a further $750 million, while the second Eurobond of $2 billion was issued in February 2018.