Kenyan government plans to buy back half of the country’s $2-billion-euro bond before the end of the year have sent the wrong message to investors making them wary of Kenya’s ability to meet its debt obligation just months after international rating Moody’s downgraded the country’s risk from B2 to B3 marking Kenya at a high risk of default.
Kenya’s Eurobonds plunged after Moody’s Investors Service said it may treat a planned buyback of some of the debt as a default.
In June of this year, President Dr. William Ruto disclosed plans to buy back half of the country’s $2 billion 2024 Eurobond debt before the end of 2023. Moody’s says it may treat the planned buyback of some of the debt as a default.
Redeeming the bonds at a price below par value would constitute an economic loss to investors, David Rogovic, a vice president and senior credit officer at Moody’s, said in response to Bloomberg’s emailed questions.
Rogovic was commenting on President William Ruto’s plan, announced in June, to buy back half of the country’s $2 billion of 2024 Eurobonds before the end of this year. The move has set Kenya back with the yield on Kenya bond soaring 0.46% on Wednesday, the most in almost a month, to 13.35%.
“We deem a distressed exchange occurs when there are economic losses to creditors and when the transaction has the effect of allowing the issuer to avoid a likely eventual default,” Rogovic said. “We need to see the details and the terms of the buyback before we can assess whether it constitutes a distressed exchange, and therefore a default under Moody’s definition.”
“We think the government has sufficient financing options to repay 2024 Eurobond,” Rogovic added.
Moody’s, which rates the debt B3, cut its outlook to negative last week, saying Kenya would face “substantial” debt-service costs even after redeeming the 2024 notes. Apart from Moody’s grim outlook, Kenya has also gone downgrades from Fitch as well as S&P Global Ratings.
In July, Fitch Ratings revised the Outlook on Kenya’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable and affirmed the IDR at ‘B’. Fitch said the revision of Kenya’s Outlook to Negative reflects increased external financing constraints amid high funding requirements, including a US$2 billion Eurobond maturity in 2024, weakening international reserves, rising financing costs, and uncertainty regarding the fiscal trajectory, for example, due to execution risks of the announced tax hikes amid social unrest.
S&P Global Ratings, which also has a negative outlook on credit, will release ratings update on August 25.
Kenya’s other Eurobonds also declined on Wednesday, with the yield on benchmark 2032 notes rising 18 basis points to 10.73%.
Moody’s Credit Rating Agency comments on Kenya’s planned buyback of its Eurobond debt as a default, has been dismissed as highly premature, speculative and damaging by the African Credit Rating Research & Advisory, an institution of the African Union. The African Peer Review Mechanism (APRM) said in a statement that Moody’s comments ignore the ‘voluntary’ nature of the proposed bond buyback program, which allows investors’ the right not to participate.
APRM further views Moody’s speculative comments on Kenya’s default event as a pre-emptive rating action and equates it to a premature release of a credit rating to the public. APRM warns against the continued impromptu pessimistic and negative commentaries by Moody’s rating analysts, who it says are neither linked to any rating action or possess any in-depth research reports on the matter.
The AU institution is pushing for Africa Network of National Regulators of Rating Agencies to institute appropriate regulatory measures to ensure proper conduct of credit rating business.
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