Unmasking the Eurobond

You may have heard about the term Eurobond especially from the politicians both from the government and the opposition. A lot has been said about the term Eurobond but what has clearly come out is that the politicians, both from the government and those from the opposition do not understand the meaning of the term Eurobond and so are the most of the Kenyans, but they are bound to gain more insight if they take some time out of their busy schedules and read this article.

What is Eurobond? The name Eurobond is a misleading term that needs a proper linguistic understanding before embarking of the discussion of its cons and pros. Eurobond is simply a bond that is issued in a currency other that the currency of the nation where it is issued. It is often issued by an international syndicate and it is categorized according to the currency in which it is denominated.

The determinant of the name of the Eurobond is the currency in which it is issued. For instance, Eurobond from US is a Eurodollar because it is issued in US dollars, a Euroyen is issued in Japanese yen. What is being talked about Kenya at the moment is a Eurodollar bond. How does it work? Through a Eurobond, the government asks investors to lend it money that it commits itself to pay back with a period of time, say five years with interest and the Central Bank of Kenya, on behalf of the government gives the private investors a paper know as bond and then collects the money in the form of a loan.

June last year, at the height of the Anglo Leasing scandal controversy about the payments, President Uhuru Kenyatta made an impassionate case for 289 billion shillings (2.75 billion US dollars) Eurobond that he said would stop the government from borrowing from domestic market and, therefore, in the process help in the driving of the interest rates down as well as boosting the economy.

The government had to take the Eurobond with an intend to fund infrastructure, run the budget as well as paying off the huge debt that it owed and, during the time, the government said that it was not going to borrow locally because of the liquidity that was being offered by the bond.

Last month, many banks raised their interest rates, contrary of the promised ‘low interest rates’ after the Eurobond and this was after the government, which had said that it would not borrow from the domestic market, announced its intention to borrow heavily from the domestic market and this spurred fears that the government was running broke and questions of where the Eurobond billions went surfaced.

According to the sentiments of the Treasury secretary Henry Rotich, from the Eurobond, 196 billion shillings were put into the country’s infrastructure and further 53 billion shillings were deposited in a foreign account with an intention to pay off the external debt that Kenya owed but these sentiments were dismissed by the Controller of Budget who told Parliament that close to 176 billion shillings are unaccounted for but confirmed that 53 billion shillings had been withdrawn to service the loans owed by the government.

There are four facts here. One, the Eurobond was acquired by the government of Kenya. Two, it is not known how the Eurobond was spend and the funds are nowhere to be seen. Three, the bond had attracted an interest of 16 billion shillings as of the month of July. And four, Kenyans are serving the Eurobond debt without having any clue as to how the cash was really used.

Politicians are busy talking about the Eurobond issue without really realizing that the whereabouts of the billions that were borrowed is very important to the country as a whole as well as to our financial partners because of the following:

• The Eurobond was taken from the global financial markets. It should be noted that global financial institutions are not gifted with the idea of forgiving those who have taken loans from them. This implies that the Eurobond must be paid come rain come sunshine and this means that these funds will have to be found by all means.

• The reputation of the country to the global market is at stake from the controversy that surrounds the way the Eurobond was spend and this might drive investors away from coming to the aid of the country. Looking at the issues surrounding the Eurobond at the moment, there is no sense of meticulous management anywhere. This may also raise questions about the credibility of the country being an investment hub because the rest of the economy is prone to be affected.

• There is usually an economic as well as developmental dividend that a country reaps from the issuance of the bond but Kenya might never get this given the controversy surrounding the whole issue.