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Kenya Eurobonds dip as Moody's renews foreign debt default fears

Finance CS Njuguna Nding`u during a meeting at a city hotel on August 3, 2023. [Collins Kweyu, Standard]

The government's intention to buy back part of the $2 billion (Sh282 billion) Eurobond has sparked negative sentiments with global ratings agency Moody's equating it to a default.

Bloomberg reported that Kenya's Eurobonds had plunged after the statement by Moody's.

"Redeeming the bonds at a price below par value would constitute an economic loss to investors," it quoted a Moody's' official saying.

David Rogovic, a vice president and senior credit officer at Moody's, was according to Bloomberg reacting to President William Ruto's plan, announced in June, to buy back half of the country's $2 billion (Sh282 billion) of 2024 Eurobonds before the end of this year.

According to Bloomberg, yields on the notes soared 46 basis points on Wednesday, the most in almost a month, to 13.35 per cent.

"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," Mr Rogovic said.

"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."

This is as the government yet again cautioned that the country's headroom for more public debt is narrowing.

"We are choked with inherited debt that must be paid," said Treasury Cabinet Secretary Njuguna Ndung'u.

The situation is compounded by lower-than-expected revenues that could impact the government's ability to deliver on its ambitious bottom-up agenda.

"The economy faces two extreme constraints: financing constraints-tax revenues generated cannot finance the development we wish to have and on the other extreme, we have limited headroom for debt," he said on Thursday at a banking forum organised by the Diamond Trust Bank (DTB).

Public debt stands at Sh9.6 trillion, according to the latest estimates, as both domestic and external liabilities rise rapidly.

Kenya's public debt grew by nearly Sh700 billion in the six months to March this year under President Ruto's government, pointing to a sustained borrowing appetite.

The latest warning by Ruto's top money man came as

Rising borrowing costs and tougher market conditions could mean that the government will struggle to refinance upcoming maturing debt, the World Bank had earlier said.

"Overall public debt remains sustainable; however, risks persist," said the World Bank in its latest regular Kenya Economic update released in June.

The World Bank singled out the $2 billion (Sh277 billion) bullet repayment of Kenya's debut Eurobond due in June next year.

The upcoming bullet payment of previous commercial loans (Eurobond repayment due in 2024) has created a surge in refinancing risks as the cost of borrowing in the external financial market rises," said the World Bank.

Refinancing risk refers to the possibility that a borrower will not be able to replace a debt obligation with suitable new debt at a critical point.

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