Maiden Eurobond comes due

Five years after Kenya went into the international market for its maiden Eurobond, it is time to pay up.

On Monday, the Central Bank of Kenya (CBK) will wire $800 million (Sh80 billion) from its dollar reserves to investors to pay off the principle amount of the debt that has now matured.

The country first went for a Eurobond in June 2014, raising $2 billion (Sh200 billion) from the market.

This was split into two notes - a $500 million (Sh51 billion), five-year bond at an interest rate of 5.875 per cent; and a $1.5 billion (Sh153 billion), 10-year note with a yield of 6.875 per cent.

A further Sh80 billion was borrowed through a tap sale.

“We are repaying the Eurobond that will have fallen due on June 24 of about $750 million (Sh75.7 billion), which plus interest of about $80 million, will come to just about $800 million (Sh80 billion),” said CBK Governor Patrick Njoroge while briefing the press on the regulator’s recent Monetary Policy Committee meeting.

“This is the moment for dealing with the debt reorganisation, which is now with us,” added Dr Njoroge.

Repayment of the Eurobond will eat into the dollars reserves held by the lender of last resort from the current record levels of $10.08 billion (Sh1 trillion).

Besides debt repayments, the reserves are key in helping CBK support stability of the shilling.

The Eurobond marks the beginning of a series of dollar-denominated debt repayments due every two years between 2024 and 2031 before another one due in 2048.

The fact that CBK has to dip into its dollar reserves raises questions as to how the proceeds of the Eurobond were utilised because ideally, they were supposed to spur the economy to generate revenues and not having to rely on more borrowing to repay debt.

Kenya raised revenues of Sh1.1 trillion in 10 months last year against a target of Sh1.6 trillion.

These could not meet the recurrent expenditure of Sh1.4 trillion, forcing the State to borrow another Sh210 billion Eurobond to repay the first one.

The maiden Eurobond was marred by controversy, with Treasury at pains to explain how the hundreds of billions of shillings were spent after the erstwhile fiery Opposition led by former Prime Minister Raila Odinga alleged that the money never hit the Government’s account at CBK.

Treasury, however, released several reports, claiming some Sh280 billion was received in the country after the payment of a syndicated loan of Sh53.2 billion and other transactional fees.

It hired audit firm PKF to track the proceeds in a bid to exonerate itself.

Auditor General Edward Ouko also launched a probe into how the money was used but is yet to issue his report.

It is claimed that while the money hit the Consolidated Fund, it was mixed with other revenues, including taxes, and part of it spent on “non-specific” projects, making it impossible to account for it fully.