What is a Eurobond? Why is Kenya quietly selling third Eurobond in Europe and the US to finance budget, repay lenders?

Image result for eurobond

what is a Eurobond?

Let me start off by giving you an example..

Mr. X is an investor from Kenya who wants to diversify his portfolio by investing in the bonds of European companies. To his annoyance, many of these bonds are priced in British pounds or Euros. Fortunately, there is a solution to his problem called Eurobonds. Let’s review with the good Mr.X what is unique about these bonds, and how they can help further his investment goals.

Image result for eurobond

Eurobond is a bond that is denominated in a currency other than that of the country where it was issued. What this means for Mr.X is that he can buy a bond issued by a British company, except instead of working with British pounds, the bond will be bought, tracked, and sold in US dollars. The term is not exclusive to bonds originating from Europe. Any time the bond is denominated in a currency different than the origin country, it is a Eurobond; for example, even if a Japanese bond is denominated in US dollars instead of yen, it is a Eurobond.

Got it?…..Now, on to the main story.

Related image

Kenyan treasury officials quietly flew out to Europe and the United States to drum up support for a new $2.5 billion Eurobond—the country’s third in five years.

Nairobi’s quest to take up a new Eurobond comes despite rising concern over the sustainability of the country’s public debt in the wake of a slowdown in revenue growth.

The EastAfrican has learnt that the Treasury officials were due to start meeting investors on Thursday May 9 to market the bond which is being sold in two tranches of 12 and 31 years.

Reuters news agency reported that JP Morgan and Standard Chartered bank have been appointed lead arrangers and that the Eurobond that will be listed on both the Irish and London stock exchanges.

Kenya is in dire need of cash to finance its budget and pay off maturing loans, including a $750 million Eurobond priced at 5.875 per cent that is due for payment this June.

Analysts have however argued that Kenya’s attempts to tap into the international debt market without the International Monetary Fund’s $1.5 billion standby facility—it was withdrawn last year—could dampen investor confidence and push premiums on the bond higher.

Leave a Reply

Your email address will not be published. Required fields are marked *