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Kenyan Shillings 108 Billion Fresh Eurobond Terms Revealed

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Kenyan Shillings 108 Billion Fresh Eurobond Terms Revealed


The general director of the Office of Public Debt Management, Haron Sirima. FILE PHOTO | NMG

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  • The Treasury said the offering was oversubscribed more than four times, attracting offers worth Sh582.7 billion ($ 5.4 billion).
  • Experts say the country’s risk profile has been lowered with the backing of the IMF and the World Bank, which have agreed to programs worth more than $ 4 billion in the past year.
  • Kenya’s commercial debt is mainly in Eurobonds and syndicated loans that accounted for around 26 percent of external public debt at the end of 2020.

Kenya has raised 108 billion shillings ($ 1 billion) in a Eurobond issue, at an interest rate of 6.3 percent for the 12-year bond, which is the fourth sovereign debt to be issued by the country. since 2014.

The Treasury said the offering was oversubscribed more than four times, attracting offers worth Sh582.7 billion ($ 5.4 billion).

The country had been seeking investors for the bond since Tuesday on a virtual tour, and said Thursday night that it reached its target of Sh108 billion in less than a week for the loan whose principal will be repaid in two tranches to facilitate the pay. pressure on the road.

The public debt management office has been working to reduce borrowing rates and lengthen or stagger payment periods to ease pressure on the country’s cash flow.

“We went to market looking to raise $ 1 billion and we remained steadfast in disciplining our target amount despite oversubscription and competitive pricing,” said Dr. Haron Sirima, CEO of the Office of Debt Management. Public

“Looking ahead, we are optimistic that Kenya will successfully implement liability management operations in the next fiscal year in line with the debt strategy of reducing costs and minimizing risks in the public debt portfolio.”

Amortizing the bond, which means that the principal is paid in installments rather than in a single payment at maturity, will facilitate the renewal of the bond when it matures.

This will help the country avoid the headache of searching for a large amount of dollars in one go to pay back to lenders, as will be the case in June 2024, when the first Eurobond of the 10-year tranche of $ 2 billion issued in June 2014 expires.

“Final maturity (is) June 23, 2034. Principal repayment is made in two equal installments on June 23, 2033 and 2034,” Treasury said in tour documents previously seen by Business Daily.

Experts say the country’s risk profile has been lowered with the backing of the IMF and the World Bank, which have agreed to programs worth more than $ 4 billion in the past year.

This has assured investors that the country is unlikely to face balance of payments problems, at least in the short term, when Covid-19 problems have hit economies hard.

This meant that investors in the new Eurobonds were unlikely to demand a higher interest premium when lending to the country, hence the government’s success in securing a lower interest rate than it had been able to obtain on the most recent Eurobonds taken in May 2019 and February. 2018.

The 2019 bond raised $ 2.1 billion, which was in two tranches of $ 900 million priced at seven percent for a seven-year paper and eight percent for a $ 1.2 billion 12-year tranche.

The one issued in February 2018 raised $ 2 billion in two equal tranches of $ 1 billion, paying 7.25 percent for the 10-year paper and 8.25 percent for the 30-year option.

Kenya’s commercial debt is mainly in Eurobonds and syndicated loans that accounted for around 26 percent of external public debt at the end of 2020.

Eurobonds account for 70 percent of Kenya’s commercial debt ($ 6.1 billion), while syndicated loans account for 27 percent (about $ 2.5 billion).

Borrowing has brought Kenya’s total debt to Sh7.4 trillion, equivalent to 69 percent of GDP from 48.6 percent in 2015, raising questions about its sustainability.

The Treasury says it now prefers Eurobonds to syndicated loans arranged by a group of private banks that charge higher rates over shorter periods.

However, the increase in business debt accumulated since 2013 has become costly to sustain, as repayments and interest account for more than 65 percent of tax revenue in the next financial year.

Thus, the country has returned to the embrace of Bretton Woods lenders after a prolonged period of avoiding these concessional loans that come with a series of conditionalities tied to economic reforms.

This measure has been based on the desire to reduce the total cost of external debt, given that these IMF and World Bank loans are much cheaper compared to commercial loans, have a grace period and are repayable for a longer time .

A debt review by the IMF shows that Kenya’s lending from multilateral lenders increased from $ 10.2 billion in 2019 to $ 13.7 billion in 2020.

In 2013, only seven percent of external debt was commercial, while 27 percent came from bilateral lenders and 64 percent from multilateral sources.

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