Kenya makes partial Sh210bn repayment in Eurobond debt

BDEurobond

The Treasury wants Parliament to allocate Sh90 million to clear legal fees for lawyers who helped Kenya raise cash and buy back a 10-year Eurobond.

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The Treasury has bought back $1.44 billion (Sh210 billion) out of the outstanding $2 billion (Sh291.7 billion) of its 2014 Eurobond, opting to utilise the entire amount it raised from a new bond issued last week to partially retire the older paper.

The new bond, whose sale concluded on February 13, raised a gross amount of $1.5 billion (Sh218.8 billion), which netted at $1.46 billion after payment of lead arranger fees.

The Treasury said in a notice on the outcome of the buyback exercise that bondholders had offered to sell a total of $1.48 billion.

Earlier, the government had set a cap of $1.4 billion for the buyback, but exercised its prerogative to take up a higher amount to accommodate the higher amount offered by bondholders.

Sellers will also be paid accrued interest on their 2014 bonds, covering the time between the buyback and the most recent interest date (December 24, 2023). The bond’s final interest payment will be made in June, when the principal balance of $557 million will also be paid back to the lenders.

“The Republic will accept for purchase all notes validly tendered pursuant to the offer on a pro rata basis with a proration factor of 0.96, and the Republic will purchase $1.443 billion in aggregate principal amount of the notes,” said the Treasury in its buyback results notice.

“The settlement date in respect of the notes accepted for purchase will be February 21, 2024.”

In an earlier statement announcing the results of the new Eurobond sale, the Treasury said that the balance of the 2014 bond not bought back will be redeemed as expected in late June, using a mix of the government’s reserves, multilateral and bilateral loans, including bank syndication.

“This diversified financing approach aims to maintain a relatively low weighted average interest rate in the overall public debt portfolio, ensuring Kenya’s debt sustainability over the medium term,” said the Treasury.

On the new bond, the government will pay interest at an annual rate of 9.75 percent, compared to a rate of 6.875 percent on the maturing 2014 issue.

The higher interest charge on the new loan reflects the changes in market access conditions for African sovereign issuers over the past decade.

Higher rates in the US and a series of shocks to the global economy due to Covid-19 and conflict in Ukraine have made investors seek the safety of US assets, while avoiding those in smaller markets.

When Kenya floated its first Eurobond in 2014, the US Federal reserve rate averaged 0.09 percent, while the rate on the benchmark US 10-year Treasury —the most liquid and widely traded bond in the world— stood at 2.54 percent.

Currently, the Fed rate is at an average of 5.33 percent, while the 10-year Treasury yield stands at 4.1 percent.

Emerging and frontier market issuers need to pay investors a return premium above the US rates to attract funds, hence the higher asking yields on 2024 sovereign issuances.

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Note: The results are not exact but very close to the actual.