Kenya is now seeking a Ksh130.6 billion syndicated loan from local and foreign commercial banks to finance its ballooning budget.
In a country report by the International Monetary Fund (IMF), the syndicated loan will be refinanced by a planned 2025 Eurobond issuance.
A syndicated loan is one that is provided by a group of lenders and is structured, arranged, and administered by one or several commercial banks or investment banks known as lead arrangers.
According to Treasury, Citigroup Global Markets Deutschland AG has the most bank loans to Kenya at Ksh431.8 billion followed by Citigroup Global Markets Europe AG at Ksh334.6 billion.
President Uhuru Kenyatta (left) and Kristalina Ivanova Georgieva-Kinova (right), the Managing Director of the International Monetary Fund in photos dated September 2020
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Other major banks that have lent to Kenya include Trade and Development Bank, which is owed a total of Ksh233.1 billion and Standard Bank UK at Ksh1.3 billion.
This comes one month after the National Treasury Cabinet Secretary, Ukur Yatani, dropped Ksh124 billion Eurobond which was set for July 2022.
“The planned FY2021/22 EUR1 billion Eurobond issuance has been replaced by Ksh130.6 billion (USD1.1 billion) of bank loans, assumed to be refinanced by a Eurobond issuance in 2025,” said IMF in its country report for Kenya.
The Ksh124 billion Eurobond cancelation was on the back of ongoing war between Russia and Ukraine, which has pushed the cost of borrowing extremely high.
Eurobond rate rose above 900 basis points by early June from below 500 basis points in mid-February.
“We realized as a result of challenges from Russia – Ukraine, the cost of borrowing has gone extremely high. Last year, we borrowed at six percent, right now the rates start at over 12 percent and it is, therefore, no longer feasible (to have the Eurobond issue),” said CS Yatani in June this year.
The fifth planned Eurobond will definitely push Kenya’s stock of syndicated loans from commercial banks to Ksh1.17 trillion, from the lows of Ksh1.04 trillion in June 2021. Kenya went for the first Eurobond in 2014 worth $2 billion (Ksh237.1 billion) which was followed with two more issues of $2.1 billion (Ksh249 billion) and $2 billion (Ksh237.1 billion) in 2018 and 2019 respectively – all in current conversion rate.
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.
Africa countries are grappling with the high external financing costs with Ghana and Ethiopia, for instance, seeing their borrowing cost rise by more than seven percent since 2019, according to Bloomberg.
The pair of countries seem to be in the immediate danger of defaulting on their external debts.
Kenya is not seen to be far behind the pair as its debt servicing costs hit a new record in the past fiscal year.
A graph showing Kenyans’ perception of foreign debt
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