Kenya’s Eurobonds fell sharply, after Moody’s Investors Service suggested it would interpret a planned buyback of some of the debt as a default.
According to David Rogovic, a vice president and senior credit officer at Moody’s, investors would suffer a financial loss if the bonds were redeemed at a price lower than their par value.
He was making a comment regarding President William Ruto’s June announcement that he would buy back half of the nation’s USD 2 billion in 2024 Eurobonds.
Recently, yields on the Kenyan Shilling increased by 46 basis points to 13.35%, the highest level in nearly a month.
“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. 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,” David Rogovic said.
According to President William Ruto, the nation won’t let its debts go unpaid.
Investors’ attention has been drawn to Kenya’s debt load as the nation struggles with a dollar shortage and increasing import costs for food and electricity.
With central bank hard currency reserves standing at just USD 7.4 billion, some investors are concerned that it may be compelled to restructure its debt, joining other African countries like Ghana and Zambia.
“We think the government has sufficient financing options to repay the 2024 Eurobond,” David Rogovic said.
According to Fitch Ratings, Kenya’s capacity to repay the 2024 bonds has been a source of concern, which downgraded the outlook on the country’s debt to negative in July despite maintaining the country’s credit rating at B, or highly speculative.
According to Moody’s, Kenya will have ‘substantial’ debt-service obligations even after redeeming the 2024 notes, which grades the country’s debt B3 and lowered its outlook to negative.