Kenya goes for syndicated loan in place of Ksh.124B Eurobond

Kenya is in advanced talks with international lenders for a syndicated loan to replace the scrapped Ksh.124.3 billion Eurobond.

Confirming the receipt of ongoing talks, the National Treasury says a syndicated bank facility offers Kenya a cheaper alternative to the now expensive sovereign bond.

“We are still exploring options to look at a number of banks that can advance us the money at a cheaper rate. At a more or less, the rare we got (on our Eurobond) last year,” Treasury Cabinet Secretary Ukur Yatani said on Thursday.

“Already, we have sent expressions of interest from banks and await to see the kind of feedback we get.”

The National Treasury scrapped a previous plan of issuing a Ksh.124.3 billion Eurobond as yields on the international capital markets instrument soar as a fall out from resurging global risks including the Russia-Ukraine war.

“We realized as a result of challenges from Russia-Ukraine, the cost of borrowing has gone extremely high. Last year, we borrowed at six per cent, right now the rates start at over 12 per cent and it is therefore no longer feasible (to have the Eurobond issue),” added CS Yatani.

The higher yields on Eurobonds have been mirrored in yields for Kenya’s already issued sovereign bonds.

According to data from the Central Bank of Kenya (CBK), yields on the 10-year Eurobond maturing in 2024 have risen by 147 per cent in the year to date while returns on the 30-year paper maturing in 2048 are up by 34.9 per cent.

The spike in Eurobond yields is biased towards the shorter end of the yield curve pointing to an assessment of near-term risks by investors in the bonds.

Kenya’s fiscal plan which sees it balance financing from both domestic and international markets has forced Treasury’s hand in seeking funding from the international capital markets as its scope for local borrowing closes.

According to the Statement of Actual Revenues and Net Exchequer Issues as at April 28, the government had already borrowed Ksh.735 billion out of a gross target of Ksh.1 trillion from the local market.

In contrast, only 37.5 per cent of external financing or Ksh.162.5 billion had been accessed including funding from the International Monetary Fund (IMF) and the World Bank, leaving behind a deficit of Ksh.270.7 billion with just two months to the end of the fiscal year.

Sources have indicated to Citizen Digital that the exchequer has engaged several banks including Citigroup, Rand Merchant Bank, Standard Bank and Standard Chartered to arrange the syndicated loan.

Syndicated loans refer to the financing offered by a group of lenders to one borrower.

The ticket size of the syndicated loan sought is estimated at Ksh.117 billion ($1 billion) with a tenor of between three and five years.