Treasury warns of Eurobond debt repayment pain

Kenya has signalled its intention to return to the global debt markets at a time its Eurobond loan stands at Sh914.2 billion and would repay it by 2048. The largest of the debt, $2 billion, taken in 2014, will mature in June 2024, Treasury revealed in in debt report released in Nairobi.

The issuance marked Kenya’s entrance into the commercial debt arena to fund its budget deficit. In 2027, Kenya would be obligated to repay a $900 million Eurobond issued in 2019 while in 2028, the east African nation’s $1 billion Eurobond issued in 2018 would mature, according to the Treasury.

Similarly, in 2032, the country’s $1.2 billion Eurobond will mature, while in 2034 and 2048, billion dollars bonds each would be up for repayment, said the Treasury. Interest rates for all the bonds vary from 6.8 per cent to 8.3 per cent. Public debt currently stands at 71 billion dollars, with 49 percent being domestic and 51 percent external, according to the National Treasury.

Debt management

The Treasury in a recent debt management report said it would shift to syndicated bonds issued in local currency to explore new ways to raise money to financethe country’s $28.5 billion (3.6 trillion) budget and cushion the country’s debt from foreign currency depreciations.

Speaking early this week, Deputy President Nderitu Gachagwa said Kenya has been given the “thumps up” sign which means the country is ready to tap the international debt instruments, adding that the country has stopped local borrowing.

President William Ruto had also hinted the same after interest rates dropped.

“The money we had borrowed on Eurobonds whose interest had risen to over 17 per cent has now dropped to below 10 per cent just in the last four months because of the interventions we have made,” he said.

Ruto’s comments had preceded a similar hint by Treasury Cabinet Njuguna Ndung’u that the country was looking forward to borrowing Sh111 billion ($900 million) in syndicated loans.

Kenya’s public debt service challenges have been a source of concern, as the country has been grappling with high levels of debt that have put a strain on its economy. The country had been relying on the local bond market to finance its budget, but long-term rates have risen to 14 per cent, making it difficult for borrowing.

Last year, the Kenyan government took steps to address the issue by forcing lenders to extend the maturities of their bonds.

“We had been told by investors last year that we are not able to service our loans but now they have said it is ok we can go ahead and borrow more,” the President said during a past interview.

Forcing lenders

A syndicated loan is a loan extended by a group of financial institutions to a single borrower. The syndicated loan is expected to be used to fund infrastructure projects, including roads, bridges, and ports, which are essential for the country’s economic growth.

Churchill Ogutu, senior research analyst at IC Group said Ruto may have been referring to Eurobonds with 2027 or 2034 maturities, which have been below 10 per cent, but still at high single-digits making them less attractive for refinancing.

The decision to return to the international debt market for a $900 million syndicated loan will allow the country access liquidity and wriggle room to restructure its finances after having resorted to extending maturities late last year.

Ndung’u last week expressed concerns, saying the country is facing difficult times due to high cost of loans and low tax revenues.Despite the positive outlook, there are concerns about the country’s high levels of debt, which have risen sharply in recent years. Kenya’s public debt stood at Sh9.1 trillion in Deceber last year.

This has led to concerns about the sustainability of the country’s debt and its ability to service it in the long term.

There are concerns about the sustainability of the country’s debt levels and its ability to service its debt in the long term. The government will need to continue implementing measures to reduce its debt levels and increase revenue collection to address these concerns.