Treasury: Kenya’s Eurobonds increase cost of borrowing

By , K24 Digital
On Thu, 18 Jul, 2019 11:00 | < 1 min read
US Dollar. Photo/Courtesy
Zachary Ochuodho @PeopleDailyKE

Kenya’s Eurobond issued in May has eased Treasury’s pressure on refinancing maturing loans but it has exposed the country to increased costs of paying interest on foreign debt, a new report by Moody’s warns.

The $2.1 billion (Sh210 billion) Eurobond proceeds reduced the Government’s short-term external refinancing risks, and also slashed the budget deficit of Sh608 billion for the 2019/20 financial year, which started on July 1.

“However, the strategy comes at a cost. First, it has increased Kenya’s exposure to shifts in market sentiment. While yields (interest) on Eurobonds have remained contained so far , any sudden shift in sentiment due to domestic factors (in Kenya) or renewed tightening in global financial conditions would translate into higher rollover (refinancing) risk,” reads the Moody’s report.

Proceeds from the issue were also issued to refinance a $750 million (Sh75 billion) Eurobond that matured in June.

Moody’s is an international credit rating agency that rates bonds issued by governments and commercial entities.

According to the report, following refinancing of the June 2019 Eurobond pushed forward to 2024, the country is likely to face a heavy repayment schedule.

Sterling Capital Director John Kirimi told People Daily the refinancing model is likely to push the country into floating another Eurobond .

“Refinancing of the Eurobond adds to the debt problem because it is at commercial rates,” he said.

He said as 2024 approaches, there is a likelihood of the Treasury issuing another Eurobond if Kenya Revenue Authority may not meet tax collection targets.

Kenya’s commercial debt has risen to 34.4 per cent of total external debt, up from 6.4 per cent in December 2013, “mainly because there is a shift towards market-funding at the expense of concessional loans too, has increased the government’s funding costs.