Kenya goes for local currency syndicated bonds to check public debt

The National Treasury said the bonds would cushion Kenya's debt from foreign currency depreciations. [File, Standard]

Kenya's National Treasury said Wednesday that it intends to issue syndicated bonds in local currency in the financial year 2023/2024 as it explores new ways to raise money to finance the country's 3.6 trillion shillings (about 28.56 billion U.S. dollars) budget.

The Treasury said in its debt management strategy that the bonds would not only help raise more resources but also cushion the country's debt from foreign currency depreciations.

Syndicated bonds are mainly issued by companies or governments to generate funds, where the issuer finds a group of banks or other lenders to underwrite the bond.

The underwriting banks then sell the bond to investors, and if all is not sold, the banks buy what is left.

This way, the government is guaranteed to raise the full amount it needs.

Kenya has in the past taken various syndicated loans from foreign banks, with commercial loans comprising 27 percent of the total external debt.

The Kenyan shilling has depreciated 10 percent in the last one year against the U.S. dollar, hitting 126 to the greenback Wednesday.

This has significantly increased Kenya's debt, which is mainly dollar-denominated. The public debt currently stands at 71.18 billion dollars, half of which is external.

"Currency depreciation increases debt service costs. The major currencies in the external debt portfolio are U.S. dollar at 68.1 percent; Euro at 19.8 percent; Chinese Yuan at 5.4 percent; Japanese Yen at 4.2 percent and Great Britain Pound (GBP) at 2.3 percent," said the National Treasury.