8 June 2018

Kenya: First Eurobond Debt Repayment to Cost Taxpayers Sh97.7bn

Repayments to the first Eurobond will cost taxpayers more than Sh97.71 billion in financial year starting next month, Treasury statistics show, underlining the pain of growing reliance on external borrowing for infrastructure development.

Treasury secretary Henry Rotich has budgeted for Sh78.303 billion to clear the first $750 million (Sh75.75 billion under prevailing exchange rates) portion of the debut Eurobond bond, which matures in the year ending June 2019, and further Sh19.41 billion towards interest servicing of the entire facility.

Kenya borrowed $2 billion (Sh202 billion) from international investors in June 2014 comprising a five-year issue of $500 million (Sh50.50 billion) at an interest of 5.875 per cent and $1.5 billion(Sh151.50 billion) for 6.875 per cent to be repaid in 10 years.

The Treasury went back to the market in December that year for a further $750 million under similar terms, a transaction technically known as tap sale, in which $250 million went into the five-year tranche.

Debut bond

The Opposition and a section of independent economists questioned expenditure of the debut bond floated on the Irish Stock Exchange.

President Uhuru Kenyatta's administration has largely contracted external debt since 2014 to build roads, bridges, power plants and a modern railway, projects seen as stimulants for economic growth.

More than half of the country's Sh4.88 trillion total public debt in March was foreign (Sh2.51 trillion), Central Bank of Kenya statistics indicate, a growth of Sh837.73 billion over a year ago. Repayments towards external debt are projected at Sh364.66 billion in the year which ends June 2019 from Sh240.10 billion in current year, a growth of Sh124.56 billion.

These will include Sh15.51 billion for the $2 billion second Eurobond which was contracted last February in two equal tranches of 10 years at a coupon of 7.25 per cent and 30 years at a coupon of 8.25 per cent.

Central Bank governor Patrick Njoroge told the National Assembly in April there was a need to tap into non-debt financing arrangements such as public-private partnerships.

"There is less headroom for external borrowing and we need to move into non-debt financing arrangement like the Sh230 billion road from Nairobi to Mombasa. We should move from the old song of borrow and invest," Dr Njoroge told the Finance, Planning and Trade committee.


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