Kenya eyes expensive debt as Eurobond yields hit 17%

Capital markets

Kenya eyes expensive debt as Eurobond yields hit 17%


The National Treasury building in Nairobi on Sunday May 24, 2020. PHOTO | DENNIS ONSONGO | NMG

The Treasury faces a headache to raise 240 billion shillings from external lenders in the current financial year to finance the budget deficit after interest rates on the country’s sovereign debt hit new highs. highs of almost 17%.

Yields on Kenya‘s outstanding Eurobonds trading on stock exchanges in London and Ireland have risen by an average of 4.4 percentage points since the end of May, forcing the government to rethink its intention to launch a new sovereign bond for the year ending in June. 30.

The state also expects to tap into the international debt market to raise up to 280 billion shillings for external lenders to finance the 862 billion shilling budget deficit in the current fiscal year which has started. last Friday.

However, he alluded to difficulties in accessing affordable loans apart from concessional financing from the World Bank and the IMF.

The Treasury said it was now considering taking out syndicated loans instead of Eurobonds, but had no indication yet of the appetite of international lenders who would likely seek advice on sovereign yields. in force when pricing their offers.

“We are still in the process of engaging banks, we have just floated and we have not received any comments from them yet, so no delays,” Treasury CS Ukur Yatani told the business daily In Monday.

Eurobond yields prevailing in the secondary market are also much higher than the interest rates set when the bonds were issued, and are an indication of the pricing the country will get if it returns to the market. global debt.

The highest yield is on the 10-year bond maturing in June 2024 at 16.99%, while the 13-year paper maturing in 2034 is the lowest at 12.74%. The two stocks were trading at a yield of 10.4% and 9.7% respectively at the end of May.

The rise in yield – which rises as the price investors are willing to pay for a paper falls – comes as major central banks, including the US Federal Reserve, continue to raise interest rates dramatically to curb inflation.

Investors generally demand higher returns by lending to emerging and frontier countries such as Kenya, which are considered relatively high risk compared to US and European government bonds.

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