Citigroup and ICBC Standard Bank Plc have in the past three months sold debt instruments worth Sh1.5 billion to international investors based on Kenyan government bonds.
The global banks purchased debt of the same value issued by Kenya and repackaged them for investors in transactions aimed at protecting the companies from the risk of default.
Investors buying the securities –known as credit-linked notes— from the banks are seeking exposure to Kenya’s debt market but don’t want to buy the bonds directly.
In case of Kenya’s default or another adverse development, the banks will pay investors amounts reflecting the losses. This ensures that the banks can hold Kenyan bonds while avoiding credit risks at all times.
The credit-linked notes are listed on the Irish Stock Exchange where they are tradeable.
Market data shows that ICBC on December 18 issued Sh160 million worth of such securities based on its purchase of Kenya government bonds that will mature on November 20, 2024.
The bank had on November 25 sold Sh450 million of debt instruments referencing Kenya’s bonds due on a similar date.
It had also, on October 23, issued Sh674.7 million of securities based on the country’s bonds maturing on December 4, 2024.
Citigroup Global Markets Holdings, meanwhile, on November 21 sold Sh230 million of unsecured notes referencing Kenya’s bonds with no stated maturity.
Institutions and wealthy individuals are the major buyers of credit-linked notes. Banks are barred from marketing them to retail investors who are presumed to be ill-suited to handle the potential risks in the assets.
Global investors can use the notes to diversify and gain exposure to countries that rarely issue bonds in the international markets.
Kenya has, however, in recent years opted to issue a series of Eurobonds to support its increased spending on infrastructure and other programmes.
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