Treasury chalks up Sh68 billion more debt from foreign investors

Kenya has borrowed an additional Sh67.5 billion from the international market even as the country grapples with a growing debt burden.

The Treasury Cabinet Secretary Henry Rotich said last month, they reopened a $750 million international sovereign bond, which was oversubscribed by 400 per cent, riding on the success of Kenya’s inaugural Eurobond issued in June that raised Sh180 billion ($2billion) at current exchange rates.

This brings to total the country has borrowed from the international market this year to Sh247 billion ($2.75billion). Mr Rotich said the money will fund infrastructure projects in transport, energy and agriculture sectors.

Some of the projects to benefit are geothermal drilling plants by GDC, Lapset, the Galana irrigation project and electricity transmission lines. “We plan to inject an additional 5000MW of power into the national grid and this is why we need to empower GDC to do drilling at Menengai. The Standard Gauge Railway will also be electrified and we will have demand for power,” Rotich said.

He said the latest bond has the same features like the earlier one. “The two tranches of the re-opened bond are identical in all material features to the inaugural bond but were issued at current favourable prices,” Rotich said yesterday.

The second issue, Rotich said, comprises a bond for $250 million with a five-year maturity at a 5 per cent interest rate and a $500 million ten year bond attracting a 5.9 per cent interest. He said the proceeds were received in Kenya’s account on December 3.

“Before pricing, the issue received about 400 per cent subscription with total demand amounting to over $3 billion. The over subscription is an indication that foreign investors continue to have confidence in future prospects of our country,” he said.

Rotich maintained that it chose to go back to the market this soon since reopening the bond allowed Treasury to ‘issue additional debt at much lower transaction costs than a new issue.”
“There was no need for a physical road show since we could leverage on the road show we undertook for the debut bond,” he said. The latest bond attracted investors from the UK and the US.

Fund managers, banks, insurance and pension funds were the main buyers of the bond. This comes at a time when the country’s growing appetite for borrowing to fund major infrastructure projects is raising concerns over its repayment capacity and sustainability.

Interest payment burden

“Our current account and budget deficits are manageable and do not undermine macroeconomic stability. Our public debt is also sustainable and we have also discussed this with the IMF which also is of the same view,” Rotich said arguing that the fact that the country continues to attract investors at this time it is facing serious security challenges is an indicator of faith in the economy.

Last month, a parliamentary committee approved a request by Treasury to double the country’s external debt ceiling to Sh2.5 trillion. Treasury requested the upward revision of the ceiling to accommodate huge capital inflows into the country, including the loan to fund the Sh327 billion standard gauge railway.

However, the Parliamentary Budget Office (BPO), which advises MPs on economic and fiscal policies, questioned Treasury’s push to raise the debt ceiling from the current Sh1.2 trillion warning of high interest payment burden in the next five years to Kenyan tax payers. Government data shows that interest on domestic and foreign loans rose 35.8 per cent over the last quarter of 2013/14 to hit Sh38.5 billion in the three months to September 2014.

This means that interest payment took up 14 per cent of the Sh276.6 billion that the Treasury spent in the quarter to September. This makes loan servicing the second-largest expenditure item after teachers’ salaries.

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