Kenya Takes Another Eurobond Pushing Total Debt to Ksh. 7.4 Trillion

Kenya has raised 1 billion dollars (approximately 108 billion shillings) in a Eurobond issuance, an interest rate of 6.3 percent for a 12-year tenure, marking its fourth sovereign loan since 2014.

The new Eurobond issue will mature on 23 June 2034 with the principal repayment made in two equal installments on 23 June 2033 and 2034.

According to the Treasury, the bond was four times over-subscribed with investors putting in offers of 582.1 billion shillings signifying strong confidence in the country’s economy amidst the coronavirus pandemic.

“The overwhelming response from global investors reflects the market’s continued confidence in Kenya’s Economic Recovery Program supported by the IMF and is in line with our Medium-Term Debt Management Strategy approved by Parliament. We want to thank investors for their strong participation in the bond issuance,” Treasury Cabinet Secretary Ukur Yatani said.

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The pricing of the new Eurobond expected to be completed later on Friday with sources indicating yields are likely to average around 6.3 percent. Proceeds from the bond are expected to be deployed in plugging financial needs for the remainder of the 2020/21 fiscal year which ends on June 30.

Kenya had been shopping for investors for the new bond since June 15 in a virtual roadshow and two days later, it announced that it had hit a target of 108 billion shillings.

“We went to the market seeking to raise $1 billion and stuck to the discipline of our target amount despite the oversubscription and competitive pricing,” said Dr. Haron Sirima, the director-general of the Public Debt Management Office.

Experts say that Kenya’s risk profile has been lowered by the backing of the IMF and the World Bank, which have agreed on programs in excess of 4 billion dollars in the past year.

This confidence reassured investors that the likelihood of Kenya facing balance of payment problems, at least in the short term when the Covid-19 problems have hit economies hard.

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The government’s success at securing a lower interest rate was, therefore, improved by the investors’ unlikelihood of demanding a bigger premium in interest when lending to the country.

Kenya, through the public debt management office, has been working to minimize borrowing rates and extend of stagger repayment periods to improve the country’s liquidity.

“Going forward we are optimistic that Kenya will successfully execute liability management operations in the next fiscal year in line with the debt strategy of lowering cost and minimizing risks in the public debt portfolio,” Dr. Sirima said.

Meanwhile, the recent borrowing has pushed Kenya’s total debt to 7.4 trillion shillings – a figure that continues to spark concerns about its sustainability. The debt is equivalent to 69 percent of the GDP.

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The Treasury’s investment in the Eurobond is part of the government’s strategy to reduce dependence on syndicated loans charging high rates over shorter durations. IMF and World Bank loans are much cheaper compared to commercial loans, and they come with a grace period and are repayable over a longer duration.