Kenya abandons planned Sh115bn Eurobond issue

Treasury Cabinet Secretary Ukur Yatani.

National Treasury Cabinet Secretary Ukur Yatani. He has said Kenya will go for syndicated loans from banks that would lend it at cheaper rates.

Photo credit: File | Nation Media Group

Kenya has backed down from issuing a Sh115 billion Eurobond after it attracted yields double the six per cent it borrowed last year on the backdrop of the ongoing Russia-Ukraine war.

The National Treasury Thursday told the Nation it will turn to borrowing from commercial banks, indicating that it would be expensive to accept money from the international markets at the 12 per cent rate.

After cancelling the $1 billion Eurobond, Treasury Cabinet Secretary Ukur Yatani said Kenya will go for syndicated loans from banks that would lend it at cheaper rates.

“Last year we borrowed at six per cent and now it stands over 12 per cent. This is no longer feasible. That’s why we’re still exploring options to look at a number of banks that can advance us the money at a cheaper rate,” Mr Yatani said yesterday.

Blaming the Russia-Ukraine war for the rising interest rates that will make the loan expensive for the government to repay, the CS said the government was opting for a product that will be cheaper to service.

Expensive loans

But commercial loans are a step backwards for a government that has been embracing concessional borrowing to avoid expensive loans that have raised the public debt past the Sh8 trillion mark by December 2021.

However, Kenya’s borrowing options are currently limited as a lower middle-income country, whose access to concessional loan products from the World Bank and the IMF is curtailed.

“We had hoped to float the Eurobond this financial year but the costs have increased due to the challenges in Russia and Ukraine,” the CS said.

Commercial debts constituted eight per cent of Kenya’s external loans by December 2021, with international sovereign bonds constituting 19 per cent.

In the same boat with Kenya regarding Eurobond issues are Nigeria and Ghana; the former cancelled a $950 million bond it planned to issue.

Credit risk

The increase in yields, which means that lenders would make more money from advancing to Kenya, reflect the perceived credit risk from the eyes of international investors, hence Kenya now opting to borrow from a group of banks.

The bonds affected by recent events include a 10-year one due in 2024, whose yield rose from 7.18 per cent in April to 10.9 per cent by June and another 12-year one due in 2032, whose yield jumped to 10.4 per cent, from 9.43 per cent.