UPDATE 1-Kenya expects Eurobond issue by end-June - president

Fri May 16, 2014 9:34am EDT

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(Adds president's comments related to bond issue, details)

By James Macharia

NAIROBI May 16 (Reuters) - Kenya expects to issue its debut Eurobond in the financial year ending June 30 after settling a long-running row over payments it owed under international contracts, the president said on Friday.

Kenya plans to offer a Eurobond that could be worth up to $2 billion. It had been delayed by volatile markets and by the dispute over the contracts, which were awarded a decade or more ago. The Kenyan parliament had argued the contracts were issued by past governments and violated laws and regulations.

The government said on Thursday it had settled the row after Swiss and British courts ordered payment. Failure to pay would hurt Kenya's credit rating, the government said.

"Do we respect the rule of law or don't we respect the rule of law? We went to court and lost and if you lose in court ... you must abide by how the court ruled," Kenyatta said.

A group of lawyers had asked the Kenyan high court to stop the government from paying, a request the high court declined last week. The lawyers are appealing against the ruling.

Kenyatta said he felt "terrible" about agreeing to the settlement but said the alternative was to disrupt the nation's finances and damage its international financial standing.

"We expect the Eurobond to be issued and finalised in this particular financial year," he told a news conference. "So we need to move with speed, given the fact that we only have months left till the end of the financial year."

The Eurobond had been budgeted in the 2013/14 financial year.

Funds raised through the Eurobond will be used to retire a $600 million syndicated loan - for which Kenya said this week it had received a three-month extension to the May deadline - and would also used the cash for development projects.

The government had said it would repay the syndicated loan using foreign reserves if it did not issue a bond.

Other African nations also have plans for Eurobonds, but some have suggested they could call them off because their cost has risen. The U.S. Federal Reserve's moves this year to scale back its bond-buying programme have curbed investor interest in emerging markets. (Writing by Edmund Blair; Editing by Larry King)

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