Kenya’s debt to West set to dislodge China

Kenya went to China and came back without the Standard Gauge Railway loan but weeks later, the Treasury is now in London and America trying to secure a third Eurobond.

National Treasury officials started meeting investors in what is called a roadshow to pitch for two long-term bonds of between 12 years and 31 years.

This effectively kicked off the process of the third round of borrowing from international investors, including the Standard Bank and American investment bank, JP Morgan Chase.

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A market analyst who did not want to be named said Kenya risks contracting expensive bonds if it cannot convince the investors it has the backing of the International Monetary Fund.

IMF has expressed concerns over Kenya’s shilling as a ‘managed currency’ and is yet to renew an insurance loan to insulate the Kenya shilling from external shocks.

Currency affects ability to pay dollar loans in that if the local currency devalues sharply, debt becomes unsustainable.

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“The story Kenya should sell is that it’s a good time to get the Eurobond after Ghana and Egypt issues as well as a US Fed that is no longer keen on raising rates, we will get the bond first then get the IMF facility,” the source said.

Alternative financing

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Despite accusations that the Chinese were saddling Africans with insurmountable debts, the Kenyan delegation may return having sealed a total of Sh725 billion in Eurobond financing since 2014, overtaking Chinese bilateral debt that stands at Sh634 billion.

Oscar Otele, a researcher, says the Eurobond as an alternative financing, helps Kenya utilise space for negotiations.

“It works in assisting negotiation capacity in terms of Chinese counterpart financing. They (Treasury) can say, if the Chinese do not give us we have other options,” he said.

Dr Otele, however, warned that this is dangerous since it seems policy makers are just taking advantage of the available options to borrow without looking at the rate of excessive borrowing.

“Initially when we were rated well, we should have utilised the opportunity to organise the debt portfolio. But now whatever options are available we are using to increase debt, whether Chinese or international bonds, and are not concerned with the debt portfolio,” he said.

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Debt pile up which was optional at the beginning has become inevitable since when the loans mature, Kenya has no dollars to pay back and has to borrow from Peter to pay Paul.

This has prompted Parliament, led by Emgwen MP Alexander Kosgey, to push for a law that will limit State borrowing to Sh6 trillion unless an adjustment is made by the House, to tame Treasury’s debt appetite.

Kenya’s trips to Western capitals and Beijing have pushed up borrowing to Sh5.44 trillion including the Standard Gauge Railway, two Eurobonds in 2014 - one which matures this year and the other in 2024 - and last year took another two loans of 10 and 30 years.

The country has also taken almost 10 syndicated loans since the Mwai Kibaki government issued its single four-year bond in 2011 with the short-term commercial loans building pressure on repayment.

The technocrats on the roadshow will be trying to make a case detailing why lending Kenya is a good investment and that the lenders’ money will be safe, especially in the face of China’s anxiety over the loans to build the Standard Gauge Railway.

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“We have a good sovereign rating of B+ so we are confident we will get a good rate,” a source who is not authorised to speak to the press told Weekend Business.

Kenya’s 10-year bond that matures in 2024 is currently trading at 6.3 per cent while the 30-year bond taken last year is trading at 8.3 per cent.

Investors look at fiscal deficit, debt metrics, forex reserves and balance of payment to judge the risk levels of a country against alternative investment risks in the market place.

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Standard Gauge RailwayTreasuryChina loansSGRPresident Uhuru Kenyatta