Kenya is set to return to international capital markets with a new Eurobond issuance in 2026, a year before the maturity of a similar bond. Recent disclosures by the Treasury indicate plans for sovereign bonds and private placements from the 2023/24 to 2027/28 financial cycles. The first Eurobond of this series was issued in February to partially repay another bond.
Despite a strategic shift towards cheaper external borrowing sources like the World Bank and the International Monetary Fund (IMF), the planned new Eurobond shows Kenya’s continued reliance on international capital markets. “To enhance mobilisation of funds from external and domestic sources, the National Treasury will issue international sovereign bonds (ISBs) and private placements to investors,” stated the Treasury in its 2023-2027 strategic plan.
Kenya is scheduled to retire its next Eurobond in May 2027, amounting to KES 116.5 billion (USD 900.0 million). This bond is amortised, meaning the government is gradually paying down the principal along with interest, avoiding a large one-off payment at maturity. An amortised loan requires periodic payments applied to both the principal and interest, with interest expenses cleared first before reducing the principal.
The Treasury faces a significant one-off payment of KES 129.5 billion (USD 1.0 billion) in February 2028, which might be managed through the issuance of another Eurobond. Currently, Kenya’s outstanding Eurobonds total KES 854.8 billion (USD 6.6 billion), with further maturities expected in February 2031, May 2032, June 2034, and February 2048.
In February, the Treasury raised KES 194.2 billion (USD 1.5 billion) from its latest Eurobond, set to mature in three equal instalments in 2029, 2030, and 2031. Proceeds from this Eurobond were used to partially repay the 2014 KES 259 billion (USD 2.0 billion) sovereign bond, which was fully settled last month.
While advocating for low-cost borrowing, the Treasury views international capital markets as essential for meeting external borrowing requirements. “International capital markets provide essential liquidity for the government and the successful transaction underscores investor confidence in Kenya,” said Treasury Cabinet Secretary Prof. Njuguna Ndung’u at the close of the most recent Eurobond issuance.
The Treasury has been planning a second Eurobond buyback of KES 129.5 billion ($1.0 billion) this year, likely targeting the 2028 sovereign bullet payment. However, it remains unclear if this buyback will involve issuing another Eurobond.
Sovereign bond maturities in February 2028 and 2048 will require single settlements of the principal amounts, posing high-risk payments amidst potential liquidity shortfalls. For the first time, Kenya will also aim to issue innovative bonds, including green, blue, sustainable, Panda, Samurai, and Sukuk bonds, along with debt swaps to diversify borrowing sources.
Green, blue, and sustainable bonds fund specific sustainability projects, while Panda and Samurai bonds are denominated in Chinese and Japanese currencies, respectively. Sukuk bonds, compliant with Shariah law, appeal to Middle Eastern investors, and debt swaps involve varied forms, including debt write-offs and deploying subsequent savings in sustainability projects.
The Treasury plans three such issuances in 2024, 2025, and 2027. Kenya hopes for a favorable interest rate environment in international capital markets to support its Eurobond return, with advanced economies expected to cut interest rates by 2025, increasing liquidity for issuers. Post-pandemic interest rate hikes to counter inflation had previously kept Kenya out of international capital markets, leading to reliance on World Bank and IMF loans to navigate revenue shocks from the Covid-19 disruption.
