Centum makes 33pc return on Eurobonds trade


Centum Investment Group CEO James Mworia. FILE PHOTO | NMG

Centum Investment Company made an annualised return of 33 percent from the sale of its Eurobond investments in the year to March, having bought the bonds at lower prices in the second half of last year.

The company had bought Sh1.63 billion worth of Eurobonds —a mix of Egyptian and Kenyan dollar-denominated debt— in the period to diversify its investment portfolio and also to take advantage of lower prices which served to raise yields (interest income).

In December, Centum chief executive officer James Mworia told the Business Daily that the bulk of the bonds the company bought were Egyptian securities, but that it had also taken up some of Kenya’s Eurobonds that trade on the London and Irish stock exchanges.

Mr Mworia said Centum’s Eurobonds portfolio has an average yield to maturity — total return comprising principal and interest payments — of 13.96 percent.

Centum bought at a steep discount to par value, paying on average at 72 cents to the dollar. The portfolio had an average yield to maturity — total return comprising principal and interest payments—of 13.96 per cent.

“We allocated $11.5 million (Sh1.63 billion) of our MSP portfolio to Eurobonds within the period, thereby improving portfolio diversification in currency, geography and liquidity.

By the close of the 2023 financial year, we had exited the Eurobond positions and realised a 33 percent annualised total return from the opportunity,” said Centum in a brief on the full-year results.

The firm bought the bonds at a time global interest rates were going up, resulting in a flight of capital from African Eurobonds to the US.

This, combined with the downturn in the global economy that made emerging and frontier market assets riskier, saw yields on African Eurobonds go up sharply, with the process going the other way.

Kenya’s Eurobond yields, for instance, touched a peak of 22 percent in July 2022.

By March this year when Centum closed its books, the yields had moderated to between 11 and 14 percent across different tenors, meaning that holders who had taken advantage of the low prices months earlier would make handsome capital gains once prices rose to reflect the falling yields.

Companies and individuals can invest in Eurobonds in the secondary market, with this option becoming increasingly attractive due to higher yields/low prices.

The impact of the Eurobond gains was reflected in Centum’s investment income, which rose by 28 percent to Sh2.13 billion in the year to March 2023.

The company’s total investment portfolio at the end of the period stood at Sh36.9 billion, down from Sh42.7 billion a year earlier.

Its net loss widened to Sh7.3 billion in the period to March from Sh2 billion a year earlier, largely attributed to impairment provisions on its Two Rivers Development and higher financing costs.

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