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The Nairobian

Treasury issues new Sh194b Eurobond to repay old debt

Business

By Macharia Kamau | Feb 28, 2025

National Treasury CS John Mbadi (centre) accompanied by Treasury PS Chris Kiptoo (left) and Economic Planning PS James Muhati (right), addresses the media outside Treasury Building, in Nairobi, on February 13, 2025. [Boniface Okendo, Standard]

The government has raised Sh194 billion ($1.5 billion) from the issuance of a new Eurobond in a move that could raise concerns about the government’s borrowing appetite.

It will also reignite debate on Kenya’s debt sustainability. The proceeds of the bond will be used to repay maturing debts including a $900 million (Sh116.1 billion) Eurobond issued in 2019 and is set to mature in 2027.

The new loan has been priced at 9.5 per cent, a higher interest rate that is despite the government committing to increasingly pursue concessional debt from multilateral lenders.

While the coupon rate for the new bond is lower than the February 2024 Eurobond that was issued at an interest rate of 10.375 per cent, it is still higher than previous Eurobonds that attracted interest of 6.875 per cent (2014), seven per cent (2017) and 8.5 per cent (2018).

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The National Treasury said it had received bids totalling Sh645 billion ($5 billion), which it noted underlined huge investor interest. It added that the new Eurobond will be amortised in three equal instalments in 2034, 2035 and 2036.

“Kenya received strong demand, with a high-quality order book exceeding $5 billion (Sh645 billion),” said Treasury Cabinet Secretary John Mbadi in a statement Wednesday.

“Proceeds from the 2036 Eurobond will be used to refinance existing external debt including the planned buyback of Kenya’s $900 million (Sh116.1 billion) Eurobond maturing in 2027. The final amount for the buyback will be determined based on demand in the ongoing tender offer. Results are expected on March 3, 2025.”

Kenya issued the first $2 billion (Sh258 billion at current exchange rate) Eurobond in 2014, which was at an interest rate of 6.875 per cent. It appears to have been hooked and followed with several bonds.

The second one of $900 million (Sh116.1 billion) was issued in 2017 with a coupon rate of seven per cent and matures in 2027 while a third in 2018, raised $2 billion (Sh258 billion) with an interest rate of 8.5 per cent.

The government in February last year issued another $1.5 billion (Sh194 billion) Eurobond with a coupon rate of 10.375 per cent and a maturity date of 2031. The latter was used to partly repay the first $2 billion Eurobond. The Kenya Kwanza administration has in the past noted that it pulled Kenya from an abyss, making the country’s debt manageable. Opinion is however divided with concerns about the country’s headroom for more borrowing as well as the high cost of loans that it has been taking.

The Auditor General’s report in February last year noted that all indicators are that Kenya’s debt is getting to unsustainable levels, adding that the country’s appetite for Eurobonds is a slippery slope. “The office (of the Auditor General) has continually raised concerns over the growing level of public debt in Kenya,” said Auditor General Nancy Gathungu in the report.

The office further took issue with borrowing through Eurobonds that she noted are costly, not just because of the higher interest rates but also due to other costs of issuing them, including commissions paid to companies that arrange them.

“The government of Kenya has now issued four Eurobonds each with a higher coupon rate reflecting the likely unsustainability of the current debt portfolio,” said Gathungu.

“The cost of these Eurobonds goes behind the interest rates. Issuing and servicing these debts involves additional fees and commissions. Additionally, fluctuations in foreign exchange rates impact the cost of repayment.”

Treasury expects the budget deficit to stand at Sh768.6 billion by the close of this financial year, and further grow to Sh831 billion over the 2025-26 financial year.

Treasury noted that the Eurobond issued this week will be repaid in three instalments ending 2036. This “aligns with the government’s strategy to smoothen the maturity profile of Kenya’s external debt and proactively manage public debt liabilities.”

Kenya’s public debt stood at Sh10.79 trillion as of September 2024, according to Central Bank of Kenya data. It has grown by Sh2 trillion from Sh8.7 trillion in September 2022, when President William Ruto was sworn into office.

The debt to GDP ratio stands at 67 per cent over the current financial year against the legal requirement of 55 per cent.