Eurobonds yields rise on Covid, political jitters

Saturday July 17 2021
Eurobond issues

Kenya has raised $7.85 billion through Eurobond issues in the past seven years. PHOTO | FILE


Kenya’s Eurobonds trading on the Irish and British stockmarkets are facing subdued demand on worries over the Covid-19 pandemic and uncertainties surrounding the outcome of cases seeking to block the Building Bridges Initiative (BBI) Bill that seeks to expand the size of the government through a popular vote.

Kenya has raised $7.85 billion through Eurobond issues in the past seven years, which are listed on the Irish Stock Exchange (ISE) and the London Stock Exchange (LSE).

Central Bank of Kenya data shows that the yields on the Eurobonds, which rise when prices fall, climbed by six basis points during the week ending July 8, 2021.

The rise in bond yield signals an increased sovereign risk rating for the country, which has the effect of dampening the prospects of success in future Eurobond issues. The changes in bond yields, however, do not affect the country’s interest payment on the Eurobond trading in the secondary market.

Economists at the British Standard Chartered Bank attributed the decline in prices and the growth in yields of the Kenyan Eurobonds to foreign investors who are jittery about the response to the third wave of Covid-19 and the uncertainties related to the outcome of the Court of Appeal petition on the constitutional amendment through a referendum.

“A six-basis-point move is not very high. However, there have been some Eurobond price losses in the past several weeks because of what is happening both in the global and local markets,” said Eva Otieno, the group’s principal-in-charge of the Africa Strategy.


“Globally, investors are looking at emerging markets as markets that have been heavily impacted by the third wave of Covid-19 pandemic,” she told The EastAfrican.

BBI factor

According to Ms Otieno, the proposed constitutional amendment drive has a huge impact on the performance of the Eurobonds in the international markets.

“BBI is presenting significant fiscal risks in terms of financing the expanded form of government from an economic perspective,” she said.

“A ruling in favour of the BBI would likely see Kenya Eurobond losses because of the risks to the fiscal outlook, with higher fiscal spending expected. On the other hand, an unfavourable verdict would likely be supportive for the Kenya Eurobonds, as investors would interpret that to mean that spending pressures will be contained.”

In 2014, Kenya issued a $2 billion Eurobond and tapped a further $ 750 million, while the second Eurobond of $2 billion was issued in February 2018. In May 2019, Kenya raised $2.1 billion from the international capital markets to pay off other loans including a $750 million Eurobond that matured on June 24, 2019, and other debt obligations.

In June this year, Kenya raised an additional $1 billion by issuing a 12-year Eurobond at 6.3 percent.

Three global rating agencies, S&P, Fitch, and Moody’s Investor Service, downgraded the country’s credit status largely due to its faster than expected accumulation of debt against declining revenue collection and struggling economy raising fears of the possibility of debt distress.

According to Gregory Smith, an emerging markets fund manager at the Global investment management firm M& G Investments, African countries issued $11.8 billion worth of Eurobonds in the first half of 2021, out of the total emerging market sovereign issuance of $109 billion.

These were Kenya ($1 billion, 12.5 years at 6.3 percent), Ghana ($3 billion, multiple bonds with the 13-year portion at 8.625 percent), Benin ($1.18 billion, 11-year at 4.875 percent); Senegal (944.58 million, 16-year at 5.375 percent) and Cameroon ($826.5 million, 11-year at 5.95 percent).