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Kenya considers a Sukuk bond to pay off Eurobond
Treasury Cabinet Secretary Njuguna Ndung’u.
Officials from the National Treasury met some large bond investors in London last week as Kenya considers issuing new bonds to refinance the $2 billion (Sh282 billion) Eurobond that matures in June next year.
The trip to London was aimed at reassuring investors that Kenya is well placed to pay the Eurobond, and comes just two months after credit ratings agency Moody’s downgraded the country’s foreign currency issuer ratings.
The Nation has learnt that the government is considering following in the footsteps of Egypt and issue a Sukuk bond—a Shariah-compliant bond issued in the global markets—to help pay off the Eurobond.
In February, Egypt raised $1.5 billion (Sh211.8 billion) through the issuance of three-year Sukuk bond, with investor demand reported at a staggering $5.4 billion (Sh755.5 billion).
Treasury is also toying with the idea of floating a Samurai bond— a bond denominated in the Japanese yen and subject to Japanese regulations—as part of its liability management exercise.
The consideration of a Samurai bond indicates efforts by the government to mitigate rising foreign exchange pressures given that the shilling has been relatively more stable against the yen compared to other currencies such as the US dollar and the United Kingdom’s pound.
“Refinancing major portions of the Eurobond using one or a combination of syndicated loan proceeds or bilateral commercial loan proceeds. Additional possible options include issuance of a Sukuk following Egypt’s (B+/B2) successful issuance in February 2023 or issuance of a Samurai bond,” Treasury’s presentation to investors states.
The shortlist of potential lead arrangers for the planned 2023/24 Eurobond issuance includes Citigroup, JP Morgan, Standard Bank and Standard Chartered Bank.
In the budget books for the current financial year, Treasury has made a provision of Sh241.3 billion for the maturity of the June 2024 Eurobond. Two weeks ago, President William Ruto told Bloomberg News that the government intends to repurchase half of the maturing bond.
Documents seen by the Nation from Treasury’s pitch at the meeting reveal that the government now targets to on-board lead arrangers for the planned issuance of a Eurobond in the current financial year before the close of this month.
“As a signal to the market, target to on-board lead arrangers by end of July 2023 to advise on the best liability management strategy and assist the republic to access the market at the opportune time,” the documents state.
It has emerged that the government is keen on floating a multi-tranche Eurobond in the current financial year, meaning there will be an issuance with at least two tenors. This issuance will likely mirror that done in 2014 when the government raised $2.75 billion through two tranches—a 5-year paper and a 10-year paper.
“Options mooted by the government of Kenya include full repayment with multi-tranche bonds; part buy-back and part repayment with multi-tranche Eurobonds; and part swap part repayment with multi-tranche Eurobonds. Finer details and strategy shall be agreed by lead arrangers,” Treasury’s documents state.
Part buy-back and part repayment of the maturing Eurobond would imply that the government repurchases half the maturing Eurobond as indicated by President Ruto, while retiring the remaining half using proceeds raised from the fresh Eurobond.
Part swap part repayment would imply that the government approaches investors holding a portion of the maturing Eurobond and persuades them to swap/exchange their holdings for the fresh Eurobond at an agreed rate while the remaining portion will be retired.
Kenya is poised to miss its tax revenue collection target in the financial year that ended June 2023, while the new financial year has started on a sobering note after the High Court suspended the implementation of the Finance Act, 2023.
