Kenya goes for $1b syndicated loan to settle debt maturing by June this year

Sunday February 17 2019

Works on the Port Reitz-Airport road in Mombasa

Works on the Port Reitz-Airport road in Mombasa on Kenya’s coast. A planned syndicated loan will partly finance development projects. PHOTO | NMG 

By ALLAN OLINGO
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Kenya is seeking $1 billion through a syndicated loan over the next one month, amid warnings to the government to go slow on contracting new debt and pressure rising to settle credit maturing in the first half of the year.

The new debt, expected from at least three commercial lenders is being arranged by the Trade and Development Bank and Standard Bank.

The news of the move by the National Treasury to seek new funds came as Cabinet Secretary, Henry Rotich, this week acknowledged the need to cut back on foreign loans to ease repayment concerns.

The Treasury, in its 2019 Medium Term Debt Management Strategy (MTDS) released on Thursday, said that there will be a cap on commercial loans at four percent of the total external debt. It further proposed gross external debt financing of 38 percent against 62 percent gross domestic financing.

“On the external debt, concessional is proposed at 26 percent, semi-concessional eight per cent and commercial four per cent,” the Treasury said.

The lower proposal for commercial loans is an indicator that Mr Rotich is under pressure to reduce the appetite for sovereign and syndicated loans, which have topped external borrowing in the past five years.

The government plans to use the funds to finance part of its maturing debt and its development expenditure. Nairobi is expected to settle a $816 million debt with an accumulated interest of $130 million next month, being a commercial loan from Stanchart Bank, Standard Bank, Citi and Rand Merchant Bank procured in March 2017, at an interest rate of eight percent.

For the new loan, the TDB, (formerly PTA Bank), reached out to several financial institutions to participate in the syndicate, and closed the tender on February 13. TDB president Admassu Tadesse confirmed their role as lead co-arrangers, saying that they plan to raise the cash by April.

A source familiar with the deal told The EastAfrican that the arrangers met some banks and agreed on the key terms of the loan syndication. Kenya is seeking a medium term offer, ranging between seven and 10 years.

A source at Standard Bank also confirmed their role as co-arrangers but declined to give further details. But The EastAfrican understands that three banks will be part of the syndicate, offering the Kenyan government the funds in three tranches: Two seven-year loans of $710 million split into $410 million and $300 million, and another $250 million with a 10-year tenor.

“This syndicate will also allow the government access to a credit line for an additional $250 million if it deems fit to tap into,” said a source with knowledge on the matter.

TDB has arranged nine syndicated loans for Kenya in the past four years and this will be the tenth, meaning the country is growing preference for this kind of loan to sort out its debt obligations.

Debt redemption

In the 2018/19 fiscal year, Kenya had budgeted for external debt repayments of $2.5 billion, and is facing large redemptions in 2019, something Treasury admits to.

“Whereas debt redemption are large in 2019, it is projected that over the medium term, the level of redemptions will decline,” Treasury said in the MTDMS released on Thursday.

Last December, the National Treasury Principal Secretary Kamau Thugge said that they had opened discussions with lenders to roll over a two-year $760 million syndicated loan arranged by TDB, in the current financial year, and lengthen its maturity in efforts to make repayment more manageable.

“We have paid back those lenders who wanted their money. However, we have also agreed on a six-month extension with the majority of them, so by April, depending on our debt maturing obligations, we will either get a syndicated loan or go back to the Eurobond market,” Treasury said.

The Treasury has had difficulty raising money from the domestic market, with investors in the past eight months shying away from the bond market, discouraged by the governments long-tenor securities.

“We are also working towards reducing our exposure to the US dollar through contracting new debt in other currencies and also matching external liabilities with currency composition of Kenya’s forex inflows and international reserves,” the Treasury said.

Nairobi had also indicated its plans to enter the international market this year with a $2.5 billion Eurobond, which it was to use to cover its budget deficit.

Mr Rotich also admitted that despite the country seeking to cap its debt financing options through concessional terms, this source is “shrinking” as a result of Kenya’s middle-income status.

“For this reason, we will continue to access commercial windows of multilateral institutions, maintain our presence in the international capital markets as we as using the export credit agencies to finance development expenditure,” Mr Rotich said this week.

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