With the successful issuing of the Sh200 billion dollar-denominated bond, Kenya has officially joined what is fast turning into a Eurobond trap in Africa.
Kenya returns to the international market having issued another Sh275 billion Eurobond in 2014.
Case studies of other African countries that have issued Eurobonds show that it is going to take more than an economic miracle for Kenya to disengage from this booby trap.
Over a dozen African countries that have issued the Eurobond in the last 10 years have been forced to return to the market to refinance the debt – technically borrowing from Peter to pay Paul – at even higher rates.
More than 15 Eurobonds have been issued since 2006.
Some of the sub-Saharan Africa (SSA) countries that have issued Eurobonds are Ghana, Nigeria, South Africa, Angola, Gabon and Mozambique. Others are Ethiopia, Senegal, Tanzania, Namibia, DR Congo and the Seychelles.
It has been devastating for these countries which, without adequate dollar reserves with which to repay the Eurobonds, have been forced to borrow even more dollars.
A classic case is Mozambique, which sunk into economic crisis after defaulting on a $60 million (Sh6.1 billion) coupon payment on its Eurobond – or an interest payment they were supposed to give bondholders – in January 2017.
The other Eurobond issuers have been forced to either humble themselves before the International Monetary Fund (IMF) or issue another costly Eurobond to avoid going the Mozambique way
Controversies that rocked the first Eurobond
Not long after, DR Congo got into a technical default, missing its payment for a 2020 Eurobond.
But a good example of the dangers of over-reliance on international markets is Ghana. With the exception of South Africa, Ghana has leaned on the international markets the most heavily. It has raised $4.5 billion (Sh458 billion) of debt since it reopened the African bond market in 2007.
But then things went bad. It issued a 10-year $750 million (Sh7.6 billion) bond that was maturing in 2017.
Grappling with plunging commodity prices, Ghana approached the IMF for assistance in April 2015. The IMF provided a three-year emergency fund up to April 2018, although Ghana is negotiating for a December extension.
In 2011, Senegal issued a 10-year $500 million (Sh5.1 billion) bond to repay a $200 million (Sh2 billion) bond issued in 2009.
“With regard to refinance, the first Eurobond was supposed to grow the economy,” said Institute of Economic Affairs CEO Kwame Owino.
Economists say lack of prudent financial management, corruption and poor Government policies have contributed to this refinancing crisis.