alexa State should explain the smoke and mirrors Eurobond games - Daily Nation

State should explain the smoke and mirrors Eurobond games

Wednesday May 22 2019

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The three Eurobonds by Kenya preceding the recent one were promptly issued on the Irish Stock Exchange.

On Monday, I visited their website to get details on the latest one, including the prospectus.

Surprisingly, it had not been listed as promptly as the rest. Whether we have borrowed through issuing a bond or by way of syndicated loans is a pertinent question.

A syndicated loan is a sweetheart deal concluded in smoke-filled boardrooms without too much disclosure.

The infamous Tuna Bond scandal in Mozambique started from syndicated loan transactions. In Tanzania, we still remember the Standard Bank syndicated loan scandal.



Having a bond listed on an international exchange matters on three fronts. First, you must meet the listing requirements of the exchange — mainly transparency, disclosures and lodging a prospectus with it.

Secondly, listing allows secondary trading, giving the issue liquidity and, hence, making it attractive to investors.

I reread the press statement The National Treasury put out last week to announce the Eurobond transaction, only to find that not once does the word “listing” appear.

For a moment, I thought that what the National Treasury had touted as a successful listing was just a syndicated loan. Did the National Treasury fall short of the ISE’s listing requirements?

When I checked with the National Treasury, I was informed that the bond would be listed today (Wednesday) or tomorrow. Let’s wait and see how events unfold.


We are firmly under what is now popularly described as ‘Eurobondage’.

It started with the debut $2 billion (Sh200 billion) in June 2014, followed by a $750 million (Sh75 billion) tap sales that December. In February 2018, we borrowed another $2 billion. Last week, we added to the debt yet another $2 billion.

I will not cram the column with the maturity tenors and dates of these loans. But let nobody tell you that everything is fine.

Our debt situation has reached critical levels. When the National Treasury tells you not to worry because our debt-to-GDP ratio is still within the IMF’s (International Monetary Fund) debt sustainability benchmarks, they are in denial.

How can you argue that your debt levels are fine when you are spending 38 per cent of annual revenues servicing the debt? Debt servicing is eating away all the fiscal space we need for health, agriculture and education.


Even the National Treasury’s cheerleaders, the IMF, recently warned that Kenya is now at moderate risk of debt distress.

And why are counties accumulating massive pending bills? It is because county transfers are forever behind schedule and are increasingly being limited to salaries.

We have found ourselves in a vicious circle, where we permanently finance debt with debt, perennially negotiate extensions of redemption periods and constantly drop in the credit ratings. Put plainly, we are literally borrowing from Peter to pay Paul.

We must not forget that the 2014 Eurobond was preceded by an extension of the term of a maturing syndicated loan that was due that May and which had to be extended to August of that year.

This is how the game is played. First, an African country is approached by three or four commercial banks with a proposal to arrange or underwrite a syndicated multimillion-dollar loan, typically with a two to three-year tenure. When it falls due, you have no dollars with which to repay it.


But the stage will have been prepared for the same banks to come back with offers to take you to international debt markets and support you in issuing a Eurobond so that you can get the money to repay the syndicated loan.

Today, European banks and fund managers hop from one African country to another to collude with corrupt government officials to saddle citizens with expensive dollar loans that are, in most cases, used to fund opaque security contracts padded with huge kickbacks and backhanders.

It does not surprise me that one of the key findings of the just-published special audit by the Auditor-General on the 2014 Eurobond is that a staggering Sh750 billion — including proceeds from the Eurobond — was spent outside the government’s Integrated Financial Management Information System (Ifmis).

What that means is that a very big chunk of government spending happens outside what has been approved by Parliament.


When looked at seriously, you see the picture of greedy European banks engaged in a selfish search for fat fees and commissions.

Their partners in crime are yield-hungry European investment bankers always eager to build an Africa portfolio. That is why all Eurobonds issued by African countries are invariably oversubscribed.

The Eurobond we issued last week was oversubscribed four-and-a-half times. It is not a vote of confidence; it’s about greedy investment bankers.