Kenya has embarked on a fresh drive to raise funds through a syndicated loan, just days after closing a similar $500 million (Sh70.8 billion) deal arranged by a consortium of banks.
Documents seen by the Business Daily reveal that the government is looking to raise as much as $1.0 billion (Sh141.5 billion) through the facility to be arranged by the Trade and Development Bank (TDB).
In a change of tack, the Treasury is exploring the use of a credit insurance cover for the new syndicated loan to boost appetite from global commercial banks and increase its chances of success.
The insurance cover comes against the backdrop of the downgrade in the ticket size for the recently concluded syndicated loan by $100 million (Sh14.2 billion), in the wake of modest appetite shown by banks.
“TDB will arrange a new US dollar loan for Kenya in the new fiscal year which began on July 1st, 2023. The loan is expected to launch within the next month (August 2023). The government is eyeing credit insurance cover for the loan with hopes of boosting commercial bank participation,” the documents state.
The new loan comes weeks after Kenya received a Sh70 billion syndicated loan from a consortium of lenders, among them Citibank, Rand Merchant Bank, Standard Chartered and Standard Bank.
Syndicated loans are becoming the preferred choice of the government given the global spike in interest rates triggered by the US Federal Reserve that has made it very costly for developing countries to raise money from the global debt market.
Kenya’s public debt stood at Sh9.6 trillion as at the end of April 2023 and President William Ruto’s government plans to borrow an additional Sh718 billion in the current financial year to plug the budget deficit.
A source familiar with the planned issuance told the Business Daily that securing credit insurance will go a long way in helping Kenya register the desired appetite given the pressing macroeconomic environment that the country is currently navigating.
“Appetite for the recently issued $500 million facility was modest and lender caution in light of Kenya’s prevailing macroeconomic situation may make it challenging but credit insurance could help. The government has been sounding out commercial banks especially those that have invested in Kenya in the past,” the source said.
Tapping into a new syndicated loan implies the government is looking to complement the recently received concessional financing with commercial financing.
In May, the World Bank board approved the disbursement of $1.0 billion to Kenya through the Development Policy Operation window while the conclusion of the International Monetary Fund’s fifth review paved the way for the draw-down of an additional $410.0 million (Sh58 billion) under the ongoing programme with the fund.
The government also plans to make a return to the global markets through the issuance of a Eurobond in the current financial year.
This comes at a time the government has stepped up efforts to mobilise commercial financing in the financial year 2023/24.
Earlier this month, top Treasury officials led by the Principal Secretary, Chris Kiptoo, and Public Private Partnership Director-General Chris Kirigua, met large bond investors in London and made a pitch covering the options being explored in view of the June 2024 $2.0 billion Eurobond maturity.
“Options mooted by the government of Kenya include full repayment with multi-tranche bonds; part buy-back and part repayment with multi-tranche Eurobonds; and part swap part repayment with multi-tranche Eurobonds. Finer details and strategy shall be agreed by lead arrangers,” the Treasury said in the presentation.
In the current financial year, the government faces a deficit of Sh720.0 billion, with the government looking to finance Sh586.0 billion from the domestic market while the remainder will be sourced from external sources.
The just concluded $500 million (Sh70.8 billion) syndicated loan was floated in two tranches, a three-year paper and a five-year paper, with the proceeds designated for financing developments approved by the National Assembly for the financial year 2022/23.
