Kenya Eurobond yield at month’s low as coupon deadline passes
Kenya made an interest payment on its eurobonds maturing in June on schedule, according to Danske Bank Asset Management, triggering a rally in the bonds.
The yield on the securities dropped 65 basis points to 13.5% by 4:18 p.m. in the capital, Nairobi, according to data tracked by Bloomberg, the lowest since Nov. 23. The East African nation had until Dec. 24 to make the interest payment for the $2 billion of debt issued almost 10 years ago at 6.875%.
That sets it apart from neighboring Ethiopia, which failed to make an interest payment earlier this month, putting a spotlight on about eight African economies whose debt the IMF classifies as unsustainable and in need of restructuring. Fitch Ratings cut Ethiopia’s credit score to restricted default on Wednesday. Kenya is rated B, two levels into junk, by Fitch.
“Kenya would like to distance themselves from Ethiopia as a different league,” said Soeren Moerch, portfolio manager at Danske, which holds the bond.
Kenyan Treasury Principal Secretary Chris Kiptoo didn’t respond to a text message seeking comment about the payment.
While there had been no concerns about the coupon, the bullet payment due in June has been a focal point for investors worrying about the nation’s debt burden as it faces elevated energy and food import bills, with limited foreign exchange to fund the shortfalls. President William Ruto’s government had also pledged to buy back $300 million of the debt by Dec. 31.
With just four days left, the government’s plan to redeem before maturity “seems to be out of question now,” Moerch said.
Early Redemption
Kenya planned to borrow from pan-African lender Trade and Development Bank to pay for the repurchase, central bank Governor Kamau Thugge told reporters earlier this month.
The buyback could lead to a downgrade from one of the rating firms, and be viewed by some investors as a selective default, Moerch said. Other than the TDB loan, Kenya also expects funding from the International Monetary Fund and the World Bank. While it will use some of those proceeds to pay the Eurobond principal, it’s still likely to draw on reserves, he said.
A buyback is subject to market conditions and “completion of satisfactory documentation,” Treasury’s Kiptoo said in response to Bloomberg queries last week.
“Indeed the government had earlier planned to undertake the buyback before end December 2023,” he said. “The decision as to when to access the market shall be guided by the government-appointed joint lead managers and legal counsels based on market conditions.”
