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Interest paid on Eurobonds rises by Sh11.5 billion
The rise in debt service costs on Kenya’s Eurobond portfolio mirrors the impact of rising interest rates in the international capital markets in recent years.
Interest payments on Kenyan Eurobonds are expected to rise by Sh11.5 billion to Sh85.4 billion in the new financial year starting July 1, on a costlier sovereign bond issued earlier this year.
Debt servicing costs for the sovereign bonds are also expected to rise from Sh73.8 billion in the current financial year after the issuance of a new Sh193.9 billion ($1.5 billion) security in February at an interest rate of 9.5 percent.
Proceeds from this paper were used to partially buy back part of a Sh116.3 billion ($900 million) Eurobond issued in 2019 at a rate of seven percent.
Investors agreed to sell back 64.4 percent of the 2019 paper before its maturity, leaving a balance of Sh41.4 billion ($320.4 million), which the government continues to service.
Consequently, interest payments on the $900 million Eurobond have dropped from an estimated Sh8.55 billion in 2023/24 to Sh2.05 billion in the current fiscal year.
The issuance of the new $1.5 billion Eurobond in February has, nevertheless, more than offset these savings, as taxpayers are expected to foot Sh19.7 billion interest payments in the 2025/26 fiscal cycle on the larger bond.
The early repayment of the 2019 Eurobond was executed to ease the burden of redemptions, which were set at three equal tranches of Sh38.7 billion ($300 million) starting in May of this year, and continuing in the following two years.
The recently issued Eurobond enabled the government to defer repayment further down the road with the redemption of the 2025 paper set to be paid in three equal instalments of Sh64.6 billion ($500 million) in February 2034, February 2035 and February 2036, respectively.
“Proceeds from 2036 Eurobond will be used to refinance existing external debt, including the planned buyback of Kenya’s $900 million Eurobond maturing in 2027,” the National Treasury said in March.
“This transaction follows the successful issuance of the 2031 Eurobond in February 2024 and the full payment of the 2024 Eurobond. It aligns with the government’s strategy to smooth the maturity profile of Kenya’s external debt and pro-actively manage public debt liabilities.”
The rise in debt service costs on Kenya’s Eurobond portfolio mirrors the impact of rising interest rates in the international capital markets in recent years.
Other Eurobonds in Kenya’s commercial borrowing portfolio include the 2018 Sh258.4 billion ($2 billion) sovereign bond, the 2019 Sh155 billion ($1.2 billion) paper and the 2021 Sh129.2 billion ($1 billion) note.
Kenya was forced to issue its February 2024 Eurobond to support a buyback of the country’s debut Sh258.4 billion ($2 billion) sovereign notes, which were floated in 2014, after investors became jittery over a potential default as the government faced a single outsized/bullet payment.
The fears triggered a sharp depreciation in the Kenyan shilling amid market speculation surrounding the maturity.
The National Treasury has recently begun targeting local bonds for similar buybacks, and has paid Sh50 billion domestic notes that were due to mature in April and May this year.
