Kenya Raises $1.5bn Eurobond, Buys Back $579m of 2027 Notes

Key Highlights

• US$1.5 billion Eurobond issuance and US$579 million tender offer for the 2027 Eurobond, supporting Kenya’s proactive debt-management strategy.
• Strong investor demand: 326.7% subscription on the new bond and 64.4% participation in the tender, allowing Kenya to tighten pricing and upsize issuance.
• Yield and structure: New 11-year bond priced at a 9.95% yield with a 9.50% coupon, and a ten-year weighted average life via amortising principal in equal installments from 2034–36.
• Debt sustainability: Transaction de-risks upcoming maturities, reduces expensive external liabilities and reinforces Kenya’s access to international capital markets post-hiatus.
• Key advisors: Citi and Standard Bank cement their role as trusted partners to the Government of Kenya (GoK), marking their second Liability-Management mandate with the nation.

Background: Strengthening Kenya’s Debt Profile

Over the past decade, Kenya’s outstanding Eurobond liabilities have climbed amid infrastructure and social-spending needs. As of early 2025, the country faced roughly US$7 billion in Eurobonds maturing between 2027 and 2034, straining its foreign-currency debt service costs. Recognising these pressures, the GoK, through the National Treasury & Economic Planning, engaged Citi and Standard Bank as Joint Lead Managers (JLMs) on a dual mandate:

1. Issue a new US$1.5 billion Eurobond maturing in 2036, and
2. Conduct a tender offer to buy back up to US$579 million of the existing 7-year 2027 Eurobond.

This Liability-Management operation follows an earlier go-to-market in February 2025—a 10-year dollar bond that raised US$1.5 billion to fund a separate buyback and syndicated-loan repayment (Reuters).

Transaction Mechanics and Pricing

New Eurobond Issue (2036 Maturity)

• Amount: US$1.5 billion
• Coupon: 9.50% per annum, paid semi-annually
• Yield: 9.95% to investors, reflecting tightened pricing amid robust demand
• Tenor and amortisation: Official maturity in March 2036, with principal amortised equally over 2034–36, yielding a ten-year weighted-average life (Cytonn Report).

Bookbuilding revealed US$4.9 billion of orders (326.7% coverage), allowing Kenya to upsize from an initial US$1 billion guidance and secure one of its most favourable borrowing costs since 2019.

Tender Offer for 2027 Eurobond

• Tender cap: US$579 million
  
• Participation: 64.4% of outstanding 2027 bonds, with price set at par plus accrued interest
  
• Settlement: 10 March 2025, following the close of the new-issue in early March (Cytonn Report).

By repurchasing these maturing notes, Kenya extinguished high-cost liabilities at a weighted average yield above 10%, replacing them with longer-dated, more efficient financing.

Market and Investor Reaction

Investors lauded the joint transaction as a signal of Kenya’s debt-management maturity and capital-markets resilience:

• Tightened spreads: The new bond priced roughly 80 basis points tighter than comparable 11-year debt issued by peers in late 2024, underscoring restored confidence.
  
• High allocation: Global fixed-income investors—including U.S. pension funds, European asset managers and Middle Eastern sovereign wealth funds—participated heavily, attracted by attractive yields and the amortising structure.
  
• Rating-agency commentary: While Kenya remains rated sub-investment grade (B2/B– by Moody’s and S&P), analysts noted that liability management helps smooth debt-service peaks and could underpin future outlook upgrades if sustained.

Kenyan Shilling stability around KES 155/USD and foreign-exchange reserves near US$9 billion (covering 4.7 months of imports) further bolstered market comfort ahead of the deal.

Strategic Rationale: De-risking the Maturity Wall

Kenya’s debt-to-GDP ratio, at 66.6% in late 2024, exceeds the IMF’s recommended 50% threshold for emerging markets—and debt-service costs now consume over 30% of revenue (Reuters). The combined issuance and buyback approach:

1. Shifts liabilities to the right: By replacing short-term maturities with an amortising 11-year bond, Kenya spreads out debt-service obligations.
   
2. Lowers average cost: The new bond’s sub-10% yield undercuts earlier 2027 notes issued at 12.0%.
   
3. Signals fiscal discipline: Demonstrates proactive management ahead of looming IMF engagement and domestic revenue reforms.

This methodology aligns with best practices in sovereign liability management, as recommended by the IMF’s Sovereign Debt Restructuring Mechanism guidelines.

Context: Kenya’s Fiscal and Economic Landscape

Growth and Revenues

• GDP growth: Estimated at 5.1% for FY 2024/25, supported by agriculture, manufacturing and digital services.
  
• Revenue mobilisation: Tax efforts have improved collection efficiency, raising revenues to 17.5% of GDP, albeit below the 20–22% benchmark for comparable peers (Reuters).

Expenditure Pressures

• Infrastructure push: Large-scale investments roads, rail (SGR extension), ports and energy require consistent financing.
• Social spending: Obligations on education, health and social safety nets continue to rise, particularly in urban and rural poverty-alleviation programs.

External Support and IMF Programme

Kenya’s current IMF Extended Credit Facility (ECF), agreed in 2022, expired in April 2025. Nairobi is negotiating a successor arrangement to secure US$2 billion in budget support, conditional on continued fiscal consolidation and structural reforms in public finance management.

Comparative Precedents in African Sovereign Issuances

• Egypt: March 2025 saw a US$2 billion 10-year bond at 9.75%, with strong Egyptian-dollar revenues justifying tighter pricing.
  
• Ghana: A 2024 liability-management operation swapped a 2026 maturity for new 2034 debt, reducing financing costs by 200 bps.
  
• Nigeria: Opened a US$1 billion 50-year “Olofin” bond in January 2025, diversifying its maturity ladder and tapping ultra-long capital.

These examples highlight a regional trend: proactive sovereign liability management amid rising borrowing costs and global volatility.

Implications and Outlook

Benefits for Kenya

• Smooth debt-service profile: Lower rollover risk through 2027 and 2028, economically critical years as COVID-19 recovery stabilises.
  
• Enhanced credibility: Regular issuance cements Kenya’s presence in global debt markets, enabling future pandemics or shock responses.
  
• Cost savings: Annual coupon savings of US$30 million relative to 2027-dated liabilities.

Persisting Risks

• Exchange-rate volatility: A 5% depreciation of the Shilling would inflate FX-linked debt-service by US$75 million annually.
  
• Global rate cycles: If U.S. Treasury yields rise, emerging-market spreads could widen, pressuring future taps.
  
• Fiscal slippages: Failure to meet IMF programme targets—on revenue, expenditure and reform benchmarks—could undermine market sentiment.

Conclusion

The successful US$1.5 billion Eurobond issuance and US$579 million tender offer arranged by Citi and Standard Bank mark a pivotal moment in Kenya’s journey toward sustainable debt management. By leveraging strong global investor demand and adopting amortising structures, the GoK has effectively addressed near-term funding pressures and reinforced market confidence. As Kenya negotiates its next IMF programme and pursues ambitious infrastructure and social goals, this transaction lays a firmer foundation for resilient economic growth and prudent fiscal stewardship.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

22nd May, 2025