Kenya intends to sell Eurobonds at what might be the worst time in years.
Treasury Secretary Ukur Yatani told reporters in Nairobi that the government still plans to raise $1 billion by the end of June. His comments come only days after his department voiced alarm in a memo that increasing global rates meant borrowing might be prohibitively expensive at this time.
Yatani stated that the strategy is still in place. “We’re issuing because it’s part of funding” plans for the fiscal year 2021-22, he explained.
In the fiscal year ending in June, East Africa’s largest economy faced a budget deficit of around 8.1 percent of GDP. The imbalance arose when President Uhuru Kenyatta’s government continued to invest in programs to enhance agriculture, housing, manufacturing, and health care in the midst of a coronavirus pandemic that affected homes and companies.
Kenya raised $1 billion in 12-year notes at 6.3 percent last year, but turned down $4.4 billion in orders. Nigeria, Africa’s largest economy, raised $1.25 billion in March after investors placed orders for three times the amount offered. The seven-year bond was priced at 8.375 percent yield.
By 10:49 a.m. in Nairobi, the yield on Kenya’s 2024 Eurobonds had risen 23 basis points to 10%, putting it on course for a ninth straight session of gains.
According to Churchill Ogutu, a Nairobi-based economist with IC Group, Kenya’s timing for the new bond is poor given the backdrop of global rate tightening, rising deficits, market concerns about its debt situation, and August elections.
Disruptive events, such as Russia’s invasion of Ukraine and China’s Covid-19 lockdowns, have disrupted investment plans throughout the world.
“The National Treasury will have to bite the bullet of a higher-cost issuance,” Ogutu added. “The option is not to issue and cut down the budget in proportion, but that won’t fly in an election year.”
Last month, the Treasury issued a document on its website indicating that postponing the Eurobond sale was being considered owing to the current high interest rates. When Bloomberg phoned to check about the change in plans, the report was removed.
“This back and forth is unlikely to soothe investors,” said Virag Forizs, Africa economist at Capital Economics.