@TheEastAfrican

Kenya forced to borrow $750 million to repay loans from four banks

12 months ago, 13 Jan 19:04

By: Njiraini Muchira

Kenya has been forced to borrow $750 million to assuage fears by lenders about the country’s ability to service its mounting debt. The loan from the Trade and Development Bank — formerly PTA Bank — is reflected in the latest Quarterly Economic and Budgetary Review for the period ending September 30, 2017, which was released in November. Sources said the loan came about as four lenders of a $800 million syndicated loan frowned at Treasury’s request for an extension to April this year to settle the debt. The creditors were so anxious of default risk that one of them declined to grant the government a grace period, forcing the Treasury — itself jittery over reputation risks that the rescheduling carried — to take the more expensive contingent debt. “We drew down $107 million from this amount and used part of it to pay off one of the arrangers who wasn’t comfortable extending the October maturity by six months,” a Treasury official told The EastAfrican. Before extending the term of the syndicated loan, the government had managed to repay $80 million. Kenya had secured the two-year loan that came with an option of six months extension from Citigroup, Standard Bank, First Rand Merchant Bank and Standard Chartered in October 2015. The TDB facility has a tenure of eight years and will mature in 2025. It comes with higher servicing costs at 6.7 percentage points above the prevailing six-month London Interbank Offer Rate (Libor). In contrast, the syndicated loan taken in February last year was priced at 5.7 percentage points above Libor, which is currently at 4.85 per cent. It means the interest rate on the bridging loan is 11.55 per cent, a percentage point higher than the syndicated loan. Eurobond The bridging loan, however, has failed to pacify creditors who see the recourse to a development loan and opting out of an earmarked Eurobond issue as a red flag that the government is struggling to meet its short term obligations. National Treasury Cabinet Secretary Henry Rotich had for the better part of last year maintained the government would settle the loan through proceeds of a second Eurobond. This would have been the second time Kenya was issuing a Eurobond to repay a loan. The $2 billion debut Eurobond floated in 2014 settled a $600 million syndicated loan that was maturing in August the same year have made Eurobond not viable. Unfavourable international market conditions such as a bullish dollar outlook as the US Federal Reserve is expected to nudge up its benchmark lending rate in 2018 after doing so three times last year. “These are not good times to go to the international market to float a Eurobond when the dollar is expected to strengthen,” said Ken Gichinga, chief economist at Mentoria Consulting. With the syndicated loan falling due at a time when Kenya is grappling with missed revenue targets, increasing expenditures and an economic slowