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Kenya’s shilling has posted its biggest one-day gain in more than 15 years, after the eastern African nation averted a feared default this year by selling new debt to ease a looming $2bn bond payment.
The currency, which fell one-fifth against the dollar last year, rose about 4 per cent on Thursday, reflecting relief among investors after President William Ruto’s government sold a $1.5bn dollar bond this week.
The money was raised in order to buy back most of a separate bond that threatened to strain the country’s roughly $7bn foreign reserves when it came up for payment in June.
“I want to encourage Kenyans, if you are holding dollars . . . the risk of failure to settle the eurobond is gone,” Chris Kiptoo, the senior civil servant in the country’s finance ministry, told Kenya’s Citizen TV.
“Sell your dollars and get back to business and don’t do any speculation anymore,” he added.
The shilling’s rise to about 146 against the dollar on Thursday, from 160 a month ago, has shifted it from being one of the worst-performing African currencies this year to the strongest.
Ruto’s government also received close to $2bn in demand this week for a shilling-denominated bond of about $500mn, indicating the potential for further inflows from international investors that could help to prop up the currency. Kenya ultimately sold $1.65bn of the bonds, which are designed to fund infrastructure.
Kenya has benefited from a resurgence in demand for African government debt this year, after a decline in US Treasury yields late last year made riskier credits such as junk-rated emerging markets more enticing.
Nevertheless, the country had to accept a yield of 10 per cent on its new eurobond, a heavy repayment burden that governments in emerging markets usually try to avoid if possible.
“I think that was a small price to pay to guarantee certainty and improve investor confidence,” said Thato Mosadi, sub-Saharan Africa strategist at Jefferies, noting that using new bonds for the buyback would preserve Nairobi’s access to cheaper official loans. “Kenya’s credit profile is stronger after this tender.
Like other high-risk African borrowers in recent years, Kenya was locked out of international debt markets until Ivory Coast and Benin broke the deadlock and sold dollar bonds earlier this year.
Payments on Kenya’s new dollar debt will be staggered into $500mn instalments between 2029 and 2031, in contrast to the previous bond.
However, governments in the developing world that have accepted double-digit yields to borrow in foreign currency have often had a poor record of repaying the debt, including Lebanon and Suriname in recent years.
The bond rate was a price Kenya had to pay “given the situation that we are in where liquidity is tight”, Kiptoo said on Thursday, adding the country previously had to pay more than 10 per cent to borrow syndicated bank loans while the bond markets were shut.
