Thirteen banks take up Kenya’s syndicated loan

Thirteen international and regional lenders contributed to the Sh50 billion ($600 million) syndicated loan facility that the government borrowed early this year, the Treasury has said.

In a statement released Thursday, the Ministry of Finance announced closure of the deal while revealing names of lenders that participated in the transaction.

Citi, Standard Bank and Standard Chartered Bank were bookrunners and underwriters for the loan, which means they advanced the cash to the Treasury and then sold the risk to other lenders.

The HongKong and Shanghai Banking Corporation (HSBC) Johannesburg Branch and PTA Bank were the mandated lead arrangers.

FBN Bank (UK) Ltd, British Arab Commercial Bank Plc, Bank of India, Ghana International Bank Plc, State Bank of Mauritius Ltd and ZEP-RE (PTA Reinsurance Company) were arrangers.

The lead arrangers for the facility said that Kenya’s ability to get funding from 13 diverse lenders shows investors are confident of the country’s future economic prospects.

“The success of this inaugural benchmark Facility represents the Republic’s ability to access the global financial markets to support its continued growth,” said the Treasury statement. The government opted for international financiers to avoid direct competition with the private sector for funds.

“Consistent with positive economic outlook, the (Treasury) seeks to slow down the uptake of domestic borrowing not to “crowd-out” the private sector, the engine of growth for Kenya Vision 2030,” says the government in its medium term development strategy (MTDS) paper 2012.

The two-year loan is priced at a premium of 4.75 per cent above the London Interbank Offered Rate (Libor), which is cheaper than the 13.826 per cent two-year bond but bears a currency exchange risk.

Chief executive of think tank Kenya Institute for Public Policy Research and Analysis, Joseph Kieyah, said that borrowing locally will avoid crowding out the private sector, which if it were to happen would curtail creation of employment opportunities.

READ: Treasury told to go slow on domestic market borrowing

“This can push rates higher and this has an impact on job creation. You cannot hire when you cannot borrow,” said Prof Kieyah. Bank lending rates are still above the 20 per cent level.

The cost of loans shot up after the Central Bank of Kenya (CBK) raised its base rate to 18 per cent in December 2011. The rate has since been reduced to 16.5 per cent in the July review.

At 7.74 per cent the rate of inflation is at a 17-month low and is lower than the nine per cent target set by the CBK’s Monetary Policy Committee.

The Treasury drew the $600 million in two tranches, the first tranche, $240 million (Sh20 billion) was drawn in June and the second and final tranche of $360 million (Sh31 billion) was to be drawn last month.