Kenya plans to settle $300m of $2bn Eurobond debt in December

The announcement of Kenya's decision to buy back $300 million of its $2 billion Eurobond led to a temporary decrease in yields on benchmark Kenyan government bonds, though they later edged back up. While the buyback is considered a positive move, especially given the substantial size of the maturity, there are concerns that if the buyback is executed below par value, it could potentially lead to a rating downgrade. Kenya's escalating debt burden has become a significant concern for investors, particularly as the country grapples with soaring energy and food import bills, coupled with foreign exchange reserves standing at a modest $6.84 billion. As of June 2023, public debt, in present value terms, reached 64.4% of its gross domestic product (GDP), exceeding the stipulated ceiling of 60%, as reported by the National Treasury. Investor unease has heightened, particularly regarding how Kenya will manage the buyback of its debt amid dollar shortages. Warnings from credit rating agencies such as Moody's Investors Service and S&P Global Ratings suggest that any redemption below par value could be considered a default. Fitch Ratings further cautioned on Tuesday that it might downgrade Kenya's credit rating based on the extent to which the nation utilizes its foreign reserves to settle Eurobond payments. These dynamics underscore the challenges Kenya faces in managing its debt situation and maintaining financial stability.