Yields on Eurobond up on Kenya's failed buyback plan

 

Kenya's failure to honour a buyback as earlier promised added risk to the inaugural Eurobond maturing later this year, with yields rising by a massive 200 basis points. 

The weekly bulletin by the Central Bank of Kenya (CBK)shows yields on the country's Eurobonds increased for the first time since November when President William Ruto said his government would execute a $300 million buyback plan by December. 

"In the international market, yields on Kenya’s Eurobonds increased by an average of 81.10 basis points, with yields on the 2024 maturity bond increasing by 200.90 basis points,'' CBK says.

The yield on the 10-year Eurobond for Angola and for Zambia also increased.

The 201 basis points rise on the $2 billion bond taken in 2014 and maturing on June 24 this year takes the absolute yield rate to 16 percent, down from a 15-month low of 13 percent reported before Christmas. 

Uncertainties on whether the country will repay the debt had seen the yields rise to 22 percent before Ruto made the popular promise. 

However, two days before the end of the year, the National Treasury paid $68.7 million (Sh10.8 billion) on the bond, dropping the initial plan to make an advance payment of the principal before the end of 2023.

It indicated that its buyback plan was still in course, outlining plans to settle it before March. 

“Indeed, the government planned to undertake the buyback before the end of December 2023. The decision as to when to access the market shall be guided by the government-appointed joint lead managers and legal counsels based on the market conditions,” the exchequer said in a public statement.

In a statement, the National Treasury CS Njuguna Ndung'u said the country is awaiting 'substantial’ external inflows from the World Bank, IMF, and other Development Finance Institutions, in addition to key bilateral partners anticipated between January and March 2024.

In November, the IMF reached an agreement on a $938 million loan for Kenya. Upon approval by the lender's board this month, $638 million will be dispatched immediately.

The country is also waiting on a $500 million facility from TDB. Kenya largely relied on this amount to execute the buyback but was delayed.

On Thursday, the Business Daily reported that the exchequer is considering issuing Japanese and Chinese bonds to settle the buyback, adding to a list of funding options.

Analysts say that Kenya is partly suffering the impact of Ethiopia's default announced last month. 

"Indications are clear that Kenya will settle its debt on time. Kenya is being punished for the recent defaults by Ethiopia and Ghana. Conflicting updates on how the debt will be cleared has not only seen raised yields but also contributed heavily to the further fall of the shilling,'' a senior financial analyst Bellamy Wafula told the Star. 

According to CBK, the shilling traded at 157.39 to the US dollar on January 4, compared to 156.09 units on December 28.

This is after a slight appreciation early and mid December last year.