Kenya is planning to launch its third sovereign bond worth $2.5 billion, but the East African country requires the assistance of a financial consultant to advice on the timing, pricing and viability.
The government is seeking the loan to finance its operations and pay off other maturing debt.
With a $750 million Eurobond priced at 5.875 per cent maturing in June this year, the National Treasury is under pressure to meet the government’s external debt obligations and protect the country’s declining credit status, which has already been downgraded by rating agency Moody’s.
It is estimated that during the 2018/2019 fiscal year Kenyan taxpayers will finance close to Ksh100 billion ($1 billion) in interest payments on foreign loans and pay off maturing debt estimated at Ksh380 billion ($3.8 billion).
The country’s total public debt stands at over Ksh5 trillion ($50 billion) which is equivalent to more than half of GDP, raising concerns about its sustainability.
The EastAfrican has learnt that the National Treasury — which has been criticised for its excessive borrowing — is now looking for a transaction adviser to assess market conditions and advise on the viability of the planned issue.
Analysts at Cytonn Investments caution that Kenya’s attempts to go into the international debt market will be hampered by higher premiums on the bond pricing after the International Monetary Fund downgraded the country’s debt distress rating from low to moderate in October 2018 and withdrew its $1.5 billion standby facility for the country.
“The downgrading of Kenya’s debt distress rating from low to moderate by the IMF would mean investors will expect higher yields on any new debt issued,” Cytonn said in its market report.
In February 2018, Kenya issued its second $2 billion sovereign bond to pay off its maturing debt and fund its development plans. The bond was issued in two equal tranches of 10 years at a coupon of 7.25 per cent and 30 years at a coupon of 8.25 per cent.
By December 2018, the yields on the 10-year bond had risen by 1.9 percentage points to 8.9 per cent from seven per cent on the issue date, while the yields