Kenya is facing a potential risk of not being able to meet its international debt commitments if it proceeds with President Ruto’s proposal to repurchase a significant portion of the Eurobond before its scheduled maturity in 2024.
Moody’s Debt Service has sounded a cautionary note, suggesting that this move could be seen as a default.President Ruto had announced in June that Kenya intends to buy back a portion of the Eurobond before its maturity, with the aim of easing the country’s debt repayment burden.
However, Moody’s Debt Service has raised concerns that this action might be considered a default, which has implications for the country’s creditworthiness.
This concern has been reflected in a drop in Kenya’s Eurobond prices, causing yields to rise.Moody’s Debt Service Vice President David Rogovic explained that their evaluation of whether this constitutes a distressed exchange, and consequently a default, depends on the specific details and terms of the buyback.
He noted that if the move leads to economic losses for creditors and enables the issuer to avoid a potential default, it would be categorized as such.Moody’s viewpoint contrasts with the Kenyan government’s assertion that it has adequate financing options to repay the Eurobond at maturity.
This disagreement has sparked a debate, with some economists challenging Moody’s assessment. Economist Mohammed Wehliye and Financial Analyst Dickson Magecha argue that if investors willingly sell the bonds and there’s no forced termination, it shouldn’t be labeled as a default.
They suggest that Moody’s classification may be an attempt to pressure Kenya into paying more.
These sentiments align with President Ruto’s stance in June, when he dismissed investor concerns and pledged to redeem a significant portion of the Eurobond before the year’s end. Despite the differing opinions, the situation underscores the complexities surrounding Kenya’s debt management and its potential impact on the country’s financial stability