Global ratings agency Moody’s has changed the outlook of local student hostel developer Acorn Group’s Sh5 billion green bond facility to negative from stable, citing the recent downgrade of Kenya’s sovereign outlook and potential hit on demand due to the coronavirus outbreak.
Moody’s said in an update the negative outlook also reflects the challenging financial and economic conditions in Kenya, where the Covid-19 has seen businesses slow down and workers lose jobs or suffer pay cuts.
When the bond was issued, Moody’s gave it a local currency rating of B1 Stable, which was a rung higher than Kenya’s sovereign rating of B2 Stable due to a partial guarantee to investors through British firm GuarantCo— assuring recovery of up to 50 percent of principal and interest in case of a default.
The sovereign and Acorn’s bond ratings will now be denoted as B2 negative and B1 negative respectively.
“The change in outlook to negative from stable reflects the more challenging economic and financial conditions in Kenya, generally, following the coronavirus (Covid-19) outbreak and as reflected in the negative outlook on the Government of Kenya sovereign bond rating,” said Moody’s.
“Moody’s considers the Issuer’s standalone credit profile before incorporating the credit enhancement provided by the GuarantCo guarantee to be constrained by the sovereign rating, given the multiple channels of exposure and contagion that exist between the sovereign and local issuers.”
Last week, the ratings agency changed its outlook for Kenya to negative, reflecting the rising financing risks posed by large gross borrowing requirements.
Moody’s said the negative outlook on Acorn’s bond reflects reflects the challenges posed to the construction and marketing of its assets because of the Covid-19 lockdown measures and potential longer term impact on demand.
The bond sale in October 2019 achieved an 85 percent subscription, raising Sh4.3 billion of the targeted Sh5 billion.
Acorn CEO Edward Kirathe at the time said it had set a modest target of Sh2 billion for the first tranche of the medium-term note, due to the difficulties of raising investor appetite for a corporate paper issue in Kenya.