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Bond buybacks give Treasury debt service relief
The domestic buyback, which closed last week, meanwhile saw the government repurchase bonds worth Sh50.06 billion from three papers whose maturities come in April and May.
The exchequer’s decision to refinance a part of its 2019 Eurobond and three Treasury bonds through buybacks has bought it breathing room against heavy debt repayment obligations in April and May, at a time when it has raised its domestic borrowing target in the face of sub-par tax collections.
Through the buybacks, the government has removed a total of Sh88.9 billion worth of maturities from April and May, when the combined external and domestic debt redemptions stand at Sh455.12 billion.
Repayment of the seven-year, $900 million (Sh116.4 billion) Eurobond, which was sold in May 2019 at seven percent interest rate was staggered (amortised) in three equal tranches of $300 million (Sh38.8 billion), starting May this year, to next year and concluding in May 2027.
The government has, however, opted to refinance the entire amount via a buyback that runs until March 3, which is being funded by the issuance of a separate Eurobond which has a tenor of 11 years, and whose sale is ongoing.
By refinancing the $300 million portion that was due in May, the Treasury has cut the external principal debt service for the month from $394.8 million (Sh51 billion) to $94.98 million (Sh12.3 billion), as per World Bank data. The $900 million paper was part of a larger $2.1 billion (Sh271.7 billion) Eurobond, with the other $1.2 billion (Sh155.3 billion) being tapped via a 12-year tranche that carries an interest rate of eight percent.
The domestic buyback, which closed last week, meanwhile saw the government repurchase bonds worth Sh50.06 billion from three papers whose maturities come in April and May.
It targeted a three-year bond ,which was first issued on April 11, 2022, a five-year bond sold on May 11, 2020 and a nine-year infrastructure bond whose debut sale was on May 23, 2016. Prior to the buyback, the bonds had a face value of Sh185.05 billion, which has now shrunk to Sh135 billion.
The buyback was indirectly financed via a pair of reopened infrastructure bonds of 14 and 17-years tenor, which raised Sh130 billion against a target of Sh70 billion.
Their sale closed five days before that of the buyback. Other redemptions in April and May are those of Treasury bills at a combined Sh225 billion, but these are usually rolled over in the weekly sales.
The State turned to buybacks to ease the refinancing pressure in order to avoid a cash crunch towards the end of the fiscal year in June, when the Central Bank of Kenya (CBK) is likely to be under pressure to borrow more to fill the expanded domestic borrowing target.
The second supplementary budget for the 2024/2025 fiscal year, which is currently before Parliament for approval, has sought to adjust the domestic borrowing target from Sh413 billion to Sh593.7 billion.
The adjustment was done after the tax collection projection was revised down by Sh51 billion to Sh2.58 trillion, which alongside higher expenditure of Sh86 billion has caused the fiscal deficit to expand from Sh768.8 billion to Sh864 billion.
