Business: Why Kenya could be forced to raise more that Sh. 300 billions in fresh Eurobond issue

Treasury CS Henry Rotich
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The national treasury could be forced to borrow a fresh Sh. 300 billion Eurobond by April this year to clear the 2018-2019 fiscal year deficit.

According to Business Daily Africa report, Sterling Capital research analyst Susan Makena predicted that the Treasury could raise its target to as much as Sh300 billion depending on the reactions by subscribers.

“We understand that the State would want to raise the money through the Eurobond by April to settle its obligations by June and there is every chance that they will go for as much as Sh300 billion even if they had initially budgeted for less,” said Ms Makena.

A report by reuters indicate that Kenya’s finance ministry sought proposals from banks and firms to provide lead manager services for the issuance of a new Eurobond.

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This was confirmed by local subsidiaries of international commercial banks based in Nairobi, adding that this could be the best option for the treasury since it is less costly than syndicate loans.

The funds are required to partly finance the national budget as well as repay Sh150 billion debts comprising of a Sh75 billion syndicated loan due by the end of March and a similar amount in the form of a Eurobond due in June.

The Treasury has already budgeted for external commercial loans of Sh251.4 billion for the current fiscal year ending June 30.

Kenya’s public debt level has increased sharply in recent years surpassing Sh5.1 trillion, equivalent to more than half of the Gross Domestic Product (GDP), which raised concerns about its sustainability.

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On January 17, the five-year Eurobond was at a yield of 4.742 percent, having declined from a level of 5.584 percent on January 4 this year. 

The bond was initially issued at 5.875 percent in June 2014 with a due date of June 2019, showing a decline of more than two percentage points since the issuance, which is also an indication that foreign investors perception of the risk of holding the Kenya’s fixed-income assets has decreased over the period.

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