Kenya’s Eurobond attracts more than $5 billion in orders
Kenya’s latest eurobond issue attracted orders in excess of $5 billion as expectations of lower interest rates in the US fueled demand for the high-yielding securities.
The East African nation will accept $1.5 billion of the seven-year debt at 10.375%, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. That’s the highest coupon paid by an African issuer this year.
The country plans to use the proceeds to help finance the repurchase of $2 billion of securities maturing in June. The new bonds will also lengthen the average maturity of Kenya’s outstanding debt. Kenya found itself in a cash crunch with about $5.2 billion of foreign debt in principal and interest payments due this year, and another $2.7 billion coming due during the next fiscal year.
While the pricing came in below the initial guidance of about 11%, it is still much higher than what other African sovereigns have issued at this year. Benin sold a 14-year instrument at 8.375%, while Ivory Coast raised money at 8.5%.
‘Paying Up’
“They decided to pay up to resolve the uncertainty related to this payment which was putting stress on the currency and domestic interest rates,” said Gordon Bowers, a London-based analyst at Columbia Threadneedle Investments. “If this settles the market’s nerves, paying up to access the market could very well be worth it.”
The yield on the eurobonds maturing in June fell 66 basis points to 10.68% by 9:45 a.m. in London.
Kenya needed market access to avoid drawing down $7.1 billion of foreign-exchange reserves to meet its refinancing needs. Any withdrawal from reserves to pay for the June maturity would have weakened the economy’s credit metrics.
Strong demand prompted the authorities to raise more than initially planned, despite the high yield, in order to protect reserves, according to Samir Gadio, head of Africa strategy at Standard Chartered Plc. The initial informal guidance was that Kenya was targeting $1 billion and would not raise new money with the offer, he said.
“The signaling effect of issuing bonds at such high yields will need to be carefully managed in the medium-term,” Gadio said.
