By Duncan Miriri and Karin Strohecker

NAIROBI – Millions of Kenyans will head to the polls on Tuesday to pick a new president in a fiercely contested election that pitches veteran opposition leader Raila Odinga against Deputy President William Ruto.

President Uhuru Kenyatta is not running due to term limits but is backing Odinga. Lawmakers and country officials will also be elected.

The final four opinion polls published last week put Odinga ahead with a margin of 6-8 points but Ruto has dismissed them as fake and designed to sway the electorate.

Following are key topics for investors:

WHAT IS AT STAKE FOR INVESTORS?

One of the most advanced economies in Africa, Kenya is a commercial hub for East and Central Africa, hosting regional headquarters of global firms like Alphabet and Visa.

Its stocks, bonds and the shilling currency are some of the most traded by foreign investors on the continent.

A number of flashpoints are on investors’ radar for the election. Deadly violence erupted after recent elections with more than 1,200 people killed after the 2007 ballot.

The global backdrop looks also challenging: Kenya, an energy importer, has felt the pinch from elevated crude oil prices. Like other emerging economies, Kenya faces rising borrowing costs as the U.S. Federal Reserve and other major central banks hike interest rates to tame inflation.

Spreads of Kenya’s hard-currency debt over safe-haven U.S. Treasuries – the premium demanded by investors – have come down from over 1,400 basis points in mid-July, but are still in the danger zone of above 1,000 bps.

WHAT ARE MARKETS WATCHING OUT FOR?

Markets are closely scrutinising fiscal accounts, the balance of payments and central bank reserves. Having a current account deficit as well as a fiscal deficit, Kenya’s financial position has been a longstanding source of vulnerability.

“Fiscal consolidation is going to be paramount for the elected president,” William Blair fund manager Yvette Babb told Reuters.

Gergely Urmossy, emerging market strategist at Societe Generale, said a credible strategy could see Kenya regain full access to international capital markets, while a good relationship with the International Monetary Fund was key.

“Kenya’s next president will need to present a credible and responsible macro-financial stabilisation agenda, which addresses the wide twin deficit and promotes debt sustainability,” said Urmossy.

The IMF agreed a three-year, $2.34 billion extended fund facility and extended credit facility in April 2021. During its latest review the fund said Nairobi was on track to meet most of the program’s objectives, though urged authorities to stick to the agreed fiscal consolidation path.

Committing to structural reforms was “essential to meet the IMF’s requirements in terms of unlocking further tranches and also strengthening the market’s confidence that the new government is both willing and able to deliver,” Urmossy added.

WHAT IS THE DIFFERENCE BETWEEN ODINGA AND RUTO?

Pledges between the two key candidates differ on key policy priorities such as tackling debt issues, job creation and social spending.

Odinga has pledged to renegotiate debt terms to lengthen maturities and free up cash for social interventions and development.

That aim of rearranging debt to lengthen maturities could be targeted at domestic debt servicing, said Sthembiso E Nkalanga at JPMorgan, which has been higher than servicing of foreign debt.

Ruto pledges to reduce borrowing and stimulate small enterprises to help drive growth and generate revenues.

“Ruto recognizes the country’s debt problem, but envisions raising economic growth and broadening the tax base would suffice in restoring creditworthiness and ensuring fiscal prudence,” Nkalanga said.

Both broadly converge on the Big 4 Agenda – Kenya’s 2030 blueprint which divides the country’s future economic development into four pillars: Food security, affordable housing, manufacturing and affordable healthcare.

WHAT DO LOCAL INVESTORS THINK?

Odinga and Ruto have offered differing visions for the economy, with Odinga advocating for enhanced social protections, and Ruto promising to empower small enterprises.

Local investors are optimistic: Three quarters of all business executives who took part in the central bank’s July market perception survey said they were optimistic, compared with just a third in the same survey five years ago.

This is due to outgoing President Kenyatta making peace with arch rival Odinga in March 2018 in the wake of a divisive election contest, which led to political stability.

“We have never had a more peaceful time, days to the election. The country is calm,” said Joe Mucheru, the minister for information and communication.

However, a new schism opened between Kenyatta and his estranged deputy Ruto, who Kenyatta says is not fit to be president. Meanwhile, the government has deployed extra police in areas of the Rift Valley, Ruto’s political power base and police say they are prepared for any opportunistic looting in major cities like Kisumu during and after the election.

(Reporting by Duncan Miriri in Nairobi and Karin Strohecker in London; additional reporting by Jorgelina do Rosario in London, Editing by Ros Russell)

(Reuters) -Russian stocks were given a reprieve and the rouble strengthened on Monday after the country’s top stock exchange decided not to allow some foreign investors to trade Russian shares for the first time since February.

Traders expect that if foreign investors return some will immediately sell shares, given the uncharted waters of an equity market now offering huge risks and insufficient transparency.

Russian stocks fell 3% on Friday after the exchange said it would let clients from “friendly” jurisdictions, or those which had not deployed sanctions against Russia, start trading after an almost six-month hiatus.

However, in a statement after Friday’s market close, the Moscow Exchange said the ruling would only apply to the derivatives market, not the main stock market.

