KENYA has cancelled the sale of a 115 billion shilling ($982 million) Eurobond and will instead borrow from commercial banks after the Russia-Ukraine war caused yields to surge on international markets, local media reported on Friday.
Kenya said in January it would issue a new sovereign bond for 2021/22 (July-June) financial year to partly plug a 7.5% budget deficit.
Finance Minister Ukur Yatani told the Daily Nation and Business Daily newspapers that the bond was no longer feasible, blaming the conflict in Ukraine for pushing up interest rates and causing yields on Kenya’s previous Eurobond to double to 12%.
Yatani did not respond to a request for comment, but his decision to abandon the bond echoes a finance ministry document seen by Reuters in April.
In May, Yatani told Reuters the plans for the Eurobond issue were still on.
Kenya’s last foray into the market was a year ago, when it sold a $1 billion Eurobond that received orders just short of $6 billion.
“Last year we borrowed at six per cent and now it stands over 12 per cent. This is no longer feasible. That’s why we’re still exploring options to look at a number of banks that can advance us the money at a cheaper rate,” Yatani told the Daily Nation.
A JPMorgan index of Kenya’s Eurobonds has plummetted 21% in the past six months, compared to a 14.8% drop for African bonds and a fall of almost a third for Ghana.
At a JPMorgan conference on May 25, Kenyan authorities said they were looking at “financing from multilateral and bilateral partners while syndicated loans may also be an option in the near-term,” said JPMorgan frontier markets strategist Ayomide Mejabi.
He said Kenya is expected to try to issue a Eurobond later this year if the market improves, as the country’s current account deficit was widening.
“This likely will be around $1.0 billion rather than $1.2 billion, which we expected previously,” Mejabi told Reuters in emailed comments.
At 0910 GMT on Friday, Kenya’s 2032 Eurobond was trading with a yield of 12.251%, according to Tradeweb data, up 26 basis points from the previous close. The yield on its 2028 bond was 12.662%, up 33 basis points.
Eurobond investors cited a pledge by presidential candidate Raila Odinga earlier this week to restructure Kenya’s debt as an additional factor putting the bonds under pressure, on top of inflation and rising U.S. interest rates.
However, they said they weren’t immediately concerned about its ability to repay its debts.
“Kenya’s debt affordability pressures are not yet as acute as some other high-yielding names,” Scott Fleming, an asset manager at Fideuram, told Reuters by email.
“We need to get through the election, we need to get the winner to reassure markets, then things can start to normalise again,” Abrdn emerging market debt investment director Kevin Daly said.