Kenya risks defaulting on some of its international debt obligations if it goes ahead with President Ruto's plan to buy back half of Eurobond before maturity in 2024, Moody's Debt Service has warned.
Ruto in June revealed that Kenya would buy back half of the Eurobond sum before its maturity date in 2024 by the end of this year to ease the country's debt repayment pressure. Moody's Debt Service has warned the move would be treated as a default.
Bloomberg reported on Wednesday that Kenya's Eurobonds dropped with yields increasing by 46 basis points to 13.35 per cent, the highest in 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,” Bloomberg quoted Moody's Debt Service vice president David Rogovic.
Moody’s does not support the premature buyback of Eurobond as it deems the Kenyan government has sufficient financing options to repay at maturity.
In a statement, vocal economist Mohammed Wehliye disagreed with Moody’s assessment of Ruto’s debt servicing plan, remarking that the firm was going way over the top.
The Saudi Arabia-based economist wondered why Moody's would mark the buyback as default if investors sold the bonds willingly.
“Why should the price determine default if it's not a forced termination?” Wehliye posed adding that the move is meant to intimidate Kenya to pay more.
Wehliye’s sentiments were echoed by Financial Analyst Dickson Magecha who stated that it should not be declared as default since there was no forced buying.
Magecha's assertions back claims that Ruto made in June while announcing the plan to tackle Kenya's debt.
“The people who are looking to make a kill from this, they think they can scare us and create a narrative around it,” the President warned after investors warned of default risks.
“I want to promise them that we are going to redeem half of it before the end of the year and we will square it out before time lapses next year. We are in a good space."
