Kenya raises Sh210bn in third Eurobond loan issue

Kenya has finally floated its planned third Eurobond issue, raising Sh210 billion ($2.1 billion) in two tranches of seven and 12 years.

This third Eurobond was arranged by JPMorgan and Standard Chartered Bank and will start trading at the Irish Stock Exchange later this month following its successful sale. The bond attracted bids totalling Sh950 billion ($9.40 billion), which is four times more than the 210 billion shillings that Kenya was seeking to borrow.

According to the country’s cabinet treasury secretary, Henry Rotich, Kenya will pay interest at seven percent for the seven-year tranche and eight percent for the 12-year paper.

Although the secretary did not disclose the split of the debt between the two tenors, he noted that a significant part of the money raised will go towards refinancing maturing debt, while the remainder will go into filling part of the 2018/2019 fiscal year budget deficit that amounted to Sh635.5 billion ($6.29 billion).

“The proceeds from this issuance will be used to finance some of the development infrastructure projects, the general budgetary expenditure (in accordance with the applicable legal requirements) and to refinance part or all of the obligations outstanding under the $750 million 2014 Eurobond, due on June 24, 2019 and potentially part of the other debt obligations,” said Mr Rotich in the notice.

This is the third time that Kenya is resulting in the international debt markets to raise funds to seal budgetary loopholes. The first was in June 2014, when the National Treasury floated Sh200 billion ($1.98 billion) and the second was in February 2018 when a dual-tranche of Sh200 billion was issued.

The latest sale is likely to raise afresh the debate about Kenya’s ballooning public debt and the cost of servicing the repayment obligations. Between January and February, Kenya’s treasury borrowed an average of Sh2.1 billion ($20.8 million) every day, amounting to Sh126.4 billion (1.28 billion) in loans which raised Kenya’s total debt load to Sh5.4 trillion.

In 2017/2018, Kenya’s debt stood at Sh4.41 trillion. By June 2018, the total debt had risen to Sh5.011 trillion after the government borrowed Sh632 billion, 58 percent of the country’s GDP, much of which is owed to China and the International Monetary Fund (IMF).

Currently, interest payments on both domestic and external debt stands at Sh386 billion in the current fiscal year, rising to Sh426.2 billion in 2019/20. The country has also to raise in excess of Sh1 trillion to roll over maturities both domestically and for external loans.