Kenya credit rating seen as favourable ahead of Eurobond

Rating agency Moody’s has backed Kenya’s credit worthiness ahead of the launch of a $1.5 billion (Sh132 billion) sovereign bond later this month.

Moody’s described Kenya’s creditworthiness as favourable, assigning the government and the sovereign bond a B1 rating with a stable outlook.

Analysts at the firm said in its latest update that the assessment took into account the gains and challenges facing the economy and the government performance in managing debts.

“The B1 rating reflects, on the one hand the resilience of the Kenyan economy as a result of ongoing structural changes that over time should increase the country’s still-low levels of wealth, the government’s commitment to institutional reforms, which could reduce long-standing political risks, and on the other hand, relatively high debt levels as well as large current account and fiscal deficits, and the country’s weak institutional capacity,” said the outlook report.

Moody’s says Kenya debt levels which it estimates will stand at 53.4 per cent to GDP in 2014, is relatively high when compared to countries with a similar rating.

The agency says that an upgrade of the rating will happen if the government stays on course at making institutional reforms and if more capital flows begin to trickle in as the nascent oil and gas industry develops.

“A strong improvement in Kenya’s institutional strength would put upward pressure on its rating. Further progress on economic diversification, particularly from oil export development and growth, would be another credit-positive for Kenya’s ratings,” said Moody’s.

Fitch, another rating agency, also said that the flows to the extractive industries should improve the country’s creditworthiness.

“Fitch expects sub-Sahara Africa to continue benefiting from rising foreign direct investment, particularly in emergent oil and gas producers like Mozambique, Kenya and Uganda,” said Fitch in mid-May.  

Fitch, similar to Moody’s, has assigned Kenya with a ‘B+’ rating with a stable outlook. Proceeds from the sovereign bond will be used to finance infrastructure and pay a $600 million (Sh52.6 billion) syndicated loan borrowed in 2012.

The bond is to be floated on the Irish Stock Exchange.