Kenya dumps plan to redeem part of $2 billion Eurobond by Sunday
Kenya abandoned a plan to buy back a portion of a $2 billion eurobond, sidestepping a potential default on the terms of the debt, which mature in June.
The East African nation paid $68.7 million in interest on the bond, which “underscores Kenya’s steadfast dedication to meeting external obligations,” Cabinet Secretary Njuguna Ndung’u said in an emailed statement Thursday. The government will pay the principal on maturity, according to the statement, which didn’t mention anything about its pledge to repurchase $300 million of the notes.
President William Ruto’s government backed away from the plan to repurchase early — meant to allay investor concerns about its ability to pay — as some money managers and credit assessors raised concern that the move could be seen as a technical default.
“The final interest payment on this eurobond is scheduled for the last week of June 2024, alongside the repayment of the principal amount of $2 billion,” Ndung’u said.
Ruto initially announced the plan to buy back as much as half of the debt, but government officials reduced the target to $500 million, and then $300 million, which some investors say sends mixed signals.
“The inconsistency in the messaging is concerning,” said Thato Mosadi, a fixed-income strategist at Jefferies. “However, we remain confident about the future trajectory of multilateral inflows that will help Kenya settle its outstanding principal on the 2024 eurobond.”
The yield on the notes due June 2024 was 13.36% by 19:07 p.m. in Nairobi, the lowest since Nov. 22. Yields have dropped for three consecutive days, the longest streak since Nov. 21.
Investors have been concerned about Kenya’s ability to make the bullet payment given the nation’s debt burden amid rising energy and food import bills. The country had $6.7 billion of foreign-exchange reserves as of Dec. 21.
Kenya expected a loan from pan-African lender Trade and Development Bank mid-December that it intended to spend on the repurchase, central bank Governor Kamau Thugge told reporters earlier this month. Other than that facility, the National Treasury was also counting on some inflows from the International Monetary Fund in January.
Developing nations are struggling to refinance their eurobonds due to being locked out of markets by high interest rates. Ethiopia chose not to pay interest earlier this month, putting a spotlight on about eight African economies whose debt the IMF classifies as unsustainable and in need of restructuring.
