The government has announced plans to sell new dollar bonds to finance the repurchase of $900 million (about Ksh 116.55 billion in the current exchange rates) eurobonds due in 2027.
On Monday, February 24, Kenya unveiled the plan to reduce pressures on the maturing debt that could negatively impact the currency and the economy.
While issuing the notice, the government did not indicate how much it intends to raise, but the playbook is similar to that used by Treasury last year.
The offer is part of “the proactive management of Kenya’s external indebtedness, specifically to smooth out the maturity profile of the notes,” according to a statement released yesterday.
“The republic expressly reserves the right, in its sole and absolute discretion, to determine the maximum tender amount of the notes at a higher or lower amount than the aggregate principal amount of the new notes,” it said.
Investors are being offered the opportunity to sell their existing notes at a rate of $1,002.50 (about Ksh129,673.38) for every $1,000 (about Ksh129,350) of the notes’ face value. This means they will receive a premium of $2.50 (about Ksh323.38) above the notes’ nominal value for each $1,000 increment.
Kenya's $900 million Eurobond, maturing on May 22, 2027, carries a 7.000 per cent annual coupon rate, resulting in semi-annual interest payments to bondholders. These payments are made every six months, specifically on May 22 and November 22 each year, until the bond’s maturity.
Each semi-annual payment amounts to $31.5 million (about Ksh4.1 billion), calculated by applying half of the annual coupon rate (3.5 per cent) to the principal amount ($900 million).
Last year, then Treasury Cabinet Secretary Njuguna Ndung’u introduced a strategic financial manoeuvre that saw Kenya address the impending maturity of its $2 billion Eurobond, originally issued in 2014.
The government, in February 2024, successfully raised $1.5 billion (about Ksh194 billion) by issuing a new Eurobond at a 9.75 per cent interest rate, maturing in 2031. The proceeds from this issuance were utilised to repurchase $1.44 billion (about Ksh186.26 billion) of the maturing 2014 Eurobond, effectively reducing the outstanding principal to $560 million (about Ksh72.44 billion).
This proactive approach not only mitigated the immediate repayment burden but also signalled strong investor confidence in Kenya's debt management strategies. According to analysts, the government expects to adopt a similar approach with its latest move.
The remaining $560 million of the 2014 Eurobond was settled in June 2024, ahead of its maturity date. This repayment was facilitated through a combination of loans from the International Monetary Fund (IMF) and the utilisation of foreign exchange reserves.
Following the debt repayment, the Kenyan shilling appreciated against the US dollar, strengthening from Ksh162 to Ksh142.
This currency appreciation led to a reduction in the country's overall debt by approximately $4.96 billion (about Ksh641.57 billion) and decreased debt service costs by $1.33 billion (about Ksh172.04 billion) over the subsequent six years, resulting in total savings of about $6.29 billion (about Ksh813.61 billion).
