Kenya to buy back Sh117bn Eurobond ahead of maturity
Kenya is set to buy back a $900 million (Sh116.7 billion) seven-year tranche of the $2.1 billion (Sh271.76 billion) Eurobond issued in May 2019, using the proceeds of a proposed new bond of a longer tenor.
What you need to know:
- The fourth Eurobond was sold in June 2021, raising $1 billion (Sh129.6 billion) on a 12-year tenor, at a rate of 6.3 percent.
- The fifth issuance was the $1.5 billion(Sh 194.09 billion) that was raised in February 2024, to fund that month’s buyback of the 2014 bond.
Kenya is set to buy back a $900 million (Sh116.7 billion) seven-year tranche of the $2.1 billion (Sh271.76 billion) Eurobond issued in May 2019, using the proceeds of a proposed new bond of a longer tenor.
Bond buybacks enable issuers to retire an outstanding debt before its maturity date against a cash payment.
This is the second Eurobond buyback done by the Treasury, after the repurchase in February 2014 of a $1.48 billion (Sh191.9 billion) portion of the $2 billion (Sh259.3 billion) 2014 Eurobond, four months to its maturity date.
This buyback was financed using the proceeds of a new seven-year bond of $1.5 billion (Sh194.5 billion).
The 2019 Eurobond was issued in two tranches of 7 and 12 years, split into $900 million and $1.2 billion (Sh155.6 billion) respectively at interest rates of seven percent and eight per cent.
“The Republic is making the offer, in conjunction with the offering of the new notes (new Eurobond), as part of the proactive management of Kenya’s external indebtedness, specifically to smooth out the maturity profile of the notes,” said the Treasury in the buyback announcement.
The maturities of the 2019 bonds were to be amortised over their last three years to maturity in equal installments.
Amortisation means the early repayment of a portion of the outstanding principal of a bond, to avoid the huge lump sum at the end of the loan period.
In the case of the seven-year tranche, it meant that the government would pay back $300 million (Sh38.9 billion) in 2025, 2026, and 2027 to bondholders—with the first of these installments due in May this year.
By refinancing the whole bond using a buyback and new issuance, the Treasury will now avoid having to make the May repayment, at a time when there are other elevated domestic and external debt servicing costs.
Regulatory filings by the Treasury also indicate that the new buyback will target the seven-year tranche’s bond’s entire outstanding value of $900 million (Sh116.45billion), with bondholders being offered a price of $1,002.50(Sh 129,720.46) for every bond unit of $1,000(Sh129,396.51) they are selling back to the government.
Existing bondholders of the 2019 paper will also be given priority should they wish to purchase the new Eurobonds, effectively allowing them to switch their soon-to-mature bonds for a longer tenor.
“When considering allocations of any new notes (the new Eurobond), the Republic intends to give preference to those noteholders who, before such allocation, have tendered, or indicated to the Republic or a dealer manager their firm intention to tender, the notes (the 2019 Eurobond),” said the Treasury in the buyback announcement.
The 2019 Eurobond was Kenya’s third issuance, following the debut $2.75 billion (Sh356.5 billion) sale in June 2014 that was made in two tranches of 5 years (Sh97.2 billion) and 10 years (Sh259.3 billion).
The second Eurobond was floated in February 2018, raising $2 billion (Sh259.3 billion) in two equal tranches of 10 and 30-year tenors that carried interest rates of 7.25 percent and 8.25 percent respectively.
The fourth Eurobond was sold in June 2021, raising $1 billion (Sh129.6 billion) on a 12-year tenor, at a rate of 6.3 percent.
The fifth issuance was the $1.5 billion(Sh 194.09 billion) that was raised in February 2024, to fund that month’s buyback of the 2014 bond.