Kenya’s Sh210bn ‘Kachumbari’ Eurobond

Kenya has accepted offers of Sh210 billion in a third Eurobond it has named the “Kachumbari bond”, which will be used to repay other loans and fund unspecified infrastructure projects.

It is not clear the motivation behind the name of the bond that was listed for secondary trading on the London Stock Exchange Thursday, but kachumbari is a Kiswahili word that describes freshly chopped tomatoes and onion laced with chilli.

Just like the previous two Eurobonds, Treasury officials did not name any particular project the loan that caught many Kenyans by surprise will fund.

But seeing an opportunity in Kenya given its insatiable appetite for debt, investors once again scrambled to get a piece of the action, in what saw the new issue get oversubscribed by 4.5 times.

The Treasury revealed that the newest Eurobond was oversubscribed after it attracted an order book in excess of Sh950 billion.

“This overwhelming interest in Kenya’s bond issue confirms the strong investor confidence in Kenya’s economic policy management and prospects going forward,” Treasury Cabinet Secretary Henry Rotich said in a statement announcing the debt.

The new loan is expected to increase Kenya’s debt repayment burden, putting more pressure on the country’s ballooning budget.

Kenya’s public debt stands at Sh5.1 trillion, meaning that every citizen owes about Sh100,000.

Eurobonds are getting costlier for Kenya despite overwhelming order books.

The Sh210 billion loan has been issued in a dual tranche, one maturing in seven years and the other after 12 years.

In the current issue, Kenya will pay interest rates of seven per cent for the seven-year bond while the 12-year bond will attract an interest of eight per cent.

This means that the seven-year bond is now more expensive than the inaugural bond issued in 2014, when the country negotiated interest rates of 5.875 per cent for the five-year bond and 6.875 per cent for the 10-year bond.

But the Treasury says the new rates are cheaper than what they had priced at the start of the borrowing.

Mr Rotich said the issuing of this bond followed extensive engagements and consultations with over 100 investors in the United States drawn from Los Angeles, Boston and New York as well as London in the United Kingdom. The roadshows began on May 8 and ended Tuesday.

The money will be used to finance some unnamed development infrastructure projects and some will go towards the general budgetary expenditure, in accordance with the applicable legal requirements.

The rest will be used in refinancing part of or all the Sh75 billion of the inaugural Eurobond debt that is due on June 24, 2019. If anything is left, it will be used to repay part of the other debt obligations.

This year, Kenya has a debt obligation of Sh251 billion. Besides the Eurobond, there is another Sh60 billion in a syndicated loan borrowed in June 2012 that is maturing next month.

“Throughout the roadshow, the investors appreciated and welcomed the strong and resilient economic growth that Kenya has registered, particularly the strong 6.3 per cent growth for 2018 and the expected growth for 2019,” Mr Rotich said.

“The growth of the economy continues to surpass, by a wide margin, that of the sub-Saharan African region and the global growth,” he added.

With the new Sh210 billion bond this year, Kenya will have raised in excess of Sh692 billion in three Eurobonds in five years.

The inaugural Eurobond was in June 2014, when a total of Sh280 billion was borrowed in five and 10-year tranches.

The government went back for another Eurobond last year, netting Sh202 billion in 10- and 30-year tranches.

Kenya is not the only country on the continent that has turned to Eurobonds to raise money.

At least 10 other African countries are using this method. They include Seychelles, South Africa and Ghana. Others are Gabon, Senegal, Côte d’Ivoire, the Democratic Republic of Congo, Nigeria, Namibia and Zambia.

In the coming financial year that starts in July, the Treasury says it will explore five new bonds, among them Chinese and Japanese bonds, as it moves to find new alternatives to satisfy its debt appetite.

These new options on its radar include the Islamic financing instruments, green bonds, Samurai and Panda bonds and diaspora bonds over the medium term.

In seeking the new financing options, the Treasury hopes to diversify the sources of external debt and reduce over-reliance on current sources of debt financing.

“The government will continue to diversify the sources of financing over the medium term by maintaining a presence in the international capital markets,” the budget document reads.