Kenya retains Citi Bank and JP Morgan for Sh250 billion Eurobond

Kenya will retain Citi Bank and JP Morgan to arrange its fifth Eurobond to be issued this year, looking to raise up to Sh250 billion.

The Treasury told the Business Daily Wednesday that the two investment banks, which also helped Kenya raise $1 billion (Sh113 billion) in June last year, will set the timing for the issue ‘depending on the market conditions.’

I&M Bank and NCBA Group were the co-managers for the dollar-denominated sovereign bond issue.

The Treasury is hoping to speed up the Eurobond programme to get a favourable appetite, especially before the next General Election, which carries political risks that might affect its attractiveness.

“The arrangers are the same with those of the previous issue. Details of the bond issue on tenure pricing and timing will be guided by the arrangers,” officials said.

The size of the issue has been agreed with the International Monetary Fund (IMF) but the timing will depend on market conditions.

The IMF disclosed last year Kenya intends to borrow $2.19 billion (Sh247 billion) through the two commercial loans in its review of government accounts that led to the release of the additional Sh29 billion under the 38-month programme.

Treasury officials, said the IMF, planned to float an issue before the end of December as part of the external component of budget financing for the current fiscal year, and another one by June 2022 towards refinancing the 10-year, $2 billion (Sh226 billion) bond sold in 2014.

Kenya has, however, not returned to the market since the disclosure, casting doubt on whether they will stick to the terms agreed with the Fund.

“The timing of the issuance for the Eurobond will depend on market conditions. The quantum of the planned issuance remain unchanged and consistent with agreed IMF program to stabilize growth of public debt,” Treasury officials said.

While the Eurobond is supposed to be unconditional funds for the government, Kenya has entered the IMF programme which dictates the amount of loans the country can borrow as the multilateral lender tries to help the Treasury bring down debt from unsustainable levels.

The World Bank and the IMF are playing a role in shaping policy that would require the government to implement tough conditions across many sectors. The conditions come on the back of their multi-billion shilling loan facilities to Kenya where money flows straight into the budget to top up the public purse.

Under the administration of former President Mwai Kibaki, Kenya kept away from this type of credit, with most of the support from institutions like the IMF and the World Bank coming in the form of project support.

Kenya has recently faced a deteriorating cash-flow situation, marked by stagnant revenues, worsening debt service obligations, and the effects of the Covid-19 pandemic, sending it back to the IMF.

The Treasury also promised the IMF it would be doing away with the Sh9 trillion debt ceiling set two years ago as the country’s current debt stock of Sh7.7 trillion is poised to shoot past the target.

The Treasury said it submitted a proposal for amendment of the public finance management law on the debt ceiling to the Attorney-General and Parliament in November 2021.

The new debt anchor will be set at 55 percent of gross domestic product (GDP), with debt measured in present value terms and an accountability requirement that mandates transparent communication to Parliament and the public on progress towards achieving it.