As Kenya scrambles to secure cash to fill the ever growing budget deficit, the East African nation has successfully raised US$ 1 billion through issuance of a 12 year Eurobond.
The Eurobond’s success, according to the country’s Treasury, signals robust global investor interest and confidence.
This is the first new Eurobond issue by the country in two years and it was oversubscribed with over US$ 5.4 billion offered by investors to the new issue.
Kenya’s Cabinet secretary for the National Treasury and Planning, Ukur Yatani, who made the announcement said the oversubscription was a sign of strong global investor confidence on Kenya’s economy and the country’s medium-term economic prospects.
The CS said that measures being taken to mitigate the effects of the pandemic to the economy were particularly well received by investors.
“The overwhelming response from global investors, reflects the market’s continued confidence in Kenya’s economic Recovery Programme supported by the International Monetary Fund (IMF) and is in line with our Medium Term Debt Management Strategy approved by Parliament. We want to thank investors for their strong participation in the bond issuance,” he noted.
While acknowledging the success of the bond issuance, Dr Harun Sirima, the Director General of the Public Debt Management Office, emphasized the need for a cautious approach in contracting commercial borrowing to ensure the country’s debt profile remains within a sustainable path:
“We went to the market seeking to raise US$ 1 billion and stuck to the discipline of our target amount despite the oversubscription and competitive pricing. Going forward we are optimistic that Kenya will successfully execute liability management operations in the next fiscal year in line with the debt strategy of lowering cost and minimizing risks in the public debt portfolio”.
On his part, Michael Mutiga, Managing Director and Corporate Finance Head Sub-Saharan Africa at Citi expressed appreciation on behalf of the Joint Lead Managers, Citi and JP Morgan, as well as the co-lead Managers; NCBA and I&M banks:
“We thank the Government of Kenya for entrusting us as a consortium through this process, it has been a robust book and diverse response from investors comprising local, regional and global investors, reflecting a strong confidence in Kenya’s economic narrative. The terms attained have been competitive given the global economic backdrop and reflects continued strong investor interest in new issues from the continent.”
The government of Kenya carried out the 3-day Virtual Eurobond Roadshow was led by Yatani, the Central Bank of Kenya Governor; Dr Patrick Njoroge and senior National Treasury officials led by Principal Secretary Dr Julius Muia.
This is Kenya’s fourth Eurobond sale in seven years which matures in 2034 and which will be repaid in two equal instalments on January 23, 2033 and 2034.
The East African nation has issued three Eurobonds previously, all of which were taken during disgraced Henry Rotich’s tenure at the exchequer. The three totalled US$6.85 billion.
Kenya’s first Eurobond valued at US$2 billion was issued in June 2014 and it matures in less than five years in 2024.
According to PwC Kenya Senior Manager, Francis Nzau, Kenya’s public debt has been swelling and the risk of a debt crisis (where the Government is unable to repay what it owes) continues to increase every day.
By the end of June 2018, Kenya’s outstanding total public debt which included publicly guaranteed debt stood at Ksh 5 trillion (US$50 billion).
Nzau says that in a broader sense, public debt managers should ensure that government debt is sustainable both in terms of rate and level of growth, and can be serviced under a wide range of circumstances while meeting cost and risk objectives.
The IMF, which is now a key player in Kenya’s economic decision making, defines public debt management as the process of establishing and executing a strategy for managing the Government’s debt to raise the required amount of funding, achieve its risk and cost objectives and to meet any other sovereign debt management goals it may have set, such as developing and maintaining an efficient market for government securities.
PWC notes that Kenya’s debt growth is not commensurate with the expansion in the economy.
“Using 2014 as the base year, the growth in public debt has been higher compared to the growth rate in GDP. There has been a steady growth in public debt over the past five years. The growth is not commensurate with the expansion in the economy over the same period.”
In April 2021, the IMF authorized a US$2.34 billion finance package for Kenya to support its Covid-19 response and address a pressing need to reduce debt vulnerabilities.
The approval of the so-called Extended Credit Facility and Extended Fund Facility would allow for the immediate transfer of around $307.5 million for budget support in Kenya.
The IMF stated that Kenya was affected hard at the start by the Covid-19 outbreak and after an anticipated 0.1 per cent recession in 2020, the economy has been picking up with a vigorous policy response heading into 2021.
Even with this recovery, the return to sustainable and inclusive growth remains a problem, and previous advances in poverty reduction have been reversed.”
The IMF stated that Kenya’s debt is sustainable, despite the country’s high risk of debt distress. Over the medium term, fiscal and balance-of-payments funding requirements remain substantial. According to the lender, support from the G-20 under the Debt Service Suspension Initiative and development partners, as well as capital market financing, will help close the financial gap in 2021.
According to the Central Bank of Kenya, public debt in East Africa’s largest economy was 7.35 trillion shillings (US$67.5 billion) at the end of January.
Since the beginning of the fiscal year in July, total debt has climbed by 659.5 billion shillings. Domestic debt increased by 11 per cent to 3.53 trillion shillings in the seven months to January. External debt held by the public and publicly guaranteed climbed by 5.1 per cent to US$34.68 billion at the end of January, up from US$33.01 billion at the end of June.