Treasury mulls over Sh170bn sovereign bond buy-back

The government is considering buying back the Sh170 billion sovereign bond with the hope of raising the cash from investors at a lower price. The Treasury disclosed it was weighing its options driven by the premium at which the paper is trading at the Ireland Securities Exchange.

The ten-year-bond is at present trading at six per cent, down from 6.875 per cent which means its price has gone up, underlining investors’ appetite. The paper issued at $100 is currently trading at $108.
The five-year paper is trading at a premium five per cent in the secondary market, down from 5.875 per cent at the time of issue.

“We are looking at it seriously. If you are getting a cheaper rate, why not? Depends on liquidity which we are analysing” said the Treasury secretary Henry Rotich.

Liquidity analysis is meant to gauge if the government can raise the Sh170 billion that it successfully raised two months ago; or whether the high secondary market prices are being driven by a small number of investors. The government would have to determine whether the trade-off between high price and lower interest is in its favour.

Analysts, however, noted that the government does not have a call option to buy back the bond directly but can issue fresh notes.

“It is always an option; what you do is an exchange where you take back the old notes and issue the investors with new notes. If you read the prospectus, it says the issuer can do an exchange,” said a foreign source who sought anonymity due to his close association with the Eurobond issue.

Success

The success of the issue was said to be pegged on how it was structured and the timing. Kenya bond, issued in June was oversubscribed by more than six times, with investors shrugging off security challenges facing the country which were expected to put them off.

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But the market is said to have tilted, with global investor’s appetite for African bonds said to be testing its limit. Wall Street Journal recently cited data from EPFR Global showing that mutual funds and exchange-traded funds were net sellers of African bonds in the first two weeks of August.

Interest payments for the bond are semi-annual and the first payment is expected to be on December 24.

Russian mining giant, Norilsk Nickel, is reported to have dropped plans to buy back two of its Eurobonds last week. The company issued the bonds last year but has dropped the plans to buy back due to what it termed as lack of big benefit.