The Treasury has tapped four international banks to arrange for a Sh76.8 billion syndicated loan to plug the 2022/23 budget deficit.
The $600 million loan is expected to hit Central Bank of Kenya’s accounts “in the coming weeks”, according to sources familiar with the transaction.
The Saturday Nation has learnt that CitiGroup, Rand Merchant Bank, Standard Chartered Bank and Standard Bank are the lead transaction advisors for the credit facility that is also expected to shore up CBK’s dwindling foreign currency reserves.
Sources familiar with the planned syndicated loan indicate the government is looking to raise the amount in two tranches — one maturing in three years and another payable in five years.
“Short- to medium-term offerings is the most viable option for both the government of Kenya and the creditors,” said one of the sources who spoke to the Saturday Nation in confidence as he is not authorised to comment on the ongoing transaction.
A syndicated loan refers to a credit facility that is extended to a borrower by a group of lenders, with each making a contribution to meet the debtor’s borrowing needs.
President William Ruto has repeatedly cited public debt as the biggest challenge facing his new administration, while castigating his predecessor Uhuru Kenyatta for borrowing expensive, commercial loans from external lenders.
The last syndicated loan Kenya borrowed was a $300 million facility (Sh38.4 billion as per current exchange rate) raised just before the August 2022 General Election, in an arrangement led by the Trade Development Bank.
“As we speak today, 65 percent of all the taxes we collect, we use to pay debt… we cannot continue to borrow from others. If we must borrow, let us borrow from our own savings so that we can pay interest to our own savers,” said President Ruto on September 25, barely two weeks after being sworn into office.
In its latest meeting held this week, the Cabinet approved a decision to abandon the country’s Sh10 trillion debt ceiling in favour of a floating target of 55 percent of Gross Domestic Product.
The National Treasury, through Supplementary Budget I 2022/23, has proposed to recalibrate borrowing in the current financial year with a bias for more externally-sourced financing.
It plans to slash domestic borrowing for the current financial year from Sh581.7 billion to Sh415.5 billion and increase external borrowing from Sh280.7 billion to Sh378.9 billion.
External loans represented 49.8 percent of total debt at the end of October 2022, while the proportion of domestic debt made up 50.2 percent, a five-year high.
On net basis, the Treasury wants to cut down the planned borrowing for the current financial year by Sh68 billion.
Transaction advisors for the proposed syndicated loan say it remains unclear how much interest the two tranches are likely to attract, adding the average cost will only be known at the close of the syndication.
“Yields are tad high at the moment; so chasing favourable pricing is hinged significantly on the tenor,” said our sources.
On February 13 2023, while launching an affordable housing project in Nakuru, President Ruto hinted that the government was negotiating a syndicated loan facility with interest rate ranging between seven and eight percent.
“We had been told that there was no investor confidence to lend syndicated loans to Kenya any more...
“Today the confidence in Kenya has come back and we are being offered interest at between 7.0 per cent and 8.0 percent”, President Ruto said in his public address in Nakuru.
In its December 2022 fourth review of the $2.41 billion programme with Kenya, the International Monetary Fund (IMF) revealed that the government was in talks with international banks for financing to the tune of $900 million, Sh115.0 billion at the present exchange rate, from international banks for medium-term external commercial financing due before June 30, 2023.
This year’s external commercial borrowing target is $200 million less than the $1.1 billion that was projected in the last financial year, but which did not materialise “amid unfavourable market conditions, reflecting the global risk-off attitude toward frontier issuers,” as per the Treasury briefing to IMF.
President Ruto’s administration in January released its Budget Policy Statement that showed a proposed Sh251 billion increase in the National Budget to Sh3.64 trillion.
