Kenya fails to delay Ksh.243 billion 2024 Eurobond repayment

Kenya has abandoned plans to re-profile repayments of its first Ksh.243 billion ($2 billion) Eurobond which matures in 2024 after running into difficulties occasioned by higher interest rates.

In disclosures made in the 2022 Annual Public Debt Management Report published earlier this week, the National Treasury said it had targeted to employ a market-based debt re-profiling approach to meet the maturity for Kenya’s first-ever sovereign bond which was issued in 2014.

Nevertheless, adverse international capital market conditions including untenable interest rates saw the exchequer abandon the liability management operations.

While the National Treasury did not disclose the method sort for the debt re-profiling, the exchequer has suggested the operation would involve the issuance of a new sovereign bond instrument to stagger payments to the international sovereign bond holders or refinance the entire liability.

“These liability management operations were not implemented as the international market conditions were unfavourable due to the elevated yields as a result of the global monetary policy to increase rates to avert inflation rates as well as the Ukraine and Russia crisis,” the National Treasury stated.

“Owing to heightened yields on emerging sovereign debts that persisted during the year, the re-profiling initiative did not materialize and the National Treasury deferred implementation of the initiative indefinitely.”

At the same time, Treasury had engaged holders of Kenya’s syndicated loans with the view of retiring the debts ahead of maturity as a means to reducing the refinancing risks in the debt portfolio.

The exchequer did not however disclose the outcome of the negotiations.

“The National Treasury initiated engagements with the holders of targeted commercial debt earmarked for re-profiling and proposed amendments to the facility engagements. The proposed review of terms included repeal of the punitive prepayment clauses which require prepayment fees that could arise as a result of voluntary pre-payment of any amount outstanding,” the exchequer added.

With the collapsed liability management operation, Kenya is expected to face pressure in retiring its debut Eurobond which falls due in slightly over a year’s time.

According to Treasury estimates, the maturity of the Eurobond will push up external debt service costs by 97 percent from Ksh.241 billion in the current financial year to Ksh.475.6 billion in the 2023/24 fiscal year.

Pressed on how it plans to meet the jumbo maturity, new Treasury Cabinet Secretary Njuguna Ndungu said the exchequer would explore options in cheaper financing from bilateral and multi-lateral sources.

“There are pockets of concessional financing that we can use to help us manage our liability and create space. This is the way we want to go,” he said on Friday.

Kenya has been locked out from accessing international capital markets by unaffordable interest rates which saw it skip the issuance of both a Eurobond and a syndicated loan in the fiscal year to June.

The misses saw the government’s new net external borrowing plunge to just Ksh.142.5 billion in the financial year.

“The deviation was an account of volatilities in international capital markets leading to the suspension of Ksh.121.41 billion ($1 billion) in commercial borrowing plans as emerging bond yields deteriorated due to the monetary policy tightening in the US and Western Europe,” the National Treasury added.