Moody’s warns bad publicity over ICC to hit Eurobond bid issue

International Monetary Fund African department assistant director Domenico Fanizza at a past event in Nairobi. Photo/Diana Ngila 

By John Gachiri,

In Summary

• Agency says planned withdrawal from Rome Statue risks lowering Kenya’s rating.

Increasingly bad publicity surrounding the International Criminal Court (ICC) trials could make it more expensive for the Treasury to borrow from global markets, a rating agency says.

Moody’s noted the trials, the planned withdrawal from the ICC and a weak global market could not have come at a worse time for Eurobond issuance.

The US agency says the combination of these factors could derail the issuing of the bond expected to take place by the end of the financial year that ends next June.

“We expect the ICC proceedings to raise the risk premium on the bond and, in conjunction with a deteriorating global environment for high-yield sovereign issuers, potentially delay its issue until next year,” said Edward Al-Hussainy, assistant vice president and analyst at Moody’s in an outlook report for Kenya.

The Treasury is expected to issue a $1.5 billion (Sh131 billion) bond with a green-shoe option of raising up to $2 billion (Sh175 billion). It has said that transaction advisers will be picked in the next three months.

Reuters quoting sources has reported that Bank of America, Myrrill Lynch, Barclays, BNP Paribas, Citigroup, Deutsche Bank, JP Morgan, KCB, Standard Bank and Standard Chartered as some of the institutions angling for a piece of the action.

Kenya has a B1 or stable rating but Moody’s says the publicity surrounding risks lowering the rating. Kenya also has an unhealthy balance sheet.

“This will be credit negative for the sovereign given its rising domestic financing costs, which reflect a budget deficit that the government forecasts will exceed seven per cent of GDP in 2013 and a weakening Kenyan shilling, which has fallen 4.5 per cent against the dollar over the past four months,” said Mr Edward Al-Hussainy.

A lower credit score will mean more revenues going towards repaying the debt at the expense of service delivery with a negative spin-off for local firms seeking to raise capital from international markets.

Kenyan banks have indicated that they too are looking to raise funds at the global markets, where they are benchmarked on the sovereign rating, for further growth.

Equity Bank and KCB have sought ratings, a move seen as first step to raising funds from the global markets.

Other rating agencies, however, said that the time is ripe for Kenya to make its debut in the international bond market.

At the International Monetary Fund (IMF) briefing on the economy, another US rating agency Fitch said that Kenya is a disciplined borrower and as such should be able to comfortably payback the loan. Fitch has assigned Kenya a B+ or stable rating similar to its peer Standard & Poor’s.

Economists also said that the government’s ability to manage its finances has a bigger impact than other risks.

“A track record of prudent macroeconomic policy can be more important for investors than episodic international turmoil, because of its impact on the country risk premium,” said a presentation by Domenico Fanizza who led the IMF delegation at the forum