Kenya Plans Early Partial Settlement of $2 Billion Eurobond

David Herbling and Helen Nyambura
·3 min read
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(Bloomberg) -- Kenya’s president committed to an early buy back of a portion of the nation’s $2 billion eurobond after holding talks with funders to help finance the repayment.

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The authorities will make a payment of $300 million next month on the debt that matures in June, President William Ruto said in his state of the nation address in the capital, Nairobi, on Thursday. The announcement comes after Kenya sought financing from multilateral institutions including the World Bank and syndicated loans from lenders.

“We have worked hard at home and abroad to mobilize a broad coalition of bilateral development partners, multilateral banks and other agencies which have rallied to pull our country back from the brink of debt distress,” Ruto said.

An adviser to the president said on Tuesday the International Monetary Fund will provide Kenya with access to an additional $650 million of funding.

‘Clearly Welcome’

Bondholders “would clearly welcome” an early partial redemption, said Simon Quijano-Evans, chief economist, Gemcorp Capital Management Ltd.

Yields on benchmark Kenyan government bonds fell in the immediate aftermath of the news before edging back up.

While the buy back is seen as “a positive development” given the large size of the maturity, it may also result in a rating downgrade if done at below par value, according to Soeren Moerch, portfolio manager at Danske Bank AS.

Money managers have expressed concern over how Kenya will buy back the debt given its dollar shortages and warnings from Moody’s Investors Service and S&P Global Ratings that any redemption under par value would constitute a default.

Fitch Ratings cautioned on Tuesday that it may downgrade the nation’s credit rating depending on the amount of foreign reserves it uses to settle its eurobond payments.

Read More: Fitch Downgrade Warning on Kenya Buyback Plan Hits Currency

Kenya has cut the planned buyback from an earlier target of at least half of the bond.

Thys Louw, portfolio manager at asset manager Ninety One, said the announcement provided a signal on “the amount of funding they have been able to secure to start the buy back without impacting reserves.”

Kenya’s debt burden has become a focal point for investors as the country faces skyrocketing energy and food import bills as well as foreign-exchange reserves that stand at a paltry $6.84 billion.

Kenyan Treasury Secretary Njuguna Ndung’u has repeatedly stated that country will not default on its loans.

“I can now confirm with confidence that we will pay the debt that has become a source of much concern to citizens, markets and our partners,” Ruto said.

Kenya’s public debt was 64.4% of gross domestic product in present value terms in June 2023, according to the National Treasury, breaching a ceiling of up to 60%. Public debt servicing costs consume more than half Kenya’s tax revenue, limiting space for spending on development projects.

--With assistance from Colleen Goko.

(Updates with analyst comments from fifth paragraph.)

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