Kenya’s National Treasury has appointed Citi and Standard Bank as joint lead managers to assess potential international US$ capital markets funding and liability management options for Kenya.
In the absence of a new Eurobond, Kenya’s foreign exchange reserves are expected to come under intense pressure in 2024. But with the country promising to pay back $300 million of a $2 billion Eurobond that falls due next June, it appears like Kenya could manage to jump this hurdle and settle the Eurobond, easing external debt pressures with increased concessional borrowing and after that a 3-year pause until the next cycle of Eurobond maturities in 2027 and 2028.
- •The proceeds will be used to finance the 2023/24 budget.
- •In a notice, the country’s National Treasury cautions that any transaction(s) will be subject to market conditions.
Kenya has become a case study on how to handle Eurobond maturity repayments due to its high debt distress levels, a rapidly depreciating Kenya Shilling against the US Dollar, and a sharp rise in yields that has effectively pushed off many frontier countries from accessing international capital markets.
The East African economic powerhouse got sucked into the Eurobond market, attracted by competitive financing terms—with coupon rates in the 6.5 – 8.5 percent range, market conditions that have since changed.
- •Total external debt jumped from US$ 10.2 billion in 2013 to US$ 34.8 billion in 2020, according to CBK, including a tenfold jump in commercial borrowing to US$ 10.4 billion and a nearly fourfold rise in bilateral loans to US$ 10.6 billion, led by China.
- •This sharp rise in external debt, especially from non-concessional sources, has been accompanied by a steep increase in debt servicing outlays.
Kenya’s short-term solution
Between 2020 and 2022, borrowing dynamics shifted as Kenya turned to concessional multilateral borrowing from the IMF, the World Bank, and the African Development Bank (AfDB), to help deal with the impact of the Covid‑19 pandemic.
It is also during this period that Kenya embarked on a 38‑month IMF program in April 2021, running to mid-2024, supported by a US$ 2.34 billion funding envelope, which is geared towards strengthening fiscal and debt management.
According to a Debt Distress Report for Kenya by Faida Investment Bank, as Kenya’s overall debt stock went up, it planned a sale of US$ 982 million Eurobond in January 2022 for the 2021/2022 financial year to partly plug a 7.5 percent budget deficit.
This plan was scrapped in June 2022 due to rising yields on existing Eurobonds and this made the new issue financially unviable.
The resultant effect of this canceled Eurobond issue has been a steady erosion of the country’s foreign exchange reserves, from US$ 8.3 billion in Jan 2022 (5.1 months of import cover) to US$ 7.0 billion in November (4.0 months of import cover).
As of 22 Sept 2023, the foreign exchange reserves are at USD 7.0 billion which represents 3.8 months of import cover. The latest CBK weekly statistical bulletin shows that foreign exchange reserves were at USD 6.8 billion (3.7 months of import cover) as of Nov 9th, 2023.
On the international market, yields on Kenya’s Eurobonds increased by an average of 14.17 basis points, with the 2024 maturity increasing by 137.9 basis points.
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