The government has reduced its chances of defaulting payment on $2 billion debt due mid this year after successfully issuing $1.5billion new Eurobond.
- •According to a statement by the National Treasury, the new Eurobond issuance is priced at 10.375 per cent and is due in 2031.
- •The bond will be repaid in three installments beginning 2029, 2030 and 2031 resulting in a weighted average life of six years.
- •Pricing of the bond remains notably higher compared to the rates at which Benin and Ivory Coast have issued debt this year.
For instance, Benin issued a 14-year instrument at 8.375 per cent, while Ivory Coast secured funds at 8.5 per cent.
“Kenya received strong demand, with high-quality order book exceeding $6billion, allowing for tighter pricing and increased issuance compared to initial guidance,” Njuguna Ndung’u, Cabinet Secretary National Treasury and Planning.
“The proceeds from the 2031 Eurobonds will fund the offer to buy the existing $2billion Eurobonds due in 2024, pending demand in the Tender Offer, results are expected on February 15, 2024,” he said.
Ndungu noted that the transaction was necessary in managing debt liabilities. The remaining portion of the 2024 Eurobonds not purchased in the tender offer will be funded through a mix of government funds and financing from multilateral and bilateral sources, including bank syndication.
“The diversified financing approach aims to maintain a relatively low weighted average interest rate in the overall public debt portfolio, ensuring our debt sustainability over the medium term.”
Short Term Ease for Medium-Term Cost
The government had earlier indicated that it would lean on new dollar inflows from International Monetary Fund (IMF) and World Bank loans, and the country’s forex reserves to repay the maturing Eurobond.
Financing a buyback or the June maturity from the country’s forex reserves has been seen as a negative for the shilling, whose stability is underpinned by the ability of the Central Bank of Kenya to iron out volatility using these reserves.
Analysts at Standard Chartered have pointed to the short-term pressure for Kenya’s decision to issue a Eurobond at such a high interest rate. The rate was initially priced at 11% but high demand pushed it down to a guidance of 10.625%, and eventually to 10.375%.
“Ghana issued at 10.75% in 2015 (with a 40% World Bank guarantee) before defaulting in December 2022,” the analysts wrote in their assessment, ” and Egypt’s 10.875% sukuk issuance in February 2023 contributed to a sell-off in the complex.”
“Kenya’s situation may be different given significant IMF support for the sovereign and the easing of immediate pressure from the June 2024 maturity. However, the negative medium-term signalling effect will ned to be carefully managed by authorities,” they added.
Kenya floats tenders for its US$2B Eurobond (kenyanwallstreet.com)