The Treasury is seeking to borrow fresh funds from the Trade and Development Bank (TDB) to clear a Sh51.6 billion ($400 million) syndicated loan due to the multilateral lender next month.
The refinancing option will see Kenya avoid committing taxes to settle the debt at a time when the Treasury faces growing expenditures amid slower revenue growth.
Treasury Cabinet Secretary John Mbadi says Kenya has opened talks with TDB for a cheaper loan to offset the Sh51.6 billion owed to the multilateral lender.
The refinancing forms part of the Treasury’s plan to manage Kenya’s mounting debt by lowering interest rates and lengthening the terms of debts to ease the repayment costs.
“We are looking to refinance TDB, but if they are not going to offer us a competitive rate, then we would rather get some money and pay it off,” Mr Mbadi said on Monday.
“We will either refinance the TDB facility or pay it off from our revenue collection. This is the biggest external debt we are confronted with. This will help us deal with commercial debt, which has been a big problem for us.”
Refinancing from the same creditor will see Kenya seek a new facility on cheaper terms to replace the existing loan and stretch repayments over a longer duration.
This comes amid separate talks with China to convert dollar-denominated loans used to build the standard gauge railway (SGR) to Chinese yuan in a swap that will halve the interest payments for the mega debt.
Earlier, Kenya issued two new Eurobonds to repay earlier sovereign bonds that were to mature in 2024 and 2027 of Sh258.4 billion ($2 billion) and Sh116.3 billion ($900 million) respectively.
The Treasury has identified commercial debts like the Eurobonds and SGR payments to Exim Bank of China as its biggest headache over Kenya’s mounting public debt.
The stock of total outstanding commercial debts, including Eurobonds or sovereign bonds, stood at Sh1.16 trillion or 23 percent of external debt at the end of December, Treasury data shows.
Mr Mbadi says the Treasury is mulling over further buybacks of Eurobonds maturing in 2028 and 2031.
The 2028 Eurobond is a single or bullet payment of Sh129.2 billion ($1 billion).
“We realised we had a problem with commercial and bilateral debt. Commercial debts are mostly Eurobonds and syndicated loans mostly to TDB,” he said.
“We will deal with the closest Eurobond maturity in 2028 and spread it out. We will then deal with maturities in 2031 and 2032 and spread the payments between 2034 and 2048 when we will have no other Eurobonds maturing.”
Negotiations for the currency swap on the SGR loan are at an advanced stage and will reduce the Sh130 billion spent by Kenya annually to service its debt to China.
Kenya expects interest rates on the SGR loan to fall to an estimated three percent from the current 6.37 percent.
The talks with Beijing are part of a policy shift by the government to diversify the currency composition of foreign debt.
Last week, Kenya tapped Sh21.8 billion ($169.42 million) Samurai financing from Japan to fund its local motor vehicle assembly and energy sector.
The facility, which is subject to Japanese regulations, seeks to diversify external lending away from US dollar instruments.
