- The new loan has a weight average life of six years and is expected to mature in 2031.
- It remains notably higher compared to the rates at which other African sovereigns have issued debt this year.
Image: FILE
Financial experts are coming to terms with the country's fresh $1.5 billion (Sh234 billion)Eurobonds meant to clear the inaugural one taken in 2014 and is due on June 24.
Early this week, Kenya successfully issued a new Eurobond which was oversubscribed as investors scrambled for the highest yield rate issued in the market in the recent past.
Divided into three installments, the loan charged at 10.3 per cent has a weight average life of six years and is expected to mature in 2031.
Although the pricing fell below the initial guidance of approximately 11 per cent, it remains notably higher compared to the rates at which other African sovereigns have issued debt this year.
For instance, Benin issued a 14-year instrument at 8.375 per cent, while Ivory Coast secured funds at 8.5 per cent.
Some like Thuo Ndung'u, an economics professor and a partner at Mind Frame Consulting wonder why the country had to float a bond to retire the old debt despite several multilateral and commercial loans hitting the exchequer account in recent days.
"Borrowing at 10.3 per cent to settle a debt that we took at 6.8 per cent is a huge gamble. It was unnecessary and is expected to pile pressure on the country's already high public debt,'' says Ngung'u.
According to him, Kenya has received a lot of funds in recent days, enough to settle the $2 billion loan which continues to pose fiscal risks for the country.
"Last month, the International Monetary Fund (IMF) wired in an equivalent of Sh109 billion, followed by another $210 million (Sh33.7 billion) from the Trade and Development Bank (TDB). Where did the money go to,'' says Ndung'u.
"We should put a break to unnecessary borrowing if we want to be fiscally sane. We have already overstretched debt beyond the Sh11 trillion limit. This is not good,'' he said.
Solomon Kulundu, an investment partner at a continental venture capital firm is opposed to the 10.3 per cent offer and the 'illogical borrowing from Peter to pay John.''
"The bond is priced at 10.37 per cent, the highest rate an African state has ever offered. Where was the hurry when the World Bank had promised a similar amount by April with better terms?''
He argues that although the insurance has raised the country's confidence in the international debt market and helped to ease pressure on the shilling, it is a short-term solution with costly future consequences.
"In just the past month, Kenya has received over Sh400 billion in both local and international loans. A fresh Eurobond at a double-digit coupon rate is reckless.''
On Wednesday, the Central Bank of Kenya (CBK) revealed that an infrastructure bond seeking to raise Sh70 billion attracted bids worth Sh288.6 billion, with the state accepting Sh240.9 billion.
The weighted average yield on the accepted bids for the 8.5-year securities was 18.46 per cent.
"The problem with Kenya is that we waste and plunder the little that we generate plus the loans that we borrow. The government is full of waste, theft and graft. That's a recipe for disaster,'' a financial commentator Michael Muriithi told the Star.
Proponents of the new bond are however toasting to the appreciation of the shilling which has since gained over six units against the greenback under a week.
"The issue garnered over $5 billion in subscriptions. While the coupon rate was a huge motivation for investors, the confidence inflicted in the market is positive. Forex volatilities are being fixed very fast,'' Job Mogeni, a state-aligned economist told the Star.
He predicts a better fiscal and forex regime once the country settles the $2 billion debt that has been haunting its fiscal.
His sentiments are shared by the National Treasury CS Njuguna Ndung'u who says that the combined transactions are a crucial part of the government strategy to smoothen the maturity profile of the 2024 Eurobonds and proactively manage debt liabilities.
"This diversified financing approach aims to maintain a relatively low weighted average interest rate in the overall public debt portfolio, ensuring Kenya's debt sustainability over the medium term.''