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Kenya’s Eurobond Buyback Fuels Investor Confidence

BY Standard Investment Bank · February 9, 2024 01:02 pm

KEY POINTS

The minimum amount of notes for sale has to be USD 200,000, with subsequent sales allowed in increments of USD 1,000. The results will be announced on 15th February and settlement done on 21st February 2024.

Kenya has made a tender offer to repurchase a portion of its USD 2bn Eurobond due to mature in June 2024 from investors.

The offer coincides with the country’s issuance of new notes, undertaken to optimize the management of Kenya’s external debt by achieving a more balanced distribution of maturity dates for bonds.

KENINT 2024 has an outstanding principal of USD 2bn and coupon of 6.875% and will be tendered in exchange for cash, subject to the Maximum Tender Amount. Investors holding the current Eurobond who intend to purchase some of the new notes will need to complete a separate application for their acquisition.

Additionally, investors may opt to acquire a greater quantity of the new bonds than the existing ones being sold. It is noteworthy that the deadline for applications to purchase the new bonds may precede the deadline for selling the existing bonds.

There is scant disclosure on the details of the new bonds, including the maximum tender amount, the coupon, and maturity date – we suspect efforts to avoid any implication of actively encouraging Eurobond holders to sell their securities. The details will be communicated on 12th February. The expiration date for the offer is set for February 14, 2024.

Key to note Kenya will only buy back existing notes if they successfully issue the new bonds or secure other financing that meets their requirements. According to the tender offer memorandum, Kenya is not obligated to buy back all existing bonds through the offer. If the total amount of KENINT 2024 bonds tendered for repurchase exceeds the maximum tender amount, Kenya will repurchase bonds from all investors, but only a fraction of each investor’s requested amount.

The minimum amount of notes for sale has to be USD 200,000, with subsequent sales allowed in increments of USD 1,000. The results will be announced on 15th February and the settlement done on 21st February 2024.

In our debt report titled; On a Wing and a Prayer, we highlighted that with various initiatives (and a little prayer) – Kenya would navigate through its debt challenges, albeit with some turbulence and uncertainty along the way.

Following this development, we view the tender offer as a strategic measure in debt management, facilitating the optimization of the country’s debt structure by coupling the buyback with the successful issuance of new notes. This initiative arises amid Kenya’s imperative to address market perception and bolster debt sustainability amidst escalating debt levels and high borrowing costs. Notably, the announcement of the buyback led to a 480bps decrease in yields on KENINT 2024, signaling a favorable reception from investors and heightened demand.

However, conditioning the buyback on the success of new note issuance introduces uncertainty, particularly if the issuance proves unsuccessful. Nevertheless, we anticipate an opening window in the offer, aligning with recent trends observed in countries such as Benin and Ivory Coast, which experienced notable oversubscription.

In other news, Kenya and Japan have entered into a memorandum of understanding facilitating the issuance of a Samurai bond between the National Treasury of Kenya and Nippon Export and Investment. This agreement, expected to be finalized by June, will allow Kenya to issue a Samurai bond totaling USD 500mn, distributed in two phases of USD 250mn each.

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