What you need to know:
- The plan initially planned for 2007 was shelved after the post-election chaos but proposal will see country seek cheaper credit internationally
The government is planning to borrow over Sh200 billion from the international market to bridge the Sh329 billion budget deficit and ease pressure on the domestic debt market.
Treasury Cabinet Secretary Henry Rotich said at a press conference that Kenya was planning to hold major international road shows to market its bid to raise the money through a Eurobond at a much cheaper rate and reduce its reliance on the domestic market.
Mr Rotich said the government was consulting with international financial advisers ahead of the launch of the bid to raise Sh200 billion in the Eurobond, which could attract interest rates of between 4-6 per cent. Treasury hopes to launch the bond by September. The move has been delayed since 2007, after the post-election violence forced the government to change its programme.
The sovereign bond is part of a plan to reduce government reliance on domestic market to raise debt revenues.
“We feel that the Eurobond will be a good bridge for the government to fund the budget deficit through an internationally recognised dollar denominated sovereign instrument. Overall liquidity in the global markets will dictate appetite. Investors globally are at a liquid position, informed by the oversubscription of the Rwanda $400 million Eurobond, with investors targeting better yields,” ABC Capital general manager Samwel Kiraka said.
Public debt has more than doubled in the past decade to Sh1.79 trillion as at December 2012 from Sh749.5 billion in June 2005, according to Parliament’s Budget Office. By the end of last month, the gross government domestic debt increased by 25.8 per cent to Sh1.1 trillion from Sh858.8 billion at the end of June 2012.
Cumulative interest on the domestic debt for the same period hit Sh101.1 billion, which is roughly half of the new borrowing for the period which amounts to Sh221.3 billion.
Analysts at ABC Capital say that with Kenya’s B+ rating by the Standard & Poor’s, the country is well positioned to bargain for a better rate compared to other African economies.
They also say foreign investors would be keen to participate in Kenya’s bond market, given their active roles in the equities market.