International sovereign credit rating agency, Fith Ratings, has assigned to Kenya’s $1 billion Eurobond a B+ rating action.
The rating according to Fitch, is in line with Kenya’s Long-Term Foreign-Currency Issuer Default Rating (IDR) affirmed at B+ with a negative outlook in March this year.
With a B+ rating action, bonds issued by Kenya is of a non-investment grade and that there is the likelihood of the country defaulting on its debt obligations.
Kenya has appointed Citi and JP Morgan as joint book-runners for its $1 billion sovereign bond issue.
Already, meetings with investors over the bond have started, the bond will have a 12 to 15-year tenor.
Read details of the rating action by Fitch Ratings:
KEY RATING DRIVERS
Fitch Ratings has assigned Kenya’s proposed senior unsecured US dollar bonds a ‘B+’ rating.
The rating is in line with Kenya’s Long-Term Foreign-Currency Issuer Default Rating (IDR).
Fitch affirmed Kenya’s Long-Term Foreign- and Local-Currency IDRs at ‘B+’ with a Negative Outlook on 26 March 2021.
RATING SENSITIVITIES
FACTORS THAT COULD, INDIVIDUALLY OR COLLECTIVELY, LEAD TO NEGATIVE RATING ACTION/DOWNGRADE:
The bond’s rating is sensitive to changes in Kenya’s Long-Term Foreign-Currency IDR.
The following are the rating sensitives for the sovereign rating published in the rating action commentary on 26 March 2021.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
– Public Finances: A failure to stabilise government debt/GDP, after a further increase in 2020 related to the coronavirus shock, for example owing to a failure to reduce sufficiently the fiscal deficit.
– Macro: Delays to the expected economic recovery and lower medium-term growth potential, for instance due to political instability around elections or more lasting impact of the Covid-19 crisis.
– External Finances: Widening of the CAD or increases in net external debt, for instance through a sustained fall in exports, remittances, and other external receipts; or through the emergence of strains on external financing.
FACTORS THAT COULD, INDIVIDUALLY OR COLLECTIVELY, LEAD TO POSITIVE RATING ACTION/UPGRADE:
The main factors that could, individually or collectively, lead to positive rating action/upgrade are:
– Public Finances: A stabilisation of government debt/GDP at or near current levels, which under Fitch’s baseline growth and interest-rate scenario would likely require a sustained fiscal consolidation to reduce the budget deficit to around 5%-6% of GDP.
– External Financing: A significant decline in net external indebtedness, for example through higher foreign direct investments or a narrowing of the CAD.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years.
The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from ‘AAA’ to ‘D’. Best- and worst-case scenario credit ratings are based on historical performance.
