Kenya eyes new Eurobond in 2026, Treasury says

BDEurobond

Kenya’s stock of outstanding Eurobonds currently stands at Sh854.8 billion ($6.6 billion) with further maturities expected in February 2031, May 2032, June 2034, and February 2048.

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Kenya eyes a return to the international capital markets with a fresh Eurobond in 2026 ahead of the maturity of a similar paper a year later.

New disclosures by the Treasury show two scheduled sovereign bonds and private placements between the financial years 2023/24 and 2027/28 cycle with the first Eurobond having been issued in February this year to meet the partial payment of another.

The planned new Eurobond reveals continued reliance on the international capital markets for cash despite the Treasury's shift towards external borrowing from cheaper sources such as the World Bank and the International Monetary Fund (IMF).

“To enhance mobilisation of funds from external and domestic sources, the National Treasury will issue international sovereign bonds (ISBs) and private placements to investors,” the Treasury revealed its new 2023-2027 strategic plan.

Kenya is expected to retire its next Eurobond in May 2027, clearing a liability of Sh116.5 billion ($900 million).

The bond is however amortised, implying that the government is paying down the principal amount along with interest, thus avoiding a large one-off payment at maturity as was the case with the 2014 Eurobond which was settled on June 24.

An amortised loan is a type that requires the borrower to make scheduled, periodic payments that are applied to both the principal and interest. In this type of loan, payment first clears off the interest expense for the period with any remaining amount put towards reducing the principal amount.

The Treasury faces a one-off payment of Sh129.5 billion ($1 billion) in just under a year after in February 2028, a maturity that could be broken up into parts including through the issuance of a new Eurobond.

Kenya’s stock of outstanding Eurobonds currently stands at Sh854.8 billion ($6.6 billion) with further maturities expected in February 2031, May 2032, June 2034, and February 2048.

The Treasury raised Sh194.2 billion ($1.5 billion) from its latest Eurobond in February with the paper being set to mature in three equal installments in 2029, 2030, and 2031.

Proceeds from the paper were used to partially repay the 2014 Sh259 billion ($2 billion) sovereign bond which was fully settled last month.

The Treasury, while doubling down on low-cost borrowing views the international capital markets as critical in meeting its external borrowing requirements.

“International capital markets provide essential liquidity for the government and the successful transaction underscores investor confidence in Kenya,” the then Treasury Cabinet Secretary Prof Njuguna Ndungu said at the close of the most recent Eurobond issuance.

The exchequer has been planning a second Eurobond Sh129.5 billion ($1 billion) buyback this year which would likely be targeted at the 2028 sovereign bullet payment.

The ministry is however yet to detail whether the buyback would involve the issuance of yet another Eurobond.

Sovereign bond maturities in February 2028 and 2048 will both cover a single settlement of the principal amount which renders the payments high risk in the face of potential liquidity shortfalls.

Kenya will also for the first time be targeting to issue innovative bonds including green, blue, sustainable, Panda, Samurai, and Sukuk bonds, alongside debt swaps as part of the diversification of borrowing sources.

Green, blue, and sustainable bonds describe funding raised to finance specific sustainability courses while Panda and Samurai bonds are denominated in Japanese and Chinese currency respectively.

Sukuk bonds refer to Shariah-compliant securities that are attractive to Middle Eastern investors, while debt swaps take varied forms including debt write-offs and the deployment of subsequent savings in sustainability (debt for nature swaps).

The Treasury has primed three such issuances in 2024, 2025, and 2027.

Kenya will be banking on a favorable interest rate environment in the international capital markets to make its return to Eurobonds with advanced economies primed to cut interest rates going into 2025, boosting liquidity for issuers.

The raising of interest rates by the economies in the post-pandemic to counter inflation saw Kenya stay out of the international capital markets for nearly three years as the cost of borrowing proved to be out of reach.

Borrowings from the World Bank and the IMF became the stop-gap measure for Kenya allowing it to access critical resources amid the revenue shock resulting from the Covid-19 disruption.

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