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Kenya’s Eurobonds cross Sh1 trillion mark on weak shilling

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Kenya will tap the international bond market for the first time since 2021.

Kenya will need to pay in excess of Sh1 trillion to clear its outstanding sovereign debts or Eurobonds following the sharp weakening of the Kenya shilling since issuance of the securities.

According to an analysis of the debt trend, Kenya’s outstanding Eurobonds at issuance stood at Sh697.7 billion but have since swelled to Sh1.117 trillion from the depreciation of the local currency alone.

This mirrors the risks posed by contracting debt in foreign currencies which leaves the country prone to refinancing risks at the maturity of the obligations.

For instance, Kenya’s debut $2 billion Eurobond which was contracted in June 2014 and matures on June 24, 2024 has moved from a respective Sh174.7 billion at issuance to an outstanding Sh314.7 billion at present, an 80.1 percent spike within a decade.

New data from the Kenya National Bureau of Statistics (KNBS) balance of payments report for the quarter ended September last year notes the depreciation of the shilling has significantly contributed to the rise in public debt despite a slowdown in contracting external credit.

“The stock of external debt securities rose by 17.9 percent from Sh889.1 billion at the end of September 2022 to Sh1.083 trillion at the end of September 2023. However, the increase in debt securities was attributable to valuation changes, particularly on the international sovereign bond, rather than on account of issuance of securities,” KNBS stated.

Outstanding debt securities from international sovereign bonds during the quarter hit Sh1.051 trillion from Sh857.2 billion at the end of September 2022.

Kenya has six outstanding international sovereign bond issuances with maturities spread between 2024 and 2048.

Authorities, with the aid of lead managers Citi and Standard Bank, are currently working on options to meet the Sh314.7 billion June maturity.

The bullet payment is expected to be followed by other Eurobond maturities in May 2027, February 2028, May 2032, January 2034 and February 2048.

The National Treasury has previously considered an early buyback of the Kenya 24 Eurobond but failed to make early payments as at the end of December last year.

The exchequer is now widely expected to clear the bond alongside the last interest payment at the end of June.

“The final interest payment on this Eurobond is scheduled for the last week of June 2024, alongside the repayment of the US$2 billion principal amount,” the National Treasury said in a statement on December 28.

The Treasury noted that it has implemented a grand plan since July last year to meet debt service payments by combining revenues and concessional financing to retire high-cost debts.

The June 2024 maturity is, for instance, set to be cleared in part using inflows from external concessional sources such as the World Bank and the International Monetary Fund.

Foreign exchange risks are nevertheless expected to remain prevalent as external debt, which is denominated in foreign currency, makes up the bulk of the total debt stock at 52.9 percent as of June last year.

About 66.9 percent of Kenya’s external debt at the end of June was denominated in US dollars, 21.6 percent in euros, 5.1 percent in Chinese yuan, 3.9 percent in Japanese yen, and 2.3 percent in British pound.

The exchequer has previously stated the exploration of currency diversification as a tool of mitigating the exchange rate risks on external debt.

The Treasury has also considered reducing its reliance on external debt sources as an alternative.

“There is an urgent need to reduce over reliance on external debt markets and instead shift the focus to deepening and developing domestic debt market to assume more role in funding government borrowing needs, facilitate borrowing in local currency.”