Effects of the Eurobond on Kenyan Shilling

The Kenyan shilling is expected to receive cushion from the upcoming sovereign bond floated later this month.   This is sub-Saharan Africa’s biggest Eurobond of two billion US dollars.  The issuance of the Eurobond by the International Finance Corporation (IFC) is expected to ease interest rates in East Africa’s biggest economy.

“The issuance of the Eurobond will have a positive factor on the shilling and also help in the case that the government will not do aggressive domestic borrowing as before,” Duncan Kinuthia, head of trading at the Commercial Bank of Africa stated.  So far, the Kenya government has been borrowing heavily from its domestic market to pay wages and for domestic purposes due to months of delay of the Eurobond.   However, the IFC was initially expected to issue the Eurobond to Kenya in January 2014.

The 91 day Treasury bond (T-Bill), the countries interest rate benchmark, dropped 0.3 basis points to 8.852 percent last week nearing the central bank’s rate of 8.5 percent.  On Wednesday the shilling closed 87.80/90 to the US dollar. This week the Kenyan shilling dropped to 88.00 due to security threats and a series of grenade and gun attacks from extremists linked to Al Shabaab.

As a result the United Kingdom, United States, France and Australia issued travel warnings that ensued to the evacuation of many tourists from the coastal region. Also the country’s major exports which are not doing well on the international market have added to the shillings woes.

Kenya plans to sell 1.5 billion US dollar Eurobond to fund infrastructure projects including rail and roads as part of a program to transform the country into a middle-income country by 2030.  The government has also said part of the funds raised will repay a 600 million US dollar, two-year syndicated loan that was extended for three months.

Source: CNBC Africa