Rotich now eyes syndicated loan ahead of Eurobond

The National Treasury said Thursday it was considering taking another syndicated loan ahead of a planned issuance of another Eurobond to refinance another loan whose October maturity was extended by six months.

Treasury secretary Henry Rotich said the maturing date for the $750 million (Sh77.25 billion) syndicated loan taken in 2015 was extended to April next year to give room for a refinancing plan.   

“We have extended it to allow for a refinancing arrangement,” Mr Rotich said at a Press briefing in Nairobi.

“We took the option of syndication as we wait for options. But if we issue a bond early, it can repay that,” he added.

Close to 10 per cent of the lenders that participated in the 2015 syndicated loan were paid on October 27, while the rest opted to wait. Mr Rotich said this means a slightly higher interest rate on the remaining amount of the debt.

Kenya issued a debut Eurobond worth $2 billion in June 2014 that was oversubscribed, allowing it to get a better interest rate than other sub-Saharan Africa issuers such as Ghana and Zambia.

Proceeds from the Eurobond were partly used to retire a $600 million syndicated loan, whose maturity was extended by three months, and other budgetary spending, including infrastructure projects.

In March, Kenya borrowed Sh82 billion ($800 million) in a syndicated loan from a consortium of four banks – Standard Chartered, Standard Bank, Citi and Rand Merchant Bank.

READ: Rotich defends new Eurobond issue to repay Sh77bn loan

The country’s dollar stock rose sharply in the first quarter driven by $2.24 billion foreign loan inflows consisting of $986.9 million (Sh101.88 billion) loan from the Chinese government, $800 million (Sh82.58 billion) syndicated commercial loan and $450 million (Sh46.45 billion) loan from Preferential Trade Area and African Export Import Bank, according to the Treasury’s public debt records.

Mr Rotich said the Treasury was assessing the international debt market for a good timing to enter for another Eurobond.

“When we entered in 2014 we got a good deal. If we enter the market right now the cost will be high,” he said, adding that a possible rating downgrade by Moody’s will not change much.

The global rating agency last month said it was looking at cutting Kenya’s credit rating from B1 due to persistent deficits as high borrowing costs continued to push it deeper into indebtedness.

Mr Rotich said Kenya had only contracted Standard & Poor’s (S&P) and Fitch to periodically gather data from Treasury and that Moody’s was most likely ‘doing a desk job’ on the country’s debt.

READ: Rotich dismisses Moody’s possible review as 'desk analysis'

The government has struggled to contain its expenses and meet its revenue targets, a situation that was made worse by prolonged drought earlier this year and a politically charged environment that took it off the policy track.

The rapid rise in Kenya’s public debt to more than Sh4.4 trillion at a time when the taxman is struggling to meet his targets has raised fears over sustainability of the loans.

A Budget Review and Outlook Paper (BROP) released in September showed that public debt to GDP ratio was expected to rise to 59.0 per cent, from a previous target of 51.8 per cent.

It also showed that Kenya’s fiscal deficit target had been revised to 7.9 per cent in the 2017/18 fiscal year, from a 6.2 per cent, after revenue collection fell 3.7 per cent short of target.

Mr Rotich said tax exemptions given to importers of food such as maize and sugar in the first half of this year to help mitigate the effects of a severe drought in the horn of Africa, had contributed to a Sh40 billion short fall in revenue.