Kenya’s most recent eurobond issuance garnered orders exceeding $5 billion, driven by expectations of lower US interest rates and high-yielding securities.
Kenya will, however, accept $1.5 billion of the seven-year debt at a 10.375% coupon rate, marking the highest payout by an African issuer this year.
The funds raised will be utilized to facilitate the repurchase of $2 billion in securities maturing on June 24, 2024.
The issuance of new bonds will also extend the average maturity of Kenya’s existing debt.
Kenya’s Ballooning Debt
Kenya is faced with a cash crunch, with approximately $5.2 billion in foreign debt payments due this year.
This is in addition to $2.7 billion in the next fiscal year.
Although the pricing came in below the initial guidance of around 11%, it remains higher than what other African sovereigns have issued this year.
Kenya’s Rates Compared to Other SSA Countries
For instance, Benin issued a 14-year instrument at 8.375%, while Ivory Coast raised capital at 8.5%.
“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 who spoke to Bloomberg.
“If this settles the market’s nerves, paying up to access the market could very well be worth it.”
If this move calms market nerves, the cost of accessing the market could prove worthwhile.
Drop in Eurobond Yields
The yield on the eurobonds maturing in June has already dropped by 66 basis points to 10.68.
Kenya’s urgent need for market access led authorities to raise more funds than initially planned, despite the high yield.
“The signaling effect of issuing bonds at such high yields will need to be carefully managed in the medium-term,” said Samir Gadio, head of Africa strategy at Standard Chartered Plc
This step was taken to safeguard reserves.