(Bloomberg) -- Kenyan dollar-bond prices dropped after Fitch Ratings downgraded the country’s credit score further into junk territory because of budget risks.
The 2048 notes were among the worst performers in a Bloomberg index tracking over 600 sovereign emerging and frontier bonds. The price fell to 73.59 cents on the dollar on Monday, the steepest one-day decline since October and reaching its lowest level since Nov. 20 last year.
The rating cut marked the second downgrade less than a month after a similar step by Moody’s Investors Service. Both actions have sent Kenya’s credit spread creeping higher toward distressed territory — widely described as 1,000 basis points above Treasury yields.
Fitch said its move reflected “heightened risks to Kenya’s public finances” after the government was forced to make a u-turn on a finance bill that envisaged raising taxes as a key source of more budget revenue.
Fitch downgraded the nation’s foreign-currency ratings to B- on Friday, six levels below investment grade, from B. The move put Kenya’s credit score on par with Nigeria, Egypt, Angola and Iraq. The outlook was changed to stable, Fitch said in a statement.
Kenya’s Debt Cut Deeper Into Junk by Fitch on Tax Hike Reversal
Attempts to shore up state finances by introducing levies on various goods, including bread and diapers, meant to raise more than $2 billion, but the government in Nairobi scrapped the plan in July after deadly protests.
Kenya is at a high risk of debt distress, according to the International Monetary Fund, and is currently on a $3.6 billion program with the lender to help address its vulnerabilities.
Bonds due in 2028 also fell, while the price of notes maturing in 2031 traded at the lowest since their issuance in February. The yield on the 2031 securities rose to 11.41% by 12:31 p.m in Nairobi.
While the prices now reflect the current events, they could fall to single digits over longer term as the markets may have “underestimated or underpriced” the past budget improvements and the situation with upcoming debt maturities, according to Ronny Chokaa, a senior research analyst at Nairobi-based AIB-AXYS Africa.
“Future obligations are fairly within manageable thresholds, nothing more than $1 billion at a single payment,” Chokaa said. “This, in my view, should give us that wiggle room to refinance debt efficiently.”
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