Kenya Eurobond yields fall as investor jitters recede

BDEurobond

Kenya still faces a significant risk of debt distress despite a Sh218.53 billion new Eurobond issue. PHOTO | SHUTTERSTOCK

Yields on Kenyan Eurobonds have fallen into the single digits territory as investor jitters wear off following the partial payment of the Sh285.6 billion ($2 billion) debut Eurobond.

Interest rates on the Eurobond maturing in June have, for instance, tumbled to 9.93 percent as of Monday’s close from a high of 15.09 percent on February 9, 2024.

The return from other Eurobond issues has marked a similar turn with yields on the seven-year sovereign bond maturing in 2027 hitting a low of 8.611 percent from 11.64 percent over the same period.

Yields on the 10-year Eurobond maturing in 2028, the 12-year bond maturing in 2032 and the 13-year bond maturing in 2034 have similarly fallen to 9.475, 9.939 percent and 9.749 respectively.

Interest rates on the longer-dated 30-year Eurobond maturing in 2048 have also eased considerably to 10.436 percent from 10.82 percent on February 7.

According to analysts, the falling yields mirror a risk adjustment on Kenyan sovereign assets in the international capital markets as investor concerns surrounding the ability of the country to meet maturities shrink.

“The risk premium attached to the 2024 Eurobond has eased, leading to the fall in yields. This has had the contagion effect of cutting yields in other issued Eurobonds as investors begin to look at Kenyan assets favourably,” said Churchill Ogutu, an economist at IC Asset Managers.

Last week, the National Treasury bought back Sh205.6 billion ($1.44 billion) notes from the debut 2014 Eurobond following the issuance of a new Eurobond of a similar amount net of lead arranger fees.

The buyback has served to diminish fears around Kenya’s ability to meet the maturity on schedule with the country now expected to clear a reduced, remaining balance of Sh79.5 billion ($557 million) on June 24.

The buyback has been the first move by Kenya to implement liability management operations following the contracting of Citi and Standard banks as lead managers to oversee the redemption of the 2014 Eurobond.

The exchequer has outlined plans to further leverage liability operations as a debt management tool, especially for external debt.

Debt swaps and buybacks have been identified as part of liability management operations which forms part of the exchequer’s envisioned public debt management reforms.

“To lower costs and risks associated with the existing public debt portfolio, the government will apply liability management operations targeting the existing debt portfolio. The operations will include debt swaps and buy-backs,” said the National Treasury in its medium-term debt strategy report.

“The government also endeavours to maintain its presence in international financial markets through refinancing the existing commercial maturities and mobilising resources for budget support.”

To make the buyback, however, Kenya parted with a premium having offered investors a 9.75 percent return on in its new seven-year Sh214.2 billion ($1.5 billion) Eurobond, which contrasts with a lower priced Eurobond issuance by Benin and Côte d’Ivoire, respectively.

The higher rate on the new bond which further contrasts to a coupon of 6.875 percent from the debut Eurobond and will see Kenyans incur Sh20.8 billion ($146.25 million) in annual interest payments, payable every six months.

Beyond Kenyan assets looking more favourable after the buyback, the local exchange rate has seen its fortune turn after the new issuance released fresh dollar inflows in the market.

The inflows have improved the forex liquidity in the market featuring the release of dollars by hoarders, elevating the Kenya Shilling to record gains of nearly two decades against the US dollar last week.

At the close of trading on Monday, the CBK quoted the local unit at Sh142.81 against the US dollar compared to Sh158.66 a week prior.

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