World Bank wary of Kenya’s ability to refinance KSh264bn Eurobond
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World Bank wary of Kenya’s ability to refinance KSh264bn Eurobond following the difficulties facing the global debt markets
World Bank wary of Kenya’s ability to refinance KSh264bn Eurobond following the difficulties facing the global debt markets.
The World Bank is concerned about Kenya’s and other sub-Saharan countries’ capacity to refinance their multi-billion Eurobonds in the coming months in light of the challenges the international debt markets are currently encountering, which have led to a fresh wave of pricey loans.
The World Bank noticed a rise in the bond’s refinancing risk from higher interest rates, which have led to a reduction in the number of nations having market access for refinancing, in its update of sub-Saharan Africa’s economic forecast for 2023.
“The sell-off of developing countries’ Eurobonds and increasing investor fears about global outlook amplify the risks for sub-Saharan African countries facing large Eurobond redemptions,” said the World Bank in a report on Wednesday.
Kenya is getting prepared to retire its $2 billion debut Eurobond, which matures in June of the following year.
Angola is one of the several nations that will have significant Eurobond redemptions; the expected amount would be Sh226.5 billion ($1.7 billion) in 2025.
The return on the 10-year Eurobond due in a year, for example, was 13.7 percent as of March 30.
Despite the previous trend, which saw yields on Kenyan Eurobonds decline, interest rates on the instruments have remained up at double-digit rates.
In contrast, the Eurobond, which was the first for Kenya was issued in 2014 at a coupon rate of 6.875, leaving behind current yields at nearly twice the level at issuance.
In February, the National Treasury through the 2023 Budget Policy Statement lamented market pressures, which had resulted from the Russia-Ukraine war and tighter monetary policy in the US and Europe that have led to Kenya’s limited access to the international market.
“Limited access coupled with the illiquid international market may hinder the government’s plan to refinance the 2024 sovereign bond maturities,” the exchequer stated.
Last month, the National Treasury indicated it would tap concessional external loans to fund the bullet payment.
Additionally, the exchequer has been exploring methods to manage future maturities including the establishment of a Sinking Fund.
At the time of issuance, the international debt market had been awash with capital looking for a home in African economies.
With limited access to international capital markets, Kenya like its peers has turned to funding from multilateral lenders including the World Bank and the International Monetary Fund (IMF) to meet its financing needs.
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Kenya is, for instance, near the tail end of a 38-month IMF programme that is expected to provide a total of Sh309.4 billion ($2.34 billion) in financial support by the end of June next year.
So far, the IMF has disbursed Sh219 billion ($1.656 billion) under the programme, which covers disbursements through the Extended Fund Facility and the Extended Credit Facility.
The World Bank is expected to provide a further Sh132.3 billion ($1 billion) to Kenya through its Development Policy Operations, boosting funding to the exchequer.
The Washington DC headquartered institution has pushed for countries in debt distress to pursue debt relief through the proposed G-20 Common Framework, which proposes the review of repayment terms on an equal footing between creditors as the best option for debt-distressed countries.
The World Bank has retained its growth projection for Kenya at five percent for 2023 from its last outlook last November as it expects recent interest rate spikes to choke private consumption.
Gross domestic product growth is meanwhile estimated at a higher 5.2 and 5.3 percent respectively.
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