Kenya has canceled a 115 billion shilling ($982 million) Eurobond offering and will instead borrow from commercial banks since rates on foreign markets have risen due to the Russia-Ukraine conflict, local media reported on Friday.
Kenya said in January that it will issue a new sovereign bond for the fiscal year 2021/22 (July-June) to help fill a 7.5 percent budget shortfall.
The bond was no longer possible, according to Finance Minister Ukur Yatani, who blamed the situation in Ukraine for raising interest rates and forcing Kenya's previous Eurobond yields to double to 12 percent.
Yatani did not reply to a request for comment, although his decision to drop the bond is similar to one seen by Reuters in a finance ministry document. Yatani told Reuters in May that the Eurobond offering was still on track.
Kenya's most recent entry into the market came a year ago, when it offered a $1 billion Eurobond that drew orders worth just under $6 billion.
"We borrowed at 6% last year and are now at over 12%. This is no longer an option. That's why we're still looking at different banks to see if they can advance us money at a lower rate "According to Yatani, who spoke to the Daily Nation.
In the last six months, a JPMorgan index of Kenya's Eurobonds has dropped 21%, compared to a 14.8 percent decrease for African bonds and a nearly third drop for Ghana.
Kenyan authorities are considering "funding from multilateral and bilateral partners, while syndicated loans may also be a possibility in the short term," according to JPMorgan frontier markets strategist Ayomide Mejabi, speaking at a JPMorgan conference on May 25.
Kenya is anticipated to attempt to issue a Eurobond later this year if the market recovers, he added, citing the country's increasing current account deficit.
"This is more likely to be about $1.0 billion than the $1.2 billion we projected earlier," Mejabi said in an emailed statement to Reuters.
According to Tradeweb statistics, Kenya's 2032 Eurobond had a yield of 12.251 percent at 0910 GMT on Friday, up 26 basis points from the previous closing. Its 2028 bond yielded 12.662 percent, up 33 basis points.
On top of inflation and increasing U.S. interest rates, investors highlighted presidential contender Raila Odinga's commitment earlier this week to restructure Kenya's debt as another factor putting the bonds under pressure.
They were, however, apprehensive about its capacity to repay its loans right away.
"Kenya's debt affordability concerns are not as extreme as some other high yielding names," according to Scott Fleming, an asset manager at Fideuram, in an email to Reuters.
"We need to get through the election, get the winner to reassure markets, and then things can start to normalize again," said Kevin Daly, Abrdn emerging market debt investment director.
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