Treasury reveals plan for fresh Sh110 billion syndicated loansThursday December 22 2022
Kenya will borrow syndicated loans amounting to Sh110.7 billion for budgetary support and replenish its dwindling reserves of dollars by end of June, a report by the International Monetary Fund (IMF) shows.
Of the $900 million (Sh110.7 billion), the Treasury has agreed on the terms for Sh36.9 billion, as the country reverses its stance against borrowing from commercial banks.
Due to the volatility in the global market that has seen yields on external bonds rise, Kenya was forced to cancel plans to issue its fifth Eurobond of about $1.1 billion (Sh135.3 billion), denying the country much-needed foreign exchange reserves at a time the country is grappling with dollar shortage.
The IMF noted that Treasury officials are “well advanced” in tapping medium-term loan facilities from international banks, with the full amount expected to be disbursed by early next year.
Njuguna Ndung’u, Treasury Cabinet secretary, told the IMF boss in a letter of intent that they took this route after the planned issuance of $1.1 billion external commercial financing for the financial year 2021/22 did not take place amid unfavourable market conditions, in what reflected the global risk-off attitude toward frontier issuers.
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“In light of the protracted dislocations in international financial markets, we plan to raise the $900 million external commercial borrowing planned for FY2022/23 from international banks. We have successfully contracted one-third of this amount and are in the process of reviewing offers for the remainder,” said Prof Ndung’u.
The Treasury did not reveal the terms for the one-third of the loans already contracted.
The stock of loans from commercial loans as of October stood at Sh279.6 billion, a drop of 2.4 per cent from Sh286.5 billion in September.
IMF in an earlier report revealed that the syndicated loan would be refinanced by a Eurobond issuance in 2025.
The official report by the Treasury shows that despite the tight liquidity in the global financial market Kenya intends to procure a Eurobond amounting to Sh105.6 billion in the financial year 2022/23.
In the financial year beginning next July, Kenya will issue another Eurobond amounting to Sh270 billion, much of which will be used to repay another international sovereign bond that matures in June 2024.
But with the US Federal Reserve continuing to increase interest rates to contain a surge in consumer prices, and making the dollar stronger, there are fears that Kenya will still find a hostile market that has overprices emerging and frontier markets due to their perceived high-risk.
Even without issuing a new one, the stock of Kenya’s Eurobonds grew by Sh57.5 billion as the weak shilling aggravated Kenya’s debt repayment woes.
This points to elevated repayment of the country’s foreign debts, with the Controller of Budget Margaret Nyakang’o noting that she approved payment of an additional Sh5.4 billion in external debt servicing in the year ended June due to a weaker local currency.
The Treasury shows that the stockpile of International Sovereign Bond, also known as Eurobonds, increased by 7.2 per cent to Sh861.5 billion in October from Sh804 billion in December last year.
The failure by Kenya to get external commercial financing has contributed to the drop in Kenya’s foreign exchange reserves (forex) to below four months of import cover, one of the reasons Fitch, a global rating agency, downgraded Kenya’s credit score from B+ to B.
READ: Fitch downgrades Kenya's rating on elevated debt repayment
The downgrade is due to elevated debt repayment obligations in the upcoming financial year including the maturity of a $2 billion (Sh245.6 billion) Eurobond in June 2024 amid high financing costs in the international market.