UPDATE 3-Kenya easily raises $2.1 bln Eurobond, debt concerns linger

* Issue got better pricing than expected - economist

* Debt has jumped to 55% of GDP since 2013 (Adds debt level, economist’s comment)

NAIROBI, May 16 (Reuters) - Kenya raised $2.1 billion in a Eurobond issue in tranches of seven- and 12-year paper that was more than four times oversubscribed, the finance ministry said on Thursday.

There has been a jump in government borrowing since President Uhuru Kenyatta came to power in 2013 - a rise that some politicians and economists say is saddling future generations with too much debt.

Kenya’s public debt as a percentage of GDP has increased to 55% from 42% when Kenyatta took over. The government has defended the increased borrowing, saying the country must invest in its infrastructure, including roads and railways.

The East African nation made its debut in international capital markets in the summer of 2014 with issues of 10- and five-year dollar bonds. Early last year, it returned for a second Eurobond.

The seven-year portion of the latest issue was priced at 7.0%, while the longer-dated tranche was priced at 8.0%, well below the initial guidance price of 7.5% and 8.5% respectively, the ministry said.

The pricing was better than expected, given that the government returned to the market without having secured the renewal of an International Monetary Fund stand-by credit facility after the expiry of a similar programme last year, analysts said.

“A lot of people expected them to pay a premium,” said Jibran Qureishi, economist for East Africa at Stanbic Bank.

“They came back without the IMF facility and they probably got 40 basis points cheaper than what the market would have expected from not having the IMF on board.”

The proceeds will be used to fund infrastructure projects, general budgetary spending and refinance part or all of a $750 million dollar bond that will mature in June, the ministry said.


Some market participants said the high demand for the issue from investors, who bid for a combined $9.5 billion, had not dampened their concerns about the rising public debt.

“Whereas investors have given us a thumbs up it doesn’t mean we should continue picking up debt at the rate that we are doing,” said a senior fixed income trader at one commercial bank in Nairobi.

Efforts by the finance ministry to cut the budget deficit, which is projected at 5.6% of GDP for the fiscal year ending in June 2020, have been hampered by poor revenue collection.

Both tenors of the new bond will be amortized at $300 million and $400 million respectively for the seven- and 12-year tenors annually in the last three years to maturity in order to avoid a surge in repayments, the Treasury said in the statement.

Kenyatta’s government was accused by the opposition of failing to account for the $2 billion raised from its debut issue in 2014. The government has denied that.

The government is forecasting economy growth of 6.1% this year though some, like the World Bank, have said dry weather could reduce that.

Qureishi said the outcome of the latest Eurobond had shown the government could access funding in the future without raising taxes, mainly due to global investor risk appetite and the economic fundamentals at home.

“There is still a belief that global risk conditions will remain appropriate for Kenya to even refinance upcoming obligations from commercial sources next year,” he said. ($1 = 101.0000 Kenyan shillings) (Editing by Maggie Fick and Andrew Cawthorne)