Reversing course, the dollar-denominated RTS index was up 2.3% to 1,097 points at 1230 GMT, while the rouble-based MOEX Russian index was 2% higher at 2,095 points.

Markets had been braced for steep losses and sharp volatility and analysts said the delay over the return of foreign investors had caught out short sellers who were betting on a market slide.

Non-residents from “friendly” countries account for only around 1% of Russian holdings, but analysts had said any relaxation of the trading ban could open a back-door for larger investors from the European Union, United States, Japan and Britain – designated “unfriendly” – to offload their holdings.

Foreigners have been locked out of the market since Feb. 25, the day after President Vladimir Putin ordered tens of thousands of troops into Ukraine.

Russia’s central bank on Monday moved to shut down the possible loophole, blocking Russian depositories and registrars from executing transactions with securities received from foreign counterparts – including from “friendly” countries – for six months.

In a later statement, the regulator threatened punishments for brokers which do not accurately report the residency status of any clients they execute orders for.

The Russian rouble also gained and by 1230 GMT was 0.6% stronger against the dollar at 60.19, having briefly dipped below 60. It gained 0.8% to trade at 61.09 against the euro.

Since the start of August the currency has fallen from multi-year highs reached earlier this year under strict capital controls.

“In the coming days, we expect the Russian currency to stay in the range of 59-62 – the downside and upside risks seem relatively balanced,” Moscow-based brokerage BCS Global Market said in a report.

(Reporting by Reuters; Editing by Susan Fenton and David Holmes)

By Jorgelina do Rosario and Karin Strohecker

LONDON – Ukraine’s creditors vote this week on a government proposal to defer payments on the war-torn country’s international bonds for 24 months as Kyiv hopes to swerve a $20 billion messy default.

Bondholders have until 5 p.m. New York time (2100 GMT) on Tuesday to decide whether to back or vote down the proposal by Ukraine’s government, which faces a $5 billion monthly financing gap and liquidity pressures following Russia’s invasion on Feb. 24. Time is precious: the country has a $1 billion bond maturing on Sept. 1.

Creditors will likely wait until relatively close to the deadline to vote, said a person familiar with Ukraine’s thinking. Investors are expected to support the debt standstill, the person added.

When announcing its proposal, Ukraine’s finance minister Sergii Marchenko said it had “explicit indications of support” from some of the world’s biggest investment funds including BlackRock, Fidelity, Amia Capital and Gemsstock.

Creditors of Ukravtodor and Ukrenergo, two state-owned firms that have government guarantees on their debt, also have until Aug. 9 to vote on a plan similar to the sovereign.

IS THIS A DEFAULT?

The two-year moratorium on external debt payments would allow Ukraine to avoid a contractual or legal default, as any amendment on the bonds’ terms would have the creditors’ backing, Rodrigo Olivares-Caminal, professor of banking and finance law, at Queen Mary University of London, told Reuters.

However, creditors could ask whether a default insurance known as credit default swaps (CDS) should kick in, as a deferral of payments might be considered a credit event by the International Swaps and Derivatives Association (ISDA).

Investors are sitting on about $221 million of insurance on Ukraine’s debt, according to Depository Trust & Clearing Corporation (DTCC) data on the CDS.  

Credit rating agencies might also classify this as a “selective default” or “default”.

“A contractual default, a credit event and a credit rating default are three different albeit related concepts,” Olivares-Caminal said. “Incurring any of the three doesn’t mean that the other two will trigger.”

While investors are expected to back the freeze it is unclear whether the country may still need a debt restructuring in the medium term.

“It is just a pause button – we do not know what shape Ukraine will be in a few months or a few years down the line,” said Luiz Peixoto, emerging markets economist at BNP Paribas in London. “Investors are already preparing for a debt restructuring.”

The dollar-denominated bonds trade at deeply distressed, some as low as 17 cents in the dollar.

Battered by the war, which Russia calls a “special military operation”, Ukraine faces a 35%-45% economic contraction in 2022, according to estimates from the government and analysts, and is heavily reliant on foreign financing from its Western partners.

Ukraine aims to strike a deal for a $15 billion-$20 billion programme with the International Monetary Fund before the end of the year.

Ukraine restructured its debt in 2015 after an economic crisis linked to a Russia-backed insurgency in its industrial east. The deal left it with a large number of payments due annually between 2019 and 2027, and it returned to international markets in 2017 with a $3 billion hard-currency debt issuance.

For the foreign debt freeze plan to be successful, the so-called consent solicitation requires the support of investors holding two-thirds across the 13 Eurobonds maturing from 2022 to 2033, and at least 50% of the holders of each note.

The government launched a separate proposal on its $2.6 billion of outstanding GDP warrants, a derivative security that triggers payments linked to its economic growth.

In late July, Ukraine’s state-energy firm Naftogaz became the first Ukrainian government entity to default since the start of the Russian invasion. Naftogaz’s bonds are not guaranteed by the sovereign.

(This story corrects first name in paragraph 12 to Luiz ..not.. Luis)

(Reporting by Jorgelina do Rosario and Karin Strohecker; Editing by Susan Fenton)