Treasury eyes costly Eurobond to stay afloat amid debt crisis

National Treasury Cabinet Secretary Njuguna Ndung'u when he appeared before the Senate standing committee on Finance and Budget on April 5, 2023. [Elvis Ogina, Standard]

Treasury is considering tapping into the international capital markets with a fourth Eurobond issue in less than eight years to help pay off part of its debt obligations.

It has, however, not disclosed the amounts it hopes to raise from the international markets.

The move comes amid a potential  full-blown crisis in June next year when another 10-year Eurobond worth Sh269.4 billion is due for repayment.

The cash-strapped National Treasury is considering tapping into the international capital markets with a fourth Eurobond issue in less than eight years to help pay off part of its debt obligations. 

Making the revelation yesterday, Treasury, however, did not disclose the amount the country plans to borrow through the Eurobond. 

“The government of Kenya through the National Treasury is considering accessing the international capital markets before the end of the fiscal year 2023/24 (1 July 2023 to 30 June 2024) to issue a sovereign bond,” said the Treasury in a public notice. 

The move comes amid a potential crunch point in June 2024 when a 10-year Eurobond worth $2 billion (Sh269.4 billion) will need repaying unless a yield retreat allows for refinancing, analysts say.  

With US interest rates on a sustained rise, the inevitably higher borrowing costs will do little to alleviate pressure on the National Treasury, they said. 

The government is separately also working to secure syndicated loans from international banks in 2023, worth about $600 million (Sh81 billion) and $900 million (Sh121.5 billion) in total. 

Kenya cancelled a similar planned $1 billion (Sh134.7 billion) Eurobond in mid-2022, leading to pressure on foreign-exchange reserves and more rapid exchange-rate depreciation, which is pushing up the cost of foreign debt servicing. 

The Director-General at the Public Debt Management Office of the National Treasury said at the time the ministry reached the decision “due to high volatility in the international capital markets".

Kenya is, however, likely to set itself up for costlier debt if it implements commercial debt borrowing plans. 

This is against a backdrop of weaker credit rating by global rating agencies pointing out that Kenyan taxpayers will have to dig deep into their pockets to service the planned loan and tighter global loan market conditions. 

Three major US-based credit agencies - Fitch Ratings, Moody’s Investors Service and Standard & Poor’s - have in the recent past slashed Kenya’s credit ratings outlook, dimming the country’s chances of tapping cheap credit in the international financial market. 

This will mean investors willing to buy the Kenyan bond in the international market will demand a risk premium to cushion against the country’s risk of default. 

Kenya is also expected to come under more scrutiny from the credit rating agencies amid the risk of economic slowdown and mounting political uncertainty. 

Yields on the country’s 10-year bonds maturing in 2024 and 2028 have risen sharply and continue to spike amid the Russia-Ukraine conflict and interest rate hikes by major central banks, including those in the US and the UK, signalling higher repayment costs. 

Treasury said yesterday it is seeking financial consultants to apply by April 28 for the critical role of advising the government on the “most appropriate timing, format, amount, tenor, coupon, and conditions for the issuance of an international bond.” 

“The National Treasury invites reputable, experienced financial institutions duly licenced to operate in North America, Europe, Middle East or Asia to submit an expression of interest in providing these services,” said Treasury.

It said the lead manager shall guide the ministry on the liability management of Kenya’s outstanding Eurobonds, including the Eurobond maturing in 2024. 

“Services shall also include arranging road shows and conference calls to engage with a wide array of investors and liaising with potential investors managing the book building for the offering,” it said. 

In May 2019, Kenya raised $2.1 billion (Sh282.2 billion) from international capital markets to pay off other loans, including a $750 million Eurobond that matured on June 24, 2019, and other debt obligations.

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