Kenya began a dollar bond sale on Wednesday that analysts said could reach $3 billion, hours after the International Monetary Fund said the country cannot currently access its $1.5 bln standby credit facility because conditions have not been met.
Clarifying comments made by its representative in Kenya, Jan Mikkelsen, a day earlier, the IMF said the credit facility would remain in place until March 31 but that access was “subject to policy understandings to complete the outstanding reviews”.
Mikkelsen had told Reuters on Tuesday that access to the two-year precautionary facility was lost in June because a review was not completed due to Kenya’s extended election season, which saw a presidential vote annulled and re-run.
The precautionary facility was put in place two years ago to cushion any unforeseen external shocks that could put pressure on Kenya’s balance of payments.
The East African economy has not tapped the facility, which was preceded by a smaller standby one-year credit line in 2015, as foreign exchange reserves held by the central bank have soared to record highs.
CONCERNS OVER DEBT
“The facility is in place but permission to access it has been withdrawn,” said Kenyan economist Anzetse Were.
“This comes at a bad time … we’ve seen Moody’s (credit rating agency) downgrade to B2 from B1, and this is particularly important in the context of Kenya trying to raise a Eurobond.”
The country started a sale of 10- and 30-year dollar bonds on Tuesday, with the 10-year debt marketed at an indicated yield of 7.625 percent and the 30-year note at 8.625 percent, Thomson Reuters news and market analysis service IFR reported.
Analysts said the pricing of the 10-year bond represented a premium of about 58 basis points to Kenya’s outstanding debt. That reflected worries over Kenya’s wide fiscal gap, they said, but could also be intended to boost demand.
“These are very high rates the government is offering and therefore my conclusion is the government is pricing these bonds to clear up to $3 billion,” said Aly Khan Satchu, an independent trader and analyst in Nairobi.
The IMF has expressed concern over Kenya’s fiscal deficit but government officials have said borrowing is needed to fund the government’s ambitious infrastructure plans, a key plank of President Uhuru Kenyatta’s successful re-election campaign.
Kenya’s total debt has risen to about 50 percent of GDP, from 42 percent in 2013, as it borrowed locally and abroad to build infrastructure including a new railway line from Nairobi to the port of Mombasa.
When Kenya secured the precautionary facility, IMF officials said it was a recognition of its stable economic fundamentals, as that type of facility is usually reserved for more developed emerging economies.