Kenya’s Bond Buyback Eases Refinance Risks –Moody’s
Kenya’s bond buyback has eased the country’s medium term refinance risks, according to Moody’s commentary note. Recall that Kenyan government recently issued a $1.5 billion Eurobond as part of a liability management operation and will use the issuance proceeds to buy back $900 million of its outstanding 2027 Eurobond, and the remainder for budgetary financing.
In a commentary note, Moody’s said the bond issuance and buyback will reduce the sovereign’s immediate financing needs. The Eurobond is Kenya’s second international bond issuance in the past 12 months, with proceeds from both used to buy back bonds with upcoming maturities. Data showed that Kenya will be settling maturing Eurobonds worth $300 million in 2025, 2026 and 2027.
Moody’s said the country’s latest issuances demonstrate improved market access. The new Eurobond was relatively expensive, with a yield of 9.95% for a bond maturing in 2036, compared with the 7% coupon on the 2027 Eurobond maturity.
The issuance closely follows the government securing a $1.5 billion loan from the United Arab Emirates, which has a relatively favorable 8.25% coupon rate.
The UAE loan will increase Kenya’s foreign-exchange reserves to around $11 billion, or about 5.5 months of import coverage.
However, the additional borrowing throws in doubt the completion of the ninth and final review of the IMF program if it leads to a breach of the program’s commercial borrowing ceiling of $1.3 billion.
The new $1.5 billion Eurobond comes amid improving domestic financing conditions, with a stable exchange rate and inflation within the central bank’s target range allowing for monetary easing and declining domestic interest rates.
Consequently, the government’s borrowing costs have significantly fallen from the highs in 2024 The improvement in financing conditions comes as the government now expects a slower pace of fiscal consolidation compared with its prior assumptions.
The Budget Policy Statement, which guides the government’s planning for the fiscal 2026 budget ending 30 June 2026, projects the fiscal deficit narrowing to 4.9% of GDP in fiscal 2025 and 4.3% in fiscal 2026.
The updated fiscal projections are broadly in line with our expectations for fiscal 2025 and fiscal 2026.. Financing these larger than previously planned but still narrowing fiscal deficits through higher net domestic financing is manageable given lower domestic borrowing costs and still strong investor appetite for government securities.
However, if fiscal consolidation does not materialize as planned, or if additional revisions lead to larger fiscal deficits debt affordability will worsen and leave Kenya more vulnerable to changes in financing conditions. #Kenya’s Bond Buyback Eases Refinance Risks –Moody’s#
