Kenya has started meetings with potential investors in London ahead of the issuance of a bond, keeping its options open for the best deal from a Eurobond to a Shariah-compliant Sukuk or the Japanese Samurai bonds.
The Business Daily has learnt that officials from the National Treasury met a section of large bond investors in London on July 7 to signal to the markets that Kenya is getting ready to settle the $2.0 billion (Sh282.2 billion) Eurobond maturing in the current financial year.
This comes barely two weeks after President William Ruto revealed that his government plans to repurchase half of the bond due for maturity in June.
The Treasury’s pitch at the meeting reveals Kenya is targeting to onboard lead arrangers before the close of this month in what it says will tell the global market about the country’s preparedness to settle the maturing debt.
Two tenors
“As a signal to the market, target to onboard 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 Treasury’s presentation to investors states.
It has emerged that the government is keen on floating a multi-tranche Eurobond in the current financial year, which means that the country may issue bonds of at least two tenors when it eventually goes to market later this year.
This suggests that the Eurobond issuance planned for 2023/24 will likely mirror that done in 2014 when the government raised $2.75 billion through two tranches, a five-year paper and another for 10.
“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,” the Treasury’s presentation to investors states.
Part buyback and part repayment of the maturing Eurobond would imply that the government repurchases half the maturing Eurobond as indicated by President William Ruto while retiring the remaining half using the proceeds raised from the fresh Eurobond due for issuance later this financial year.
Egypt way
Part swap-part repayment would imply that the government approaches investors holding a portion of the Eurobond maturing in June 2024 and persuades them to swap/exchange their holdings for the fresh Eurobond to be issued later in the current financial year for an agreed coupon while the remaining portion will be retired.
The government is also considering following in the footsteps of Egypt in the issuance of a Sukuk bond to help in addressing the maturity of the June 2024 Eurobond.
A Sukuk refers to a Shariah-compliant bond issued on the global markets.
In February 2023 Egypt raised $1.5 billion (Sh211.8 billion), through the issuance of three-year Sukuk bonds with investor demand having been reported at a staggering $5.4 billion (Sh755.5 billion).
The Treasury is also toying with the idea of floating a Samurai bond as part of the liability management exercise.
A Samurai bond is a debt issuance denominated in the Japanese Yen and subject to Japanese regulations.
The consideration of a Samurai bond reveals efforts by the government to mitigate rising foreign exchange pressures given that the shilling has been relatively more stable against the Japanese Yen compared to currencies such as the US dollar and the Sterling 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 the issuance of a Sukuk following Egypt’s (B+/B2) successful issuance in February 2023 or issuance of a Samurai bond,” the Treasury’s presentation to investors states.
The shortlist of 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, the National Treasury has made a provision of Sh241.3 billion for the maturity of the June 2024 Eurobond.
