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Treasury seeks Sh150bn fresh syndicated loan

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Treasury Building. FILE PHOTO | NMG

Summary

  • The Treasury has approached international banks to arrange a Sh150 billion syndicated loan to partly finance this year’s budget.
  • A private document circulated among banks indicates that Kenya is seeking about $1.5 billion (Sh150 billion) in tranches of $600 million and €250 million, which may be increased by an equivalent of €250 million.
  • The new loan will be charged at a rate of about 8.65 percent (London Interbank Offered Rate plus 645 basis points), equivalent to what Kenya recently secured for its longest maturity Eurobond of 30 years, yet the syndicated debt is to be paid back in six years.

The Treasury has approached international banks to arrange a Sh150 billion syndicated loan to partly finance this year’s budget.

A private document circulated among banks indicates that Kenya is seeking about $1.5 billion (Sh150 billion) in tranches of $600 million and €250 million, which may be increased by an equivalent of €250 million.

The new loan will be charged at a rate of about 8.65 percent (London Interbank Offered Rate plus 645 basis points), equivalent to what Kenya recently secured for its longest maturity Eurobond of 30 years, yet the syndicated debt is to be paid back in six years.

Despite the Eurobond being relatively cheaper especially at a time when the United States Federal Reserve Bank is cutting interest rates, Treasury officials are said to be more in favour of the syndicated loans that do not ordinarily attract much public attention.

Director-general Public Debt Management Office and former Central Bank (CBK) deputy governor Haron Sirima Tuesday said he was not aware of the fresh syndicated loan issue, while acting Treasury Secretary Ukur Yatani did not reply to our text messages or pick our calls by the time of going to press.

The latest CBK report shows that Kenya’s public debt level has hit Sh5.81 trillion, with its growth outpacing tax revenue collection.

The Treasury has this year set a borrowing target of Sh324 billion from foreign financiers and Sh283 billion in the domestic market, which is expected to tip the country’s loan well over the Sh6 trillion mark.

Kenya’s first Eurobond was issued in 2014 at a coupon rate of 5.8 percent for five years and 6.8 percent for the 10-year tranche.

As US rates started going up and risk averseness hit emerging markets, the Eurobonds came slightly higher in 2018 at 7.4 percent for the 10-year and 8.8 percent for the three-decade papers.

This year, Kenya secured a rate of seven percent on the shorter, 7-year loan and eight percent on the 12-year tranche.

Kenya is also facing the dilemma of large debt maturities coming up in quick succession.

The Eurobond’s principal payments will be made in June 2024, May 2027, February 2028, May 2032 and February 2028.

This is expected to put a strain on CBK’s forex reserves.

“So far, we have made only one principal payment (June 24th 2019) and this was paid out from the proceeds of another Eurobond issue. The coupons, however, have been repaid from our forex reserves. You will notice some slight dips in reserves below whenever we make coupon payments eg in June and December,” said Renaldo D’souza of Sterling Capital Research.

Since 2014, Kenya has borrowed a total of Sh685 billion ($6.85 billion) from the Eurobond market.