Ruto hits back at global rating agencies over credit downgrade

President William Ruto addressing the media in Nairobi on where he announced the lowering of fertilizer prices from Sh3,500 to Sh2,500. [Denis Kibuchi, Standard]

President William Ruto has defended his government’s intention to buy back part of the $2 billion (Sh282 billion) Eurobond ahead of the June 2024 maturity date. 

The plan has sparked negative sentiments with global ratings agency Moody’s equating it to a default.

But President Ruto, speaking in an interview with Inooro TV on Sunday night, defended the plan while ruling out fears of a possible default.

He said the buyback would help government effectively deal with the repayment burden, adding that he did not foresee any default whose implications would be costly.

“There are people who are tools of colonialists called credit rating agencies saying we will probably default on the Eurobond. They are criticising our plan to buy back this Eurobond debt but we will continue with it,” said Ruto.

“How is the buyback plan a problem?” 

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 Ruto’s plan, announced in June, to buy back half of the 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.”

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.

This is against a backdrop of the weaker credit rating by global rating agencies, signalling taxpayers will have to fork out more to service the planned loan amid tighter global market conditions.  

Global ratings agency Fitch last month also downgraded Kenya’s credit rating outlook, dimming the country’s chances of tapping cheap credit on the international market.

A credit rating or outlook cut is significant because it may influence a country’s cost of borrowing in the international financial markets.

This means the Ruto regime may have to hike taxes, cut spending or seek costly external  commercial loans amid the ongoing economic crisis.

“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 bullet repayment.

“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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