Kenya has launched a buyback of the $1 billion (Sh129.23 billion), 10-year Eurobond that is due to mature in February 2028, looking to avoid the pain of a bullet payment on the debt.
This will be the third early repayment of a Eurobond by the government in the last two years, which is part of the Treasury’s debt management strategy of directly refinancing large upcoming maturities with new bonds of longer tenor.
A notice published on Thursday by the London Stock Exchange (LSE), where the bond that was sold in 2018 is listed, said that the buyback would be open until October 9. It will be financed using the proceeds of a new Eurobond whose sale opened at the same time as the buyback.
Investors, who agree to sell back their securities to the government, will be paid a premium of 3.75 percent on the face value of their papers after the government priced the offer at $1,037.50 per principal bond unit of $1,000.
“The Republic [Kenya] is making the offer, in conjunction with the offering of the new notes, as part of the proactive management of Kenya’s external indebtedness, specifically to smooth out the maturity profile of the notes,” reads the buyback tender document in part.
The new bond is being issued in two tranches of seven and 12 years, which will mature in October 2033 and October 2038, respectively.
Although the rates on the papers will be market-determined, fund managers’ guidance showed that the rates are likely to fall within a range of 8.75 percent to 9.75 percent, closely mirroring the secondary market yields of existing Kenyan Eurobonds of similar tenor that trade in the London and Irish stock markets.
This means that, similar to the previous two buybacks, market conditions will see the government replacing the maturing papers with costlier issuances.
This rate premium is seen as necessary to entice holders of the existing 2018 paper to roll over their holdings to the new bond.
The 2018 Eurobond comprised two papers of 10 and 30 years, which raised $1 billion each at rates of 7.25 percent and 8.25 percent. This was the country’s second Eurobond sale after the June 2014 issuance, which raised a total of $2.75 billion from a pair of five and 10-year papers.
In February 2024, the Treasury undertook its first sovereign buyback of $1.5 billion to partially refinance the $2 billion, 10-year tranche from 2014, which paid interest at 6.875 percent per annum. This exercise was also meant to calm the markets, which had become doubtful of the government’s ability to retire the debt amid a dollar shortage at the time.
These jitters had the effect of weakening the shilling to an all-time low of about Sh161 to the dollar, hence the pressure on the government to reassure the market via the early repayment of the bond. To fund the buyback, the Treasury floated a new six-year, $1.5 billion paper at a rate of 9.75 percent. The security matures in February 2031.
In March 2025, the Treasury carried out a partial buyback of $579 million on a $900 million, seven-year bond that had a seven percent interest rate, and which was to mature in three equal instalments starting May 2025. The repurchase was financed using proceeds of a new 11-year, $1.5 billion paper issued at an interest rate of 9.5 percent.
The bond being retired early was part of a $2 billion Eurobond sold in May 2019 in two tranches of $900 million (seven-year) and $1.2 billion (12-year/eight percent).
The proactive refinancing of public debt through tools such as buybacks, switch bonds and debt swaps is taking root at a time when the government is facing mounting debt service costs amid widening budget deficits and slow growth in revenue.
Spending on debt repayments is projected at Sh1.9 trillion this fiscal year, more than 44 percent of the Sh4.29 trillion budget.
