Kenya Risk Premium Widens After Latest Paris Club Debt Relief

NAIROBI (Capital Markets in Africa) — Yields on Kenyan Eurobonds rose, widening the risk premium over U.S. Treasuries, after the Paris Club of creditors granted the East African country’s request for a delay in some interest payments, raising concern of potentially larger debt challenges.

The Paris Club of creditors agreed to delay $300 million of debt-service payments by Kenya, the nation’s Treasury said. Kenya, however, won’t seek debt suspension from multilateral and commercial creditors, as it wants to safeguard its sovereign rating and its future access to international financial markets, it said. Still, the move unnerved some investors, according to NCBA Bank Kenya Ltd.

The decision to request relief “is a confirmation that our debt position is not healthy,” said Faith Atiti, a senior economist at Nairobi-based NCBA Bank. “Any investor would want to adjust the risk assigned to the country.”

Several African governments are seeking debt-payment pauses and cancellations in the wake of the economic fallout from the coronavirus pandemic. In November, Zambia become Africa’s first sovereign default since the virus struck, after bondholders rejected the government’s request for debt relief.

Yields on Kenya’s Eurobonds due 2027 jumped 11 basis points on Tuesday to 5.17% after climbing 10 basis points the previous day.

The yield on securities due 2048 rose 12 basis points to 7.2%, the highest level since Dec. 1.

The extra yield investors demand to hold Kenya’s dollar bonds rather than U.S. Treasuries widened 15 basis points on Tuesday to 474, according to JPMorgan Chase & Co. indexes.

Source: Bloomberg Business News