(Bloomberg) -- Kenya’s plan to raise about $500 million through a bond sale in Japan will be priced in the range of 1%-2% as the East African nation seeks cheaper sources of funding. 

“We’ve concluded discussions with Japan, where we will be going for the samurai bond,” Kenyan President William Ruto said during an interview in the capital, Nairobi. “It is going to cost us between 1%-2%, the domestic market is at about 15%-16%.”

Read more: Kenya Widens Funding Pool With Plans for Debut Samurai Offering

Kenya and Nippon Export and Investment Insurance announced the planned bond sale earlier this month. The offer will be in two phases, is expected to be concluded within four months and proceeds will be spent in the 2024-25 fiscal year, the National Treasury announced this month.

Since taking office a year and a half ago, Ruto has aggressively pushed to raise government revenues by proposing a slew of new taxes that have prompted street protests and earned him a nickname: Zakayo — Swahili for the biblical chief tax-collector Zacchaeus. Kenya has to increase its tax income in line with a program with the International Monetary Fund, which classifies the nation’s risk of debt distress as high.

Ruto said he’s committed to slashing Kenya’s reliance on debt by raising its tax to 25% of gross domestic product within the next decade from 16% currently.

Read more: ‘Paramilitary’ Tax Agents Deployed in Kenya’s Revenue Drive

The country is in the midst of a cost-of-living crisis with inflation near the upper limit of the government’s target band. The shilling plunged 21% against the dollar last year, stoking inflation and worsening the East African nation’s debt metrics. It has since recovered and is one of Africa’s best performing currency this year. 

Stagger Maturities

Ruto said the government also intends to increase Kenya’s deposits in multilateral lenders African Export-Import Bank, the African Development Bank and the Trade and Development Bank to further diversify sources of affordable borrowing. 

“We have agreed to progressively put some of our deposits that are getting negative interest elsewhere into these banks. That way, we can also diversify our sources of development resources to fund our development,” he said. 

While arranging new loans, the government will ensure staggered maturities to avoid large bullet payments. Kenya rolled over $1.4 billion of eurobonds this month, dodging a maturity that some investors expected it would default on. 

“We will never be again at a place where we have to pay $2 billion in one shot,” Ruto said, referring to the June maturity.

The new eurobonds were issued at an eye-watering 10.375%, illustrating how pressed Kenya was to refinance that debt. Most in the market welcomed them as a “net positive” despite the pricing, said Samir Gadio, head of Africa strategy at Standard Chartered Plc. 

“In a sense the new issuance in Kenya proved a catalyst for a re-balancing of the credit story, despite some concerns about the cost,” he said.

--With assistance from Colleen Goko.

(Updates with analyst comment from penultimate paragraph.)

©2024 Bloomberg L.P.