The IMF said in a report that African nation Kenya is likely to borrow $12.4bn by June 2022 via offshore sources. This includes $7.3bn via eurodollar bonds, $4.8bn via concessionary borrowing and $282mn semi-concessional loans, as reported by Bloomberg. This comes after the IMF board approved a $2.34bn funding package for Kenya last week. The IMF report further mentioned that of the $7.3bn via eurodollar bonds, $5bn will be to refinance its dollar 6.875% 2024s, which are currently trading at 110.555 yielding 3.37%, and to pay-off expensive syndicated loans. The balance $2.3bn will be new debt to be fund infrastructure projects. “It’s a significant amount for a country with debt that is already close to 70% of GDP, and one that is at high risk of debt distress. The increase in domestic yields may be a factor that compelled the authorities to seek some external financing. However, we expected an increase in concessional financing to help keep financing costs moderate,” said Yvonne Mhango, head of research for sub-Saharan Africa at Renaissance Capital. Irmgard Erasmus, a senior financial economist at NKC African Economics added that Ghana’s $3.025bn three-trancher priced last week indicates strong appetite for junk African credit and thus Kenya is also likely to have demand for its bonds despite deteriorating finances. Interestingly, Kenya’s 2024s are trading tighter than Turkey’s 5.75% 2024s, which are currently yielding 5.59% despite Kenya (B/B2/B+) being rated one notch below (S&P and Fitch) Turkey (B+/B2/BB-). They are also trading tighter compared to African peer Egypt’s 5.75% 2024s (issuer rating B/B2/B+), which are currently yielding 3.86%.
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