Treasury gives strong hints of issuing another Eurobond

Treasury Cabinet Secretary Henry Rotich

The Government has given yet another hint that it may issue another sovereign bond in the coming financial year as it moves to plug a budget deficit.

In the Budget Summary for 2016/17 presented to a parliamentary committee, the National Treasury noted the Government is still committed to accessing the “international capital markets” to diversify its sources of financing.

“The Government also remains committed to assessing international capital markets with a view to continued diversification of our funding sources for our development expenditures while at the same time reducing pressure on domestic interest rates,” a summary signed by National Treasury Cabinet Secretary Henry Rotich reads in part.

Recently, international news agency Reuters reported that Kenya would soon be returning to the international market to issue a Eurobond after “finding strong interest at a roadshow in London on Tuesday (April 5, 2016)”.

In 2014, Kenya issued a debut $2.75 Eurobond (Sh250 billion). Expenditure of a part of these funds has been at the centre of a huge political storm with the Opposition claiming that about Sh102 billion never reached the Consolidated Fund.

But the Government might also go for a Sukuk, a Shariah-compliant sovereign bond. Speaking during the launch of the International Islamic finance conference of Africa in January this year, Rotich said the Government’s decision to go for the Sukuk was premised on the bond’s discounted rate.

Concessional loans are extended on terms substantially more generous than market loans.
Non-concessional borrowing such as the Eurobond, would be approached with caution and would be “limited to development projects and the stated ceiling in the Medium Term Debt Strategy (MTDS),” according to the budget summary.

In the 2015/16 financial year, the Government paid an interest of Sh16 billion on the Sh250 billion Eurobond. This interest is projected to rise by 18 per cent to Sh19.4 billion in financial year 2017/2018.

Total interest paid to external debtors including China was Sh34.6 billion. This is projected to increase to Sh53.5 billion in the 2016/17 financial year.

Kenya also paid a total of Sh187 billion worth of debt to its internal debtors in the current financial year.

Treasury CS Henry Rotich

Government projects a budget deficit of about Sh513 billion, which it plans to plug using a combination of domestic and external debt. The Government plans to borrow Sh241 billion from the domestic market.

However, the Government has made it clear it would borrow to the domestic market with caution to avoid triggering a spike in interest rates and thus crowding out the private sector.