Yields on Kenya’s eurobonds eased in Thursday trading after the International Monetary Fund’s chief said she’s impressed by economic programs in the East African nation and ready to support them.
(Bloomberg) — Yields on Kenya’s eurobonds eased in Thursday trading after the International Monetary Fund’s chief said she’s impressed by economic programs in the East African nation and ready to support them.
“Impressed by the vigorous actions to keep the economy vibrant in the face of external headwinds,” IMF Managing Director Kristalina Georgieva tweeted late Wednesday after meeting Kenyan President William Ruto in Nairobi. “The IMF stands with Kenya.”
Yields on Kenyan eurobonds due 2048 rose almost 2 cents to about 68 cents on the dollar, their biggest move since March, according to data compiled by Bloomberg. The yield dropped to 12.4%, down from a high of more than 16% last July.
The IMF’s verbal support for the government’s efforts to shore up its finances come at an important time for Eastern Africa’s second-largest economy, with investors increasingly questioning whether it could be the next emerging market headed toward default.
READ MORE: Investors Are Unloading Kenyan Bonds as Default Fears Rise
Kenya delayed paying civil servants’ wages for March amid financing constraints, as it prioritized debt payments. The nation has also halted new road projects as unpaid dues owed to contractors ballooned, and foreign-exchange reserves have fallen below its four months’ import-cover target since January.
Debt Distress
As concerns about Kenya’s finances intensified last month, the extra yield investors demand to hold its debt over US Treasuries has moved to the 1,000 basis-point threshold that investors consider “distressed.” The spread was 988 on Thursday, according to intraday pricing on a JPMorgan emerging-market index. The Kenyan shilling has lost about 10% against the dollar so far this year.
“Given the signal that IMF is confident in Kenya’s progress toward implementing structural reforms, it’s very apparent that investors will kind of rebound in confidence,” said Ronny Chokaa, an analyst at Nairobi-based Genghis Capital. “That would automatically translate to lower yields in Kenya’s eurobonds.”
Separately, the IMF’s resident Kenya representative, Tobias Rasmussen, told Bloomberg that the IMF would disburse $300 million to Kenya after completing a review that starts next week. The funds were expected, with Fitch Ratings saying in a report on May 2 that Kenya could receive more than $1 billion in total support through the rest of the year, including disbursements from the IMF and World Bank.
READ MORE: IMF to Disburse $300 Million to Kenya After Review Completed.
Expected funding from other multilateral lenders, such as this week’s signing of a $3 billion agreement with the African Export-Import Bank, are also driving investors’ improved sentiment on the bonds, said Edwin Gutierrez, head of emerging-market sovereign debt at Abrdn Plc.
“The big question for Kenya is funding the 2024 maturity,” Gutierrez said, referring to a $2 billion bond payment due in June of next year. “So while this is technically project finance, this obviously provides needed financing which helps alleviate investor concerns over payments risk,” he said, referring to the export-import bank deal.
Kenya plans to return to the international capital markets next year to refinance its June eurobond. But no country in Sub-Saharan Africa has been able to borrow on international markets for more than a year.
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