Kenya drops Ksh.124 billion Eurobond for syndicated loan
Kenya has cancelled the planned Ksh.124.3 billion Eurobond which was set for July and is instead going for a syndicated loan from banks. This was last done in 2019.
According to National Treasury Cabinet Secretary Ukur Yatani, bids from banks were received at a cheaper rate, 12 percent compared to the sovereign bond which was last priced at six percent but has since become very expensive.
“We are still exploring options to look at a number of banks that can advance us the money at a cheaper rate. At a more or less, the rare we got (on our Eurobond) last year,” Treasury Cabinet Secretary Ukur Yatani said on Thursday.
CS Yatani blamed the Eurobond cancelation on the ongoing war between Russia and Ukraine, which is now entering what could become a protracted period of feeble growth and elevated inflation.
“We realized as a result of challenges from Russia-Ukraine, the cost of borrowing has gone extremely high. Last year, we borrowed at six percent, right now the rates start at over 12 percent and it is therefore no longer feasible (to have the Eurobond issue).”
The Central Bank of Kenya (CBK) data shows yields on the 10-year Eurobond maturing in 2024 have risen by 147 percent while returns on the 30-year paper maturing in 2048 are up by 34.9 percent.
The spike in Eurobond yields is biased towards the shorter end of the yield curve pointing to an assessment of near-term risks by investors in the bonds.
Africa’s Debt Burden
Countries in Africa are grappling with the high external financing costs with Ghana and Ethiopia for instance seeing their borrowing cost rise by more than seven percent since 2019, according to Bloomberg.
The pair of countries seem to be in the immediate danger of defaulting on their external debts.
Kenya is not seen to be far behind the pair as its debt servicing costs hit a new record in the current fiscal year.
This has sent CS Yatani on a drawing board, who is now trying to balance the country’s debt portfolio due to a surge of commercial debts that have become expensive.
Kenya’s debt financing is expected to take up 66 percent of Ksh.1.77 trillion that the Kenya Revenue Authority (KRA) will collect in taxes for the period ending June 30.
Two further Eurobonds, however, have already been scheduled including Ksh.105.6 billion in the fiscal year commencing July 1 and Ksh.270 billion in the 2023/2024 fiscal year.