Economy

Kenya dumps costly syndicated loans to ease debt burden

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The National Treasury building in Nairobi. FILE PHOTO | NMG

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Summary

  • CS Yatani says Treasury is implementing a new strategy to change the profile of Kenya’s debt from short expensive commercial loans into longer-dated sovereign bonds.
  • Kenya, under the Jubilee administration, has borrowed nine syndicated loans compared to a single one during the tenure of President Mwai Kibaki’s, reflecting the recent borrowing spree.


Kenya will no longer take dollar-denominated syndicated loans arranged by commercial banks as part of the strategy to reduce the cost of debt and lengthen maturity to ease the payment burden.

Finance Cabinet secretary Ukur Yatani told the Committee on Finance and National Planning that the Treasury is implementing a new strategy to change the profile of Kenya’s debt from short expensive commercial loans into longer-dated sovereign bonds.

He said commercial loans would only come in the form of Eurobonds to roll over principal payments when the debts mature.

“The National Treasury has no immediate plans to contract syndicated loans with Trade Development Bank or any other bank,” said Mr Yatani.

“Our projections assume that existing Eurobonds will be rolled over at reasonable prices when global capital markets reopen to frontier market issuers.”

Kenya has not borrowed from the syndicated loan market since 2019 when former Finance Cabinet secretary Henry Rotich, his Principal Secretary, Dr Kamau Thugge, and director resource mobilisation department Jackson Kinyanjui were ousted from Treasury.

Syndicated loans are provided by a group of lenders, rather than a single financial institution, to spread the risk of default.

They are easy to get and require fewer disclosures since they are negotiated out of public scrutiny. However, they are usually short-term and expensive.

Kenya, under the Jubilee administration, has borrowed nine syndicated loans compared to a single one during the tenure of President Mwai Kibaki’s, reflecting the recent borrowing spree.

These have been borrowed from Standard Bank, Standard Chartered Bank, Citi Bank, Trade Development Bank (former PTA Bank), Hong Kong and Shanghai Banking Corporation (HSBC) and Qatar National Bank.

Trade Development Bank is Kenya’s biggest syndicated lender and has issued Kenya with over Sh160 billion in syndicated loans over the last four years.

In 2013, only seven per cent of external debt was commercial, 27 per cent bilateral and 64 per cent borrowed from multilateral sources.