Auditor raises red flag over Ruto’s Sh110bn Eurobond loan

The report tabled in Parliament shows that Kenya raised about $1.5 billion (Sh188.35 billion) through an international sovereign bond in 2025.

The transaction was spearheaded by Treasury and happened at a time when the country was under pressure over maturing public debt.

The borrowing, priced at 9.5 per cent, was primarily intended to finance a liability management operation, including the buyback of a $900 million (Sh117 billion) Eurobond.

However, the auditor general’s review found that only Sh78.3 billion of the proceeds were actually used for the intended buyback operations.

Gathungu reports that a further Sh30 billion was diverted to plug shortfalls in domestic borrowing, specifically Treasury bond proceeds, pending disbursement of external financing.

In total, the audit questions the regularity and effectiveness of Sh110 billion from the Eurobond proceeds.

Gathungu cited insufficient documentation and a lack of clarity on how the funds were ultimately applied.

“In the circumstances, the regularity and effectiveness in the utilisation of the Sh110 billion proceeds of the Eurobond could not be confirmed,” the auditor states in the report.

According to the Auditor General, this diversion breached the terms under which the bond, the major one under the William Ruto administration, was issued.

“The utilisation of the sovereign bond proceeds to cover for shortfalls arising from Treasury Bond was a breach of the subscription agreement,” the report states.

Gathungu notes that the contractual framework only permitted the funds to be used for buying back existing Eurobonds or refinancing external debt.

The audit further cites a legal opinion presented to the Treasury, which warned against any “material deviation” from the agreed use of proceeds.

The breach could amount to a violation of contractual obligations with investors, the auditor general notes.

The obligations are anchored in key documents, including the subscription agreement and deed of covenant governing the notes.

Despite these restrictions, the report indicates that a significant portion of the funds was redirected outside the permitted scope, raising the risk of contractual breaches with international lenders.

Crucially, auditors say they could not confirm whether the Sh30 billion used to support domestic debt operations was ever reimbursed after the anticipated external funds were received.

“The audit could also not establish whether the proceeds that were used to cover the Treasury Bond were reimbursed after receipt of the external resources,” the report notes.

The findings are likely to reignite scrutiny over the country’s public debt management practices, particularly the use of expensive commercial loans to manage existing liabilities.

Eurobond misuse featured in the previous administration, with Kenyans yet to know the truth about what more than Sh300 billion borrowed by the regime went into.

Then Auditor General Edward Ouko concluded that the money could not be traced, and he was barred from travelling to the UK to probe the funds.

For the current case, the Resource Mobilisation Department at the Treasury had initially sought approval to issue the bond as part of strategy to manage the burgeoning debt.

The plan was to smooth out repayment pressures by buying back or refinancing maturing external debt. The gross total public debt and guarantees crossed the Sh12 trillion mark.

But the audit suggests that part of the funds ended up being used for short-term fiscal support, rather than strictly for debt restructuring as agreed with investors.

The report does not indicate whether any sanctions or remedial measures have been taken following the breach.

Gathungu, however, warns in the highlights of the potential legal and financial risks arising from non-compliance with bond terms.

Any violation of the agreed use of proceeds could expose the government to disputes with noteholders and potentially undermine investor confidence in future sovereign issuances.

The findings come at a time when the Kenya Kwanza administration continues to rely on both domestic and external borrowing to finance its budget.

Maturing debt obligations are equally piling pressure on the coffers.