Githae raises foreign loan target

Finance Minister Njeru Githae has raised the Eurobond target to Sh84 billion ($1 billion) in a move expected to ease Treasury’s cost of borrowing.

The external loan is expected to be cheaper than local debt, whose cost has been on an upward trend in recent months with all Treasury bills jumping above 13 per cent.

The government had stated that it intended to raise Sh42 billion ($500 million) through the Eurobond, whose issue was postponed after the 2007 post-election violence and the 2008 global financial crisis.

“We have now started preparations for the Eurobond. At least $1 billion, a minimum of 10 years,” Mr Githae, who is in London, was quoted as saying by Reuters news agency.

The proceeds of the bond will be used to retire part of the two-year Sh54 billion ($600 million) syndicated loan signed in May and to restructure the government debt.

Market analysts have been raising concern over the government crowding out the private sector in the money markets in its bid to raise cash to settle upcoming maturities.

In the period between June and December this year, government securities worth Sh58 billion will be due for settlement and a further Sh63.4 billion between January and March next year.

“This will assist us in reducing the domestic debt and externalising it,” said Mr Githae. “External debt is cheaper.”

As of May this year, the country’s total debt stood at Sh1.6 trillion, with 55.2 per cent of it being from the local market.

As at the same month, the government interest payments for the domestic loans had surpassed projected cost by Sh10.9 billion.

The government’s cost of borrowing has been on an upward trend in recent months even as commercial banks reduced their rates.

If the scenario were to continue, it would push banks to halt further drop in lending rates as they considered the opportunity loss in investing in government securities.

“It will help continue the trend in interest rates drop as their will be less pressure in the market,” said Wolfgang Omondi, a director in fixed income at Tsavo Securities.

The government had a Sh250 billion deficit in this year’s budget, which it plans to cover by raising Sh106.7 billion from the local market. The rest will be solicited from international lenders.

“Given the growing foreign currency bleeding by the economy as the import bill swells, any inflows are welcome assuming by maturity time the economy will have stabilised,” said John Kamunya an analyst with Sterling Capital Limited.