The Treasury has taken up a new and expensive Sh77 billion ($750 million) commercial loan to pay a syndicated loan of a similar amount, whose October maturity was extended by six months, according to a new report submitted to Parliament.
The eight-year loan comes with a steep interest of 6.7 percentage points above the prevailing six-month London Interbank Offer Rate (Libor).
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 in recent history.
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.
Treasury secretary Henry Rotich said during a media briefing last month that the government had opted to take up a longer-term facility to repay the maturing syndicated loan that was issued in 2015, at the price of 5.2 percentage points above Libor.
“We extended to allow for a refinancing arrangement, which has already been done… We got long-term financing to pay off the syndicated loan with another facility that is seven years and above,” said Mr Rotich on November 10.
The Treasury report describes the new loan as a refinancing facility meant for budgetary support, adding that Sh10.8 billion has already been drawn down from the TDB facility that was signed off on October 5.
The amount went to paying off some of the lenders in the 2015 loan, who had refused to extend the maturity of their debt by six months.
“Those that were not extending were repaid by October 27,” said Mr Rotich.
High interest rate
The high rate of interest is a concern though, 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.
In December last year, the same lender advanced Kenya a two-year loan of $250 million (Sh25.8 billion), charging a rate of 5.2 percentage points above Libor. The debt report details all the new external loans contracted by the government in the first four months of the current fiscal year, totalling Sh361.8 billion.
Most of the borrowing was intended to finance development projects in the water and sanitation, energy and education sectors.
The report also shows that Unicredit SPA of Italy loaned Kenya Sh53.4 billion (441.4 million euros) for infrastructure development at the Konza Techno City Project to be repaid in 20 equal instalments of 64.62 million euros from June 2020.
Exim Bank of China disbursed two loans of Sh33.2 billion to Kenya for the improvement of electricity transmission in order to lower the cost of doing business in the country.
Beijing has lent Kenya Sh29 billion to finance the underground electric power distribution network that is targeting upmarket Nairobi estates of Kilimani, Hurlingham, Ngong Road, State House, Lavington, Kileleshwa, Westlands, Parklands, Ngara and Riverside.
China has further set aside Sh6.7 billion for the Kenya National Wide Remote Sensing Airborne Geophysical Survey Project to map out the country’s minerals.
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Other energy sector loans are the European Investment Bank’s Sh8.7 billion for the expansion of Olkaria I &IV Geothermal stations, Sh9.4 billion from China Exim for the Kamburu-Embu-Kibirigwi-Thika 220 KV substation and Sh16.2 billion for the Off Grid Access project for underserved counties by the International Development Association (IDA), an arm of the World Bank.
The IDA has also advanced Kenya Sh31.2 billion ($300 million) towards infrastructure development in urban areas, and Sh15.9 billion (131.6 million euros) for strengthening governance, enabling service delivery and public investment.
The bilateral, multilateral and commercial lenders have also set aside a combined Sh16 billion to finance Ruiru water, Rwambura irrigation, Mavooko drinking water, Homa Bay and Ithanga water supply projects.
Section 31(1) and (3) of the Public Finance Management Act, requires the Cabinet Secretary for Treasury to submit to Parliament, every four months, a report on all new loans made to the national government, national government entities and county governments from outside Kenya or dominated in foreign currency.