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Treasury seeks bankers’ advice for fresh Sh250bn Eurobond issue

National Treasury Cabinet Secretary Henry Rotich.
National Treasury Cabinet Secretary Henry Rotich. FILE PHOTO | NMG 

The Treasury is seeking advice from international commercial banks on a Sh250 billion Eurobond that is to be issued before the end of the current financial year.

The funds are required to partly finance the national budget as well as repay Sh150 billion debts comprising of a Sh75 billion syndicated loan due by the end of March and a similar amount in the form of a Eurobond due in June.

Local subsidiaries of international commercial banks based in Nairobi yesterday confirmed having received requests for proposal (RFP) documents from the Treasury, asking for professional advice on the bond issue.

Commercial and investment bankers said the Treasury will likely prefer the Eurobond as it is likely to cost less than borrowing another syndicated loan.

“We have received the RFP documents as we study the market but they do not set the rates or the tenors for the Eurobond. The minimum we expect the Treasury to raise is Sh150 billion,” said a dealer at a local subsidiary of an international commercial bank who, however, requested anonymity citing confidentiality of the transaction.

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The Treasury has already budgeted for external commercial loans of Sh251.4 billion for the current fiscal year ending June 30.

Kenya’s public debt level has increased sharply in recent years surpassing Sh5.1 trillion, equivalent to more than half of the Gross Domestic Product (GDP), raising concerns about its sustainability.

The banker said the maturity term of the new Eurobond is dependent on market conditions.

On January 17, the five-year Eurobond was at a yield of 4.742 percent, having declined from a level of 5.584 percent on January 4 this year. The bond was initially issued at 5.875 percent in June 2014 with a due date of June 2019, showing a decline of more than two percentage points since the issuance, which is also an indication that foreign investors perception of the risk of holding the Kenya’s fixed-income assets has decreased over the period.

Sterling Capital research analyst Susan Makena predicted that the Treasury could raise its target to as much as Sh300 billion if subscribers showed high appetite for the Eurobond.

“We understand that the State would want to raise the money through the Eurobond by April to settle its obligations by June and there is every chance that they will go for as much as Sh300 billion even if they had initially budgeted for less,” said Ms Makena in an interview.

The Treasury put commercial loan repayments at Sh251.4 billion as of January 10.

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