Treasury eyes to raise Sh108 billion from fourth Eurobond

Treasury CS Ukur Yatani presents the 2021/22 budget to the National Assembly, on Thursday, June 10 2021.  [David Njaaga, Standard]

Kenya is targeting to raise $1 billion (Sh108 billion) by issuing a fourth Eurobond, which will be used for budgetary expenditures.

The Standard has learned that the National Treasury has already started the book-building process by offering the 12 and 15-year notes at a coupon rate of between 6.75 and 6.875 per cent respectively.

This will push up the stock of Kenya’s sovereign bonds to over Sh700 billion and is a softening of the earlier hardline stance against the expensive loans by National Treasury Cabinet Secretary Ukur Yatani.

A Eurobond is a sovereign bond that is denominated in dollars.

The bonds, unlike credit from multilateral institutions such as the World Bank, are offered at market rates and have shorter grace periods and tenors. Loans from multilateral institutions, especially the World Bank, still constitute the biggest chunk of the country’s Sh7.3 trillion debt.

However, the share of commercial loans, which includes syndicated and sovereign bonds, has grown sharply since 2014 when Kenya issued its first Eurobond. 

This has resulted in high debt service costs owing to the high yields for the close to Sh600 billion that Kenya has borrowed by issuing Eurobonds.

Treasury, which on Tuesday did a virtual roadshow, had by yesterday started receiving the bids for the new bond issue.

In 2019, Kenya issued a 13-year note at an interest rate of eight per cent and another eight-year note at seven per cent.  

Analysts say Kenya is taking advantage of the prevailing low-interest rates after an extended period in which interest rates in advanced economies were kept low even as central banks poured in money to cushion businesses and households from the adverse effects of the Covid-19 pandemic. 

“From a timing perspective, global yields are still low so there will be investor appetite for higher-yielding securities which the Kenyan sovereign bond will offer,” said Genghis Capital Head of Research Churchill Ogutu.

He added that investors might also warm up to the country’s deal with the International Monetary Fund, which is meant to ensure Kenya maintains fiscal discipline by increasing its revenues and cutting wasteful spending.

Treasury will also be buoyed by the fact that a number of countries such as Ghana and Gabon have successfully issued Eurobonds.

Most of the investors targeted are from the United States. The bonds will be listed at the London Stock Exchange and will be trading at multiples of $200,000 (Sh22 million).

Kenya has tapped the services of American banks Citigroup and JP Morgan as joint lead coordinators while I&M and NCBA banks will be co-managers of the bond.

The Budget Policy Statement 2021, a publication by the National Treasury that sets out the country’s development plans, had indicated that the government intended to raise a sovereign bond of Sh123.8 billion in the 2020-21 financial year.

For the 2021-22 financial year, the plan is to raise Sh124.3 billion.

The government also intended to raise another Sh220 billion for refinancing the Eurobond that is due to mature in 2024, but those plans were shelved after bondholders got jittery.

In April, Treasury was forced to cancel an earlier advertisement in which it sought the services of a “sovereign debt advisory firm” with noteholders fearing that all commercial loans including Eurobond loans would be restructured.

Treasury is also planning to reschedule some commercial loans amounting to Sh540 billion to forestall a cash crunch that has seen the exchequer delay to disburse funds to the counties. 


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