Standard and Poor’s (S&P), a global credit ratings agency, expresses confidence in Kenya’s potential success in tapping into Islamic financing to repay the Eurobond maturing in June this year. S&P’s analysis suggests that Kenya may issue its first Sukuk bond in 2024, nearly seven years after the initial attempt in 2017.
Sukuk Bond and Maturing Eurobond:
S&P’s director of financial rating services, Samira Mensah, highlights that a sovereign Sukuk could assist Kenya in accessing untapped liquidity pools and attracting foreign investors, including those from the East African Community and Gulf countries. The Sukuk bond, a Sharia-compliant financial instrument, provides an avenue for financing from the Muslim community.
Potential Benefits of Sukuk Bond:
S&P suggests that a sovereign Sukuk could enable Kenya to mobilize savings, diversify investment opportunities, and establish a sovereign benchmark for corporate Sukuk prices. The analysis emphasizes the importance of this alternative financing method as Kenya faces the maturity of the $2 billion Eurobond in June 2024.
Government’s Interest and Economic Implications:
The Treasury had expressed interest in issuing a Sukuk bond in 2023 as part of its plans to raise funds for the repayment of the 10-year Eurobond. The Eurobond’s impending repayment has raised concerns among investors and economists, with Moody’s indicating last year that a failed buyback would be treated as a default.
President’s Assurance and Economic Stakes:
President William Ruto’s announcement of a green light for a Eurobond buyback by March has reassured markets. Economists acknowledge the high stakes associated with the Eurobond repayment, and while a default is deemed highly unlikely, the ultimate resolution remains unclear.
African Sukuk Issuance Trends:
S&P notes that only eight African countries have issued Sukuk bonds, raising approximately $6.6 billion since 2014. The issuance of sovereign Sukuks in African countries, including Kenya, has historically been limited due to complexities and evolving Sharia requirements associated with Sukuk issuance.