The comment by rating agency Moody’s Investors Service that a decision by Kenya to buy back half of the country’s $2mn Eurobond by December, ahead of full maturity six months later, could be treated as a “default”, has been condemned as “highly speculative” and “damaging”, the Kenyan Wall Street reported.
President William Ruto in June announced a plan to buy back half of the country’s $2bn of 2024 Eurobonds before the end of this year. The Eurobonds plunged on August 2 after the comment by Moody’s, leading the Kenyan leader and bodies of the African Union (AU) to challenge the rating agency’s view.
In a statement on August 4, the African Credit Rating Research & Advisory, an institution of the African Peer Review Mechanism (APRM), which are all under the AU, said Moody’s had chosen to ignore the fact that Kenya’s decision is voluntary, which allows investors the right not to participate.
“Moody’s comments, which were made prematurely before the official details and the terms of the buyback are made public, mischaracterizes Kenya’s prospective Eurobond buyback as a ‘distressed exchange which will result in economic losses to creditors’. The APRM views the comment as highly speculative, damaging and ignores the ‘voluntary’ nature of the proposed bond buyback program, which allows investors the right not to participate.”
President Ruto has also condemned Moody’s, albeit without mentioning it by name, alleging that “rating agencies” were coming out against the buyback so as to create opportunities for vulture funds to restructure the debt.
Concerns about Kenya’s ability to repay the 2024 bonds were cited by Fitch ratings in July, when it revised its outlook on Kenya’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘negative’ from ‘stable’ and affirmed the IDR at ‘B’, or highly speculative.
Fitch said the revision of Kenya’s outlook reflects increased external financing constraints amid high funding requirements, including the $2bn 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.
Moody’s, which rates the debt ‘B3’, cut its outlook to negative in late July, saying that Kenya would face “substantial” debt-service costs even after redeeming the 2024 notes. S&P Global Ratings, which also has a negative outlook on the credit, is due to release a ratings update on August 25.