Kenya is planning to issue a third Eurobond to pay maturing debt. FOTOSEARCH
Kenya is weighing the possibility of returning to the
international debt market without the International Monetary Fund’s vote
of confidence, opening up the country to paying a higher risk premium
for the planned $2.5 billion Eurobond.
Central Bank
Governor Patrick Njoroge last week said Nairobi was not desperate to
renew a $1.5 billion IMF precautionary facility even as the government
struggles to raise money to meet its maturing debt obligations,
including the $750 million needed to pay part of the initial Eurobond in
June this year.
The IMF facility expired in September
last year after the Kenyan government failed to meet key conditions,
including a repeal of the interest rate cap and imposition of 16 per
cent value added tax on petroleum products.
African
countries with running IMF-funded programmes usually benefit from
discounted yields on their Eurobonds because foreign lenders tend to
view such programmes as a vote of confidence in such economies.
South
Africa’s Standard Bank has warned in a recent market report that
Kenya’s failure to secure an IMF-funded programme will see the market
attach a premium to its sovereign bond issue.
“Even
though the Kenyan government only completed the first review of the IMF
Standby programme and did not complete any of the subsequent ones, the
market continued to treat Kenya as if its performance was in line with
the programme. That seems to have changed after the government failed to
secure a repeal of the interest rate capping law,” the Standard Bank
report says.
Last week, Cote d'Ivoire cancelled plans to issue Eurobonds this
year, citing turbulence in the international financial markets,
including the trade dispute between China and the US.
It
argued that investors have more recently demanded higher rates on
African sovereign bonds, while the ongoing trade war between the world’s
largest economies has led to a drop in appetite for risk assets.
China’s
slowdown and trade dispute with the US, coupled with continued
uncertainty over Britain’s exit from the European Union are dragging
back the global economy.
Cote d'Ivoire had planned to
sell at least $2 billion in Eurobonds this year but Prime Minister
Amadou Gon Coulibaly said conditions on the international financial
markets were not favourable.
Instead, he said, the
country would raise $1.5 billion from the regional market and $856
million through direct loans from international banks.
The
average yield on dollar bonds of African countries is estimated to have
risen by more than 160 basis points in January 2019 since issuance in
March 2018.
Kenya has quietly gone slow on the
issuance of its third Eurobond over uncertainties in global financial
markets and its protracted negotiations with the IMF over the suspended
$1.5 billion precautionary facility.
The government is
however in desperate need of money to pay off other maturing debt
obligations, including a $750 million Eurobond priced at 5.875 per cent
that is due for payment in June.
Economists argue that
Kenya could secure a better deal for the planned sovereign debt if it
goes to the market with a running IMF standby programme as this would
boost investor confidence in the country.
On the
homefront, increased reports of mega scandals including the alleged loss
of Ksh21 billion ($210 million) in irregular payments for dam
construction tenders are also sending negative signals to foreign
lenders.
Two weeks ago, Ghana issued a $1 billion
sovereign bond priced at 8.95 per cent maturing in 2051 and another one
valued at $1.25 billion priced at 8.125 per cent maturing in 2032.
Accra also issued another international bond worth $750 million with a coupon rate of 7.875 per cent maturing in 2027.
Kenya
in February last year issued a $2 billion Eurobond in two equal
tranches of 10 years at a coupon of 7.25 per cent and 30 years at a
coupon rate of 8.25 per cent.
In 2014 Kenya issued a
$2.75 billion sovereign bond, with a $750 million five-year segment
paying interest of 5.875 per cent and a $2billion 10-year bond with a
yield of 6.875 per cent.
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