Kenya pays Sh72 billion Eurobond debt using World Bank cash

Eurobond

Kenya has paid Sh72 billion Eurobond debt using World Bank cash.

Photo credit: | Shutterstock

What you need to know:

  • The settlement formally closed the chapter on Kenya’s debut Eurobond issued in June 2014.
  • Following the buyback, the currency gained on the greenback and is currently trading at an average of Sh128.63.

Kenya has settled the balance of $560 million (Sh72 billion) of the 2014 Eurobond using a part of the proceeds of a $1.2 billion World Bank loan, the Central Bank of Kenya (CBK) has said.

The debt, which was maturing on June 14, was settled on Friday, alongside the last half-yearly interest payment of $19.25 million (Sh2.48 billion) that was due to bondholders for the six months to June 2024.

The settlement formally closed the chapter on Kenya’s debut Eurobond issued in June 2014 that raised a total of $2.75 billion (Sh366.7 billion at today’s exchange rate) from two tenors of five years ($750 million) and 10-years ($2 billion).

“From the balance of $500 million falling due on Monday, we are going to make the payment today and we have the resources to be able to make the payment for Monday and that will be the end of the episode for that Eurobond,” CBK governor Kamau Thugge told the Business Daily on Friday.

The five-year paper was paid back in June 2019, and in February this year, the government bought back $1.44 billion worth of notes on the 10-year paper using the proceeds of a new issuance sold at the same time.

Before the buyback, there was uncertainty in the financial market over how the government intended to handle the bullet payment at the end of the life of the bond. The uncertainty piled pressure on the shilling, whose exchange rate against the dollar dropped to an all-time low of Sh161 in mid-February.

Following the buyback, the currency gained on the greenback and is currently trading at an average of Sh128.63.

“A lot of the risk that people were seeing with the Eurobond evaporated after the buyback as resources became available, as we were expecting money from the World Bank and the International Monetary Fund (IMF),” said Dr Thugge.

The $1.2 billion World Bank loan was approved at the end of May, effectively becoming available for drawdown by the Treasury.

The Treasury, upon receiving the proceeds of external loans, normally sells the dollars to the CBK in exchange for shillings for deployment in the local economy. Similarly, it acquires dollars from the CBK to settle external obligations, which include public loan payments.

The dollars sold to CBK by the Treasury were subsequently reflected in the CBK’s official forex reserves. In its latest weekly bulletin, the CBK indicated that its reserves had gone up by $1.31 billion to $8.32 billion between June 13 and June 20, indicating that the World Bank loan proceeds had hit its forex account.

Earlier, the CBK had said that part of these proceeds would settle the Eurobond balance, with the remainder expected to go towards the government’s budgetary spending.