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.
On August 2nd 2023, Moody’s said that it will treat Kenya’s bond buyback plan as a default. These comments have since triggered a sell off of Kenya’s Eurobonds, spike yield and led to an associated decline in the domestic currency which undermines fiscal efforts, diminishing investor appetite and confidence and threatening success of the buyback plan by the Government.
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. This tiff between Moody’s and the AU institution comes after Kenya’s President Dr William Ruto, in June this year, disclosed plans to buy back half of the country’s $2 billion 2024 Eurobonds debt before the end of 2023.
Apart from Moody’s grim outlook, Kenya has also go 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.
The rating affirmation balances Kenya’s relatively high government debt and external indebtedness and its narrow revenue base against the authorities’ commitment to fiscal consolidation anchored by the IMF programme and strong medium-term growth prospects.
The Rating Agency said that while political risks associated with the August 2022 general election have eased, the Kenya Kwanza administration faces heightened social pressures, including sporadic protests led by former presidential candidate Raila Odinga over his claims of election-rigging as well as legal challenges by civil society groups against government tax increases.
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