A restrictive clause in the Eurobond terms stopped Kenya from seeking a suspension of debt payments under a G20 initiative aimed at helping poor countries weather the Covid-19 disease pandemic.
Eurobond terms indicate that non-payment of Kenya’s external debt, including seeking moratoriums, would be considered as defaulting, which could trigger a demand for the country to pay the entire Eurobonds worth $6.1 billion (Sh652.7 billion).
This means that the Treasury could be forced to pay eight times the Sh72 billion relief it would have received for a freeze on bilateral loans repayments.
The Group of 20 major economies had in April agreed to suspend payment obligations on bilateral debt owed by their less developed counterparts through the end of the year.
The goal was to free up more than $20 billion (Sh2 trillion) that poor or struggling governments could use to buttress their health services. ALSO READ
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Treasury Secretary Ukur Yatani told the Business Daily in an interview that Kenya had opted against seeking the debt suspension due to a number of reasons, including the Eurobond terms, fears that the relief could hurt the country’s credit rating.
“The conditions were very restrictive. They say you should not borrow commercially yet we are already holders of commercial paper like Eurobonds and the clause in that Eurobond says if you do not pay debt on any bilateral or any other matter it is deemed that you have defaulted,” Mr Yatani said.
Clause 10 of the Eurobond prospectus states that holders of 25 percent of the notes can trigger a recall of the entire loans and interest in the event of a default.
Some of the actions that the Eurobond terms consider as default include failure to pay principal for 15 days or interest for 30 days and failure to comply with terms in the contracts for 45 days.
Eurobond holders can list Kenya as a defaulter if the country fails to pay any external debt or a guarantee worth more than $25 million (Sh2.6 billion) or gets a moratorium on the foreign loans.
Kenya will also be deemed to have defaulted if it ceases to be a member of the International Monetary Fund or if it is not eligible to use resources of the Bretton Woods institution. The country may also be labelled a defaulter if it refuses to pay the Eurobond, sues in court or changes the law relating to it.
In the event of a default, Kenya can only be saved by 50 percent of the investors agreeing not to call up the debt immediately.
“A declaration of acceleration may be rescinded in certain circumstances by the resolution in writing of the holders of at least 50 percent,” says the Eurobond prospectus.
Kenya has five Eurobond notes whose tenures range from seven to 30 years with the repayment for the last one set for 2048.
Mr Yatani argued that Kenya can only be part of the G20 initiative if private lenders like the Eurobond type are part of the debt relief efforts.
“So if we rush and say we do not pay, even if we do not default on theirs (Eurobond) the fact that we are not paying on bilateral debt it is deemed that we have already defaulted,” he said.
“It is a conversation we are engaging to bring also these commercial entities on board to make sure they agree on a moratorium. Until that is agreed we do not want to rush into it.”
The G20 initiative only covers official bilateral debt, though it calls for the voluntary participation of private lenders on comparable terms.
A third of Kenya’s Sh3.2 trillion external debt is owed to private creditors including holders of the country’s Eurobonds.
The Covid-19 pandemic has caused the government’s budget deficit to swell to 8.2 percent of GDP in the financial year to the end of June, from an initial forecast of under seven percent, mainly due to reduced tax collection and foregone revenue in the form of VAT and income tax cuts.
But the deficit is projected to narrow to 7.3 percent - equivalent to Sh823.2 billion - in the 2020/21 fiscal year and to 4.2 percent of GDP by 2023/24, Treasury data indicates.
Moody’s downgraded Kenya’s outlook to negative from stable on May 7, citing the shock caused by the Covid-19 pandemic to its tourism industry and farm exports.
Last month, the IMF raised the country’s risk of debt distress to high from moderate.
The Treasury was also concerned that terms of the debt relief limiting countries’ access to international capital markets during the standstill could hinder Kenya’s ability to finance its deficit later in the year.
Relatively wealthy Angola has asked for G20 debt relief. The country relies heavily on oil revenues and is saddled with debts that exceed its economic output.
It is struggling from the economic fallout of the coronavirus disease pandemic and an oil price shock that saw crude prices plunge below $20 per barrel in April.
Because the president and his lieutenants are driven by greed. They knew it was a stupid decision but they took the loan anyway because they could pocket most of it and leave mwananchi to pick the tab.
Kenya is hanging by a thread and wanjohi seems not to care, citizens also don’t care coz if they were they’d be in the streets asking for a proven financially sound leader
Kenya will come out stronger…we r and we will continue being the economic powerhouse of east and central Africa. I continue praying for our president Uhuru Kenyatta
when anyone shouts around how uhuru is great,should be a PM,i cringe…the guy was outsmarted in all deals putting the country in a tight corner,all his investments are wanting…that makes me think,as much as the constitution needs some amendments,doing so under uhuru will be a continuation of his blunders
Those two criminals should have never been allowed anywhere near State House, including State House Road. Kenyans will have to suffer, and excruciatingly so, before they learn to vote wisely.
Not true. Some West African countries are much poorer compared to Kenya, Tanzania, Uganda and Rwanda. Countries like Mali, Chad, Guinnea etc are much poorer
Why do we as Kenyans live stroking our own cocks? Is being the “powerhouse” in a region of poor countries something to brag about?
We are not food secure yet
We are still in fear ofbeing attacked by some skinnies within and across the border
The economy ndiyo hiyo it has gone to meffi
What is there to be proud of This project called Kenya jameni? Nothing!
Thank God for what we have. We are actually far much ahead as a country compared to many countries in Africa and beyond. Just visit YouTube and watch videos about the tribulations that people are facing in countries like DRC, Somali or Haiti. You will thank God a hundred times for what we have here. We can’t run away from the fact that we are behind of the developed world in so many aspects like good governance, dealing with corruption, food security, patriotism, natioñal cohesion, eradication of infectious diseases, economic equity etcetera. We know that if we get a better leadership than what we currently chose for ourselves, we shall leap much farther ahead. The challenge is ours but we can’t lose hope yet. Ama vipi kakangu?
there is a lot to be proud of as a Kenyan. High literacy level (kenyan are more marketable across the world than many others in africa), high electricity connection (among top 5 in africa), one of the best road networks in developing countries, a diverse economy (we do not heavily rely on a specific natural resource or a particular service.
Being superior to Burundi, Congo, CAR, Somalia, Eritrea, Rwanda, Uganda does not make us a big deal because these countries are really poor and have experienced a lot of instability
Really? Kenya is the 3rd largest economy in SSA. And the Ethiopian one is close. DRC is not too far behind. What do you mean by poorest? What are you measuring?
No country is truly ‘poor’ in Africa. The narrative is just the same. Poor and selfish leadership, years of wanton plunder, runaway corruption, blame shifting, unpatriotic character, etc. It’s the same game all over sub-Saharan Africa. Don’t forget that almost all African countries have one mineral or the other. And most have fertile arable land with reliable rainfall or large water bodies which can facilitate irrigation. So on poor countries, apana!
Hata wewe ushasoma the clause in your loan from the bank that says that ukikosa kulipa 1instalment then the bank can hold you in default and the whole loan can be called in? And still we sign for those loans. Ukikopa its a take it/leave it situation. Show me where the borrower sets conditions to the lender… Its simply not done.