State steps up plan for another Eurobond to pay Sh269b loan

The National Treasury on Wednesday said it is considering different options to settle the $2 billion (Sh269 billion) Eurobond that is due for repayment in June next year.

These include using the proceeds of another Eurobond to repay the investors who lent money to the government in the first Eurobond that was floated in 2014 or taking multilateral loans, which are cheaper.

The Eurobond, which falls due next year, has significantly pushed up the amount of debt that the country is set to repay in the next financial year.

Treasury Principal Secretary Chris Kiptoo said the external debt service is projected to increase to Sh475.6 billion in the 2023/24 financial year, up from Sh242.1 billion in the 2022/23 financial year.

"Specifically, a Eurobond worth $2 billion (approximately Sh241.8 billion) will be maturing on June 24, 2024. To settle the 2024 Eurobond at maturity at minimum costs and risk, the government is considering several options," said Mr Kiptoo when he appeared before the National Assembly's Budget and Appropriations Committee to discuss the budget for the next financial year.

"The options include liability management operations using alternative financing solutions to settle maturities, undertake buybacks (tender offer through open market operations), or a bond switch (exchange current bond with longer tenure bonds in consultation with sovereign rating agencies)," he explained, adding that the other options entail "bilateral and multilateral concessional funding to buy back.

Treasury in April invited financial consultants to express interest to be the lead managers in arranging the transaction where Treasury is set to tap into the international capital markets with a fourth Eurobond.

"The National Treasury is at an advanced stage of procuring lead managers to provide advisory services in the next few weeks. In the meantime, the government will meet all other external debt service payments due through revenues and refinancing," said Mr Kiptoo.

The Treasury has not disclosed the amount it hopes to raise from the international markets. This will be the fourth Eurobond issue in less than eight years.

The government could face higher borrowing costs following the developments in the US, which has been increasing interest rates and, in turn, seen investors flock to the US market. Kenya could borrow at considerably higher interest rates.

Treasury Cabinet Secretary Njuguna Ndung'u said there have been over 300 expressions of interest and the ministry will soon request proposals from the firms that had expressed interest.

"We have over 300 expressions of interest, we are going to sit back and develop an RFP and when we take the journey of this liability management towards Euro 2024, we will take the journey with the lead managers of those banks who did the bond so that whatever what actions we take will be informed actions and that is how the market will give us the credit that we will require," he said.

In May 2019, Kenya raised $2.1 billion (Sh282.2 billion) from international capital markets to pay off other loans, including a $750 million (Sh103.5 billion) Eurobond that matured on June 24, 2019, and other debt obligations.