Treasury Cabinet Secretary (CS) Njuguna Ndung’u on Tuesday, February 20 explained government’s decision to pursue the Eurobond during a recent address.
Speaking at the National Executive Retreat in Naivasha the CS outlined the rationale behind opting for the Eurobond issuance amidst ongoing discussions and market speculation.
He noted that market speculations and doubt surrounding the government’s possible intervention to dissolve the Eurobond was an attempt to capitalize on the situation.
“We noticed that however much we tried to talk about the strategies to resolve the Eurobond there were always some doubts. Why were there some doubts, a big portion of the market especially our microstructure of the market believed that the government will still go to the market to buy dollars to effect payments of the Eurobond.”
“That is why all of a sudden, the Market coordinated itself to speculate on the dollar and they were buying as many dollars as possible to try and benefit from the time the government goes into the market,” he said.
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Treasury CS Explains Reason for Taking Eurobond
The CS said Eurobond was in the Forex Bureaus and not on those people holding the dollar account and, in a sense, they were bidding the price.
Njuguna stated, “Now the second part of it is that also potential investors would not come in Kenya because they are actually hesitant. They were saying that they cannot invest in the country because we had not resolved a Eurobond.
“So, the market was acquiring what I would describe as a waiting option. You should resolve the Eurobond and let us come.”
As such, CS Njuguna noted that the government needed a mechanism to dislodge the market from that waiting option and that is why entering the market was very important.
“Infact when we were doing the road show I described it as let us deal with the elephant in the room,” he said.
Further, CS Njuguna Ndung’u explained that in essence, the government decided to derisk the Eurobond and see how the foreign Direct Investment case will respond.
The Cs stated that the government had received positive responses from the investors.
Also Read: Govt Issues Statement on Eurobond Debt Repayment
Reasons for Going Back to the Market
According to the CS there are three advantages of Kenya going back to the market.
First, he said Information was processed appropriately, and it reflected what Kenya anticipated while eliminating gaps.
“Second thing is that we get the financing and even now we can supplement with the measures that wanted to get to do, but the buy back is still an option now because we got Ksh1.5 billion then it means that we still have to provide the 500 million,” the CS noted.
Njuguna further said that entering the market further managed to restructure the maturity profile of future payments which most people though the country would not pay.
The National Treasury and Economic Planning on 13th February announced the successful pricing of a new Ksh233 billion ($1.5 billion) Eurobond.
In a statement on Tuesday, February 13, the Njuguna Ndungu led Ministry indicated that the debt will be repaid over three installments in 2029, 2030 and 2031.
Additionally, the statement noted that the interest rate on the funds is 9.75 percent.
