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Kenya Targets $2.3 Billion in Foreign Bonds for Bulk of Debt

Ship-to-shore cranes load containers onto a ship at Mombasa port, operated by Kenya Ports Authority, in Mombasa, Kenya. n December 2021, the Land and Environment Court in Mombasa ordered the Kenya Revenue Authority to surrender 646 metric tonnes of rosewood worth $13-million to alleged traffickers. The timber had been seized at the Port of Mombasa while in transit from Madagascar through Zanzibar to Hong Kong. (Photo: Luis Tato/Bloomberg)

Kenya plans to raise more money from foreign than domestic loans as it takes advantage of global appetite for high-yielding debt.

The East African nation intends to raise 123.8 billion shillings ($1.13 billion) from sovereign bonds sold to foreigners in the next four months and an additional 124.3 billion shillings during the fiscal year starting in July, according to the National Treasury. The funds will help finance the budget.

The government is tilting away from high-interest domestic borrowing to maximize concessional and semi-concessional external debt, the Treasury said in its medium-term debt management document submitted to the National Assembly on Feb. 11. Commercial foreign loans will be limited to financing projects with high returns, according to the document.

The Treasury is targeting a foreign-to-domestic net-borrowing ratio of 57:43 in the plan covering 2021-24, compared with 21:79 in the past fiscal year. The government previously said it wanted to limit its external debt exposure to mainly concessional loans.

“It is a good time to issue a Eurobond, as there is certainly appetite for higher-yielding debt,” said Yvonne Mhango, head of sub-Saharan economic research at Renaissance Capital. “Given the stretched fiscal finances, concessional loans would be a more affordable and sustainable source of financing. Either way, the proceeds of the foreign loan will help the authorities shore up foreign exchange reserves and support the shilling.”

Kenya’s public debt stood at 7.28 trillion shillings by the end of December, equivalent to 65.6% of gross domestic product in nominal terms, according to government data. The Treasury wants the statutory debt ceiling lifted to above 9 trillion shillings to accommodate anticipated fiscal deficits from 2021-22, according to the document.

The Treasury has missed its target of narrowing the fiscal deficit to 3.5% of GDP, and is now expected to hit that goal by 2024-25, according to the document. This year, the nation estimates a financing shortfall at 8.9% of GDP.

Yields on Kenya’s 10-year Eurobonds due in 2028 rose 12 basis points by 3:47 p.m. in Nairobi to 5.097% from 4.978% at the close of Friday’s trade. Twelve-year securities due 2032 were at 6.085%, up 11 basis points, according to data compiled by Bloomberg.

Additional Borrowing:

  • The state plans total foreign commercial borrowing of 350.5 billion shillings this year, including the bond, 220 billion shillings of debt refinancing and 6.7 billion shillings in export credit.
  • The Treasury expects 82.5 billion shillings budget support from the World Bank this fiscal year and 74.3 billion shillings during the next fiscal year. It received $1 billion in the past fiscal year.
  • Kenya is set to receive 78.8 billion shillings from the International Monetary Fund’s rapid credit facility by end-June and 54 billion shillings in 2021-22.
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