Ten facts about the Eurobond: What we know, what we don’t, and what’s vague

Saturday October 31 2015


By Jason Lakin

There is now a lot of speculation swirling about Kenya’s Eurobond. Here is what we know… and what we don’t (with sources):

The Eurobond is not one bond. It consists of four issues. There were two bonds in June 2014 and two bonds in November 2014 (see Kenya’s 2015 Debt Management Strategy Paper).

The total amount borrowed through these bonds was $2.75 billion ($2 billion in June, and $0.75 billion in November). Given the exchange rates in June 2014 and November 2014 (www.xe.com), those issues should have been worth approximately Ksh176 billion and Ksh67.5 billion, for a total of Ksh243.5 billion. The first two bonds were issued during FY 2013/14 and the second two during FY 2014/15.

It is not clear that any of the Eurobond revenues came onto the budget in 2013/14. There is no direct mention of these revenues coming onto the budget in the fourth quarter of 2013/14 in the Controller of Budget report from that time.

It initially appeared that Ksh103.2 billion from commercial loans (presumably the Eurobond) came onto the budget in the first quarter of 2014/15. This was reported in the first quarter COB report from 2014/15. These revenues were nearly three times the projected revenues from this source for the entire year, suggesting they were not expected, which is rather surprising given all the prior hype about the Eurobond.

However, the same COB report indicates that the total proceeds from the first bond issues were Ksh178 billion and that Ksh139 billion was used in the first quarter. The funds were used as follows: Ksh53.8 billion to pay off another syndicated loan (as reported elsewhere), Ksh35.2 billion directly transferred to capital spending and Ksh50 billion used to cover for a shortfall in domestic borrowing. This left a balance of Ksh38.5 billion in the bank.

Taking this balance from the end of the first quarter and adding the additional funding in November would leave us with Ksh106 billion unspent in the second quarter of 2014/15.

The second quarter COB report from 2014/15 makes no further mention of the details of how the Eurobond funds were used, but does present revised figures for how much came onto the budget by December 2014: about Ksh75 billion (including an exchange rate gain). No explanation is provided for why this figure is now Ksh30 billion lower than the figure for total commercial borrowing during the first quarter.

No mention is made of the additional $0.75 billion raised through the third and fourth bonds in November. It is possible that the Ksh75 billion actually represented this additional amount (which we estimated above at closer to Ksh68 billion). However, if that were true, what happened to the Ksh103.8 billion from the first quarter report?

The second quarter COB report shows a sudden increase in the government’s opening balance in 2014/15 to just over Ksh140 billion. That opening balance is very close to the amount that was collected from the Eurobond in 2013/14 and the amount that was apparently spent in the first quarter of 2014/15 (see point 4 above).

This would suggest that the June 2013/14 bond issues were moved to the 2014/15 opening balances carried forward from 2013/14 at that time, while the November bond issues were recorded as 2014/15 revenues. If so, we would have a balance of Ksh38.5 billion in the bank, and the full Ksh75 billion (what we had estimated at Ksh67.5 billion) coming onto the budget in 2014/15.

There are no further changes in these numbers in the final fourth quarter COB report for 2014/15, suggesting that by the end of that year, all but Ksh38.5 billion of the Eurobond had come onto the budget and been spent.

The Ksh38.5 billion balance was not brought onto the budget for 2015/16 at the beginning of the year. The August 31 Statement of Actual Revenues shows no budgeted carryover from 2014/15 and an actual balance carried forward of only Ksh204 million. There is a budgeted revenue of Ksh72 billion in further commercial loans for the year, and nothing collected as of August.

So… what happened to the Ksh38.5 billion balance? If it was not spent, it is hard to see why the government wouldn’t be using it now to smooth liquidity during an apparent cash crunch. If it was spent, when did it come onto the budget, for what purpose and why isn’t it visible in public reports? Cabinet Secretary for the Treasury Henry Rotich recently claimed that all of the Eurobond money was spent, but I have not found any official documents showing when the final balance came on budget.

Why should basic facts about billions of shillings require us to sift through vague reports and still come up short?

Jason Lakin is Kenya country director for the International Budget Partnership. E-mail: [email protected]