Kenya to Raise $2.8 Billion From Eurobonds, Loans This Year

(Bloomberg) -- Kenya will offer Eurobonds and seek a syndicated loan to raise the 287 billion shillings ($2.8 billion) net external financing it planned this fiscal year, a Treasury official said. The currency weakened to an eight-month low.

The state plans to raise as much as 250 billion shillings of Eurobonds in what would be its third sale of the debt, Treasury Principal Secretary Kamau Thugge said by text message from the capital, Nairobi. It will also seek about 37 billion shillings of commercial debt, he said, without giving more details.

Kenya sold $2 billion of 10- and 30-year Eurobonds in February, after a debut $2.75-billion sale in 2014. The yields on the bonds due in 2024 rose 4 basis point to 7.326 percent by 5 p.m. in Nairobi, erasing an earlier drop, while the 2048 securities were at 8.965 percent. The shilling dropped as much as 0.5 percent to 101.84 against the dollar, the most in 10 months and its weakest level in eight months.

The International Monetary Fund estimates Kenya’s total public debt will peak at 63.2 percent of gross domestic product this year from 58 percent in 2017. It said last week the higher debt level increased the nation’s fiscal vulnerabilities and places Kenya in the top quartile among its peers.

The Washington-based lender urged the state to refinance debt using concessional loans to lengthen maturities in the coming year and limit commercial credit for projects with high social and economic returns.

Negative Sentiment

The Eurobond plans “could aggravate the negative sentiment on the shilling, coming on the heels of the unfavorable Article IV consultation report by the IMF, which raised concerns about Kenya’s risk of external debt distress,” said Faith Atiti, an economist at Nairobi-based Commercial Bank of Africa.

“A new Eurobond sale against a backdrop of external debt concerns and rising interest rates in the international debt markets could worsen debt sustainability concerns feeding the recent pressure on the shilling,” she said.

In addition to the external financing, Kenya’s budget targets domestic borrowing of 271.9 billion shillings to plug a fiscal deficit equal to 5.7 percent of GDP. Of the 1.69 trillion shillings revenue goal set for the year through end-June, the Treasury raised 329.1 billion shillings in the first quarter, according to a gazette notice last week.

News of the Eurobond plans so soon after the IMF said it no longer considers the shilling as floating is a negative for the currency, and Kenya will have to pay a high price for the amount it intends to raise, according to Aly-Khan Satchu, chief executive officer at Nairobi-based Rich Management Ltd.

“The Eurobond was a sell-signal on the shilling,” he said by phone. “It signals that Kenya is inclined to kick the can down the road. It’s very unfortunate messaging. Kenya should be becoming much more aggressive about reducing its expenditure before raising $3 billion.”

Other planned African Eurobond sales include as much as $10 billion in century bonds by Ghana and a $2.8 billion Nigerian issue.

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