Kenya Finance Minister Sees Next Eurobond at Affordable Rate

  • Budget deficit will narrow after railway project, elections
  • Nation can increase government debt to 74% of GDP from 48%

Kenya can issue Eurobonds at yields lower than other African economies that rely on oil exports and where growth has been stunted by weak global prices, Treasury Secretary Henry Rotich said.

East Africa’s biggest economy will issue its second-ever Eurobond in the financial year starting July 1 to help plug a projected budget gap of 9.3 percent of gross domestic product, Rotich said in an interview on June 24 in the capital, Nairobi. Kenya will avoid the route taken by some African nations that offered investors double-digit yields to raise capital, he said.

“It’s a whole issue of timing,” Rotich said. “If an opportunity presents itself and there is perfect stability, there are chances of us getting a good deal in terms of yields and tenure and amounts.”

Kenya, which is yet to begin pumping any of its 750 million barrels of recoverable oil reserves, has benefited from lower crude prices, unlike oil-dependent African economies, he said.

The nation increased planned spending by 28 percent for the next fiscal year and will borrow 462 billion shillings ($4.6 billion) from external creditors to help plug its budget shortfall. Kenya raised $2.82 billion in debut Eurobond sales in 2014 at yields of 6.875 percent for 10-year paper. Rotich said the nation will manage to get similar prices the second-time around.

“If you don’t take advantage now of cheaper money, you never know when you pay a spread that is higher,” Rotich said.

Borrowing costs for African countries surged on June 24 following the U.K.’s vote to quit the European Union. Yields on Kenya’s Eurobonds due June 2024 rose 15 basis points to 8.42 percent. Those on Zambia’s 2024 debt jumped 33 basis points, the most since Feb. 24, to 11.69 percent. Through June 23, Kenya’s dollar debt had gained 8.6 percent this year, compared with the emerging-market average of 9.5 percent, according to Bloomberg indexes.

Kenya’s budget deficit will narrow to 4 percent of GDP in the medium term, once the nation completes the purchase of rolling stock for its new railway and holds elections next year, Rotich said. Expenditure plans will be adjusted “as quickly as possible” if the nation can’t raise the money it needs, he said. Economic growth will probably accelerate to 6.1 percent in 2016 from 5.6 percent last year, according to a government forecast.

Maneuver Room

“There is a balancing that needs to be done, taking advantage of availability of resources now and dealing with infrastructure gaps,” Rotich said.

While the International Monetary Fund has warned that Kenya’s budget deficit will mean higher yields when raising money abroad, investors will still have an appetite for the nation’s debt, the lender’s resident representative, Armando Morales, said on June 16.

“The yield would very much depend on the market conditions at the time, but I think the general point is that the yield will certainly be higher than previous Kenyan issuances,” John Ashbourne, Africa economist at Capital Economics Ltd., said in an e-mailed response to questions. “The window of super low yields for African debt is surely past.”

Kenya can afford to increase government debt to as much as 74 percent of gross domestic product, from around 48 percent currently, Rotich said. 

“Our debt is sustainable,” he said. “If we go beyond 74 percent we would be risking a debt distress. We have room to maneuver.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE