Kenya chops syndicated loan target by Sh13bn on low appetite
The syndicated loan consists of a three-year tranche with a bullet payment and a five-year tranche that is amortising.
Kenya has slashed has cut its target for a syndicated loan by Sh13.3 billion ($ 100 million) even as it settled on a dual currency option for the debt to ease the pressure of the US dollar on its economy.
A syndicated loan is a loan offered by a group of lenders (called a syndicate) who work together to provide funds for a single borrower.
Sources told Nation that Kenya is now seeking to raise $ 500 million (Sh66.99 billion) in syndicated loans over the next few weeks down from the $ 600 million (Sh80.39 billion) initially planned.
“Initially the plan was to raise $600 million. The revision to $500.0 million reflects the sensing of a weak appetite. Remember the first round settled at $200 million from the four mandated arrangers despite having hoped to launch at $300 million”, a source familiar with the transaction said.
The four mandated lead arrangers of the syndicated loan are Citigroup, Rand Merchant Bank, Standard Bank, and Standard Chartered Bank.
The syndicated loan consists of a three-year tranche with a bullet payment and a five-year tranche that is amortising. Typically, a bullet payment structured loan implies that upon maturity, a lump sum payment of any outstanding amount will be settled at once by the debtor.
The government has opted for a dual currency option in the latest syndicated loan allowing lenders to exercise their discretion as to whether to lend to Kenya in either US dollars or Euros.
Sources knowledgeable of the transaction told Nation that the initial round of $ 200 million, translating to about Sh26.79 billion, should be hitting the state’s coffers before the close of this week.
The structuring of the loan in a dual currency manner comes at a time when the government has stepped up efforts to address challenges related to the inaccessibility of the US dollar domestically, through a raft of measures including a six-month-long government-to-government petroleum product importation arrangement.
According to official data published by the Central Bank of Kenya, the Kenya Shilling has depreciated 8.24 percent to 133.59 against the US dollar since the start of 2023. Market data, however, shows that commercial banks are still selling the greenback for as high as 138.35.
“The dual currency route is expected to help the economy in both spreading risk from a foreign exchange standpoint as well as help in widening the pool of potential lenders”, said a source familiar with the transaction who is not authorised to speak on the matter.
The pricing of the syndicated loan is set at the Secured Overnight Financing Rate—which is s a broad measure of the cost of borrowing cash overnight collateralised by Treasury securities-- plus five percentage points implying the loan attracts about 9.8 percent in interest.
