President William Ruto’s government is seeking alternatives to the dollar-dominated conventional bonds to finance part of the 2024/2025 budget.
Treasury, through the 2024 Medium-Term Debt Management Strategy, revealed Ruto's new fiscal policies aimed at financing government spending especially when the Kenya Kwanza government is seeking foreign capital to back its ambitious development projects.
Conventional bonds comprise maturity dates dictating when Kenya must remit interest and principal payments and also have fixed interest rates which the Treasury regards to be costly.
In this regard, Kenya will go for Sukuk, Green, Samurai, Panda and Diaspora bonds which are issued at competitively low prices and offer a favourable annual return.
In justification, the Njuguna Ndung’u-led ministry remarked that the aforementioned bonds are more flexible and less costly.
Sukuku Bond
Initially only offered in Muslim populations, Sukuku Bonds have risen in popularity due to their favourable terms compared to bonds
The bond is issued in strict compliance with Sharia law. This means that the price of the bond is determined by real market value, unlike conventional bonds whose prices are determined by the credit or risk rating of the issuer.
Green and Sustainability-linked Bonds
According to the Nairobi Securities Exchange (NSE), green bonds are exclusively used for environmental benefits, mostly related to climate change mitigation or adaptation.
Kenya issued its first Green Bond in 2019, with the National Treasury signalling that going forward, they would be preferred over conventional bonds.
Panda Bonds
A Panda Bond will be a Renminbi (RMB) denominated bond which Kenya will be issuing to investors in mainland China.
This will be beneficial in such, that repayment will not be in United States dollars which has often led to the devaluation of Kenyan currency during the repayment period.
The Chinese interbank bond market or the Chinese Domestic Securities Markets comes in bond markets after the US.
Last year, Egypt became the first African country to issue a sustainable panda bond, valued at 3.5-billion-yuan equivalent to USD500 million then.
For Egypt's Panda Bond set to finance health, water and renewable energy sectors, the Banks of China acted as the underwriter while the Asian Infrastructure Investment Bank (AIIB) and the African Development Bank (AFDB) guaranteed third-party credit risk as guarantors to support the bond issuance
Samurai Bond
A Samurai Bond is a yen-dominated bond issued in Tokyo by a foreign nation like Kenya but subject to Japanese regulations.
Financial experts say that the Samurai Bond is one of the best in the market as it yields better fixed-income investments thus attracting investors.
Investors also turn to the Japanese market as an option for the highly volatile US and European markets.
Nonetheless, experts are also cautious of this bond said to comprise high tax rates and an unclear fiscal environment questioned by major US financial giants.
On Thursday, February 8, President William Ruto’s government announced that it had reached an agreement with Nippon Export and Investment Insurance (NEXI) for the issuance of a Samurai Bond worth Ksh80 billion.
Diaspora Bond
This is a type of bond that Kenya will be issuing to its citizens working abroad.
On January 4, Prime Cabinet Secretary Musalia Mudavadi announced that Kenya would issue a diaspora bond through the World Bank’s Multilateral Investment Guarantee Agency (MIGA) and the National Treasury.
