By BUSINESS DAILY

More by this Author

Kenya's President William Ruto is beating the drums for an early partial Eurobond payment again just a month after the government missed its self-imposed target for doing so by December last year.

Speaking on the sidelines of the Italy-Africa Summit in Rome on Tuesday, Dr Ruto said the government had received the green light from its lead managers -- Citi Bank and Standard Bank -- to effect the buyback within the first quarter of this year before making consideration for a new Eurobond issuance.

“What they have recommended is we do a buyback in February, March, and then we go to the market. Thank God we were right. In fact, the markets have opened for Kenya, as it has for most other countries,” the President was quoted saying by Reuters.

Kenya’s earlier plan to buy back at least Ksh48.2 billion ($300 million) by the end of December fell through after which the Treasury projected it would make the entire Ksh321.5 billion ($2 billion) bullet payment on June 24.

Read: Kenya calms markets with $300m early Eurobond repayment

To fund the buyback, Kenya is widely expected to tap its recently replenished official foreign currency reserves with the International Monetary Fund (IMF) having made a Ksh110 billion ($684.7 million) disbursement from its ongoing multi-year programmes.

As of last week, the Central Bank of Kenya’s (CBK’s) usable foreign exchange reserves climbed by more than Ksh32 billion to Ksh1.127 trillion ($7.017 billion), mirroring the effects of the newly found inflows from the multilateral lender.

Despite having substantive firepower from its usable foreign exchange reserves, the looming maturity of the debut Eurobond has been a pain point for Kenya as it continues to prolong investor jitters over high-interest rates on government debt issuances both in the domestic and foreign credit markets.

Yields on the 2014 Eurobond, for instance, remain elevated from levels seen at issuance. Yields on the paper, for instance, closed at 14.329 percent as of Thursday last week.

While the IMF did not pronounce itself on the previously planned buyback, the multilateral lender indicated it expected the government to deploy funding from the programme, and from other multilateral partners to meet the maturity as access to the international capital markets remained constrained by high interest rates.

“Urgent balance of payment needs have emerged, primarily due to the $2 billion Eurobond maturing in June 2024 as prior expectations of a full rollover via a bond issuance at a reasonable cost is unlikely to materialise under the prevailing global bond market conditions,” the IMF said in a report last month.

Kenya is expecting additional flows from the World Bank’s Development Policy Operations and the African Development Bank (AfDB), with the latter expected to disburse an estimated Ksh15.3 billion (€88 million).

According to the President, while the Trade and Development Bank (TDB) had lent Kenya Ksh33.7 billion ($210 million), the funds remain undisbursed, prompting the government to drop a plan for a syndicated Ksh160.7 billion ($1 billion) loan.

Read: Kenya taps $500m Trade Bank syndicated loan

“Because of the situation that we now see in the market, we believe that it would be a lot easier even for us to raise that money in the market, rather than through syndication,” Dr Ruto added.

The return of Cote d’Ivoire to the international capital markets last month where it raised Ksh417.9 billion ($2.6 billion) has been signalling the return of investor appetites for sovereign issuances in emerging and frontier markets.

The issuance by the West African nation, which generated an order book in excess of Ksh1.2 trillion ($8 billion), is the first for the continent over two years.

Whilst analysts see the opportunity for Kenya to make a fresh stab at its issuance of a new Eurobond, the goldilocks are expected to be hit well after the June maturity as interest rate cuts by central banks of advanced economies prop up market conditions.

“Eurobond yields should compress materially by the second half of 2024 and in the early first half of 2025, and that might be the better time for Kenya to consider external issuance to refinance future debt maturities,” Razia Khan, the Managing Director and Chief Economist for Africa and the Middle East at Standard Chartered Plc, told the Business Daily in a previous interview.