Treasury defends Sh77 billion loan cost for debt refinancing

Treasury secretary Henry Rotich. file photo | nmg
Treasury secretary Henry Rotich. file photo | nmg 

Treasury Cabinet Secretary Henry Rotich has defended the cost of the Sh77 billion commercial loan recently taken to offset a mature debt of an equal amount.

Mr Rotich said the decision to take the eight-year loan with the current steep interest of 6.7 percentage points above the prevailing six-month London Interbank Offer Rate (Libor) was benchmarked on the cost of what was trading back in October.

The 6.7 per cent interest rate is the minimum margin above the Libor and it bears the risk of currency fluctuations. 

“That happened in October and if you compare now the rates are different. Prices fluctuate every day,” said Mr Rotich.

“Everyday day we have the pricing of our bond and you need to check what was the price of our international bond in the stock exchange and what is trading and at the time we were picking the loan and the current trading.”

Mr Rotich was speaking at the Treasury Headquarters during the signing of Sh38 billion Global Fund to support the fight against HIV, tuberculosis and malaria in the country.

He said the refinancing facility of a $750 million loan that was falling due in October was necessary and the cost was not a worry.

Eastern and Southern Africa Trade and Development Bank (TDB) — formerly PTA Bank — is the issuer of the loan that is one of the most expensive foreign debts Kenya has taken recently.

The six-month Libor rate stood at 0.58 per cent yesterday, although Kenya will begin making payments on the new loan in August 2023 when the rate may have moved either up or down.

“We have refinanced syndicated loans before since 2014 using the Eurobond funds, so there is nothing new about this as it is being done everywhere as long as you are able to access any international funds we can have liquidity management that involves refinancing and that is what Eurobond does,” said Mr Rotich.

“On the cost of it… there isn’t anything about the costs as such as we benchmarked on the cost of what was trading then.”

The high interest rate is a concern considering that the 10-year Eurobond debt that matures in 2024 is currently carrying a yield of 5.83 per cent.

TDB’s demand for a high rate signals that the pan-African lender placed a high risk premium on lending to Kenya — the loan agreement having been negotiated and agreed at a time when the country’s political risk was exceptionally high ahead of the October 26 repeat presidential poll.

The same lender advanced Kenya a two-year loan of $250 million (Sh25.8 billion) in December last year, charging a rate of 5.2 percentage points above Libor.

A debt report, which details all the new external loans contracted by the government in the first four months of the current fiscal year, shows a total of Sh361.8 billion.