AU Body Criticizes Moody’s Remarks on Kenya Eurobond Plan
The African Peer Review Mechanism (APRM), a platform for member states to self-monitor at the continental level, is supporting Kenyan President William Ruto’s accusation that the rating agency Moody’s is engaged in blackmail.
Kenya is facing a situation where a significant amount of its Eurobond debt is set to mature in 2024. To prolong the timeline for repayment, Kenya has expressed its intention to repurchase a segment of this debt.
However, Moody’s, a credit rating agency, recently indicated that it could potentially view this action as a form of default. Such an interpretation might impact the financial terms associated with the buy-back process.
The APRM, a self-governing body within the African Union responsible for upholding optimal standards in economic governance and administration, stated that Moody’s remarks “were made prematurely before the official details and the terms of the buyback are made public.”
In a communication issued on Friday, the APRM noted that these remarks caused a decline in the value of Kenya’s Eurobonds, a sudden rise in yields, and subsequently contributed to an ongoing decrease in the value of the domestic currency.
“This undermines the government’s fiscal efforts, diminishing investors’ appetite, and confidence, thereby compromising the success of the buyback program,” APRM said.
“The APRM further views Moody’s speculative comments on Kenya’s default event as, in effect, a pre-emptive rating action equates to a ‘premature release of a credit rating to the public’,” they added.
Moody’s Vice President and Senior Credit Officer, David Rogovic, provided this statement in reply to questions from Bloomberg. He emphasized that if the bonds were repurchased at a value below their face value, it would result in a financial setback for investors. Consequently, they would interpret this situation as a form of default.
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But APRM says this was “highly speculative, damaging, and ignores the ‘voluntary’ nature of the proposed bond buyback, which allows investors the right not to participate.”
APRM called on the African Network of National Regulators of Rating Agencies to take action to ensure “proper conduct” of rating agencies, to cub “continuing impromptu pessimistic and negative commentaries by rating analysts that are neither linked to any rating action nor in-depth research report.”
The APRM’s position contributes to the increasing disapproval expressed by the continental organization, which asserts that Western credit agencies frequently lower the credit ratings of African economies. This, in turn, raises the costs for these nations to enter the market.
The African Union (AU) has suggested the establishment of a continental credit assessment organization. This agency would factor in the collective economic prosperity of African nations when assessing potential risks.
The concept of adjusting rating standards was initially brought up by the African Development Bank earlier in the current year. The regional development institution contends that existing rating agencies have frequently disregarded the wealth present within countries.
For instance, they overlook factors like the capacity to absorb emissions from industrialized polluters through Africa’s natural forests, as well as the fact that African nations are not involved in certain global issues that have adversely affected economies.
AU Body Criticizes Moody’s Remarks on Kenya Eurobond Plan
