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Borrowing spree continues as Treasury secures Sh134 billion loan

Treasury Cabinet Secretary Henry Rotich

The National Treasury is borrowing Sh134 billion ($1.3 billion) from international lenders as it completes its calendar for foreign funding to seal budget holes.

International news wire Bloomberg quoted a highly-placed source within Treasury who said borrowing of $800 million (Sh82.8 billion) from four lenders was completed yesterday.

The Government also secured a 10-year Sh51 billion ($500 million) from lenders led by the Trade and Development Bank, Burundi-based East African Trade-finance Bank in addition to the Sh25.8 billion ($250 million) it raised from the same lenders last month.

Treasury had projected a total of Sh155 billion ($1.5 billion) in external loans this year amid concerns of piling foreign debt.

The four lenders – Citigroup Inc, Standard Bank Group., Standard Chartered Plc and Rand Merchant Bank, will give Kenya the loan for three years at unspecified rate.

However, industry insiders told The Standard the rate may range between 500 basis points and 600 basis points above the libor rate.

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The libor, an average inter-bank interest rate at which a selection of banks on the London money market are prepared to lend to one another, is currently at 1.7 per cent for 12 months, which will put Kenya’s borrowing at 7.7 per cent excluding fees and other costs.

“For a three-year loan, the Government will probably get it at 500 to 600 basis points above libor since it is short-term,” the source told The Standard.

This will be close to the rate Kenya got in the $750 million two-year commercial loan that was borrowed at eight per cent in 2015, including costs.

Initially it was estimated that the loan came at a paltry 5.7 per cent, reasonable for its short tenor as compared to the Eurobond, which in 2014 attracted a rate of 5.875 per cent on $500 million (Sh51.5 billion), five-year bond and 6.875 per cent for $1.5 billion (Sh154 billion) 10-year note.

Kenyans are, however, wary of syndicated loans since the Government was forced to settle a syndicated loan immediately it raised its maiden Eurobond.

Syndicated loans, unlike open market loans are usually discreet and little is revealed about their terms of agreement, opening them to punitive clauses in case of debt distress and or default.

Although Kenya has not ruled out another Eurobond, Finance Cabinet Secretary Henry Rotich last year said the Government may opt for concessional loans from multilateral lenders such as the World Bank and the African Development Bank (AfDB) as they are cheaper than syndicated loans and the Eurobond.

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Kenya’s total debt increased by almost a third (28.7 per cent) last year from Sh2.8 trillion in 2015 to Sh3.6 trillion in June last year, according to Central Bank data.

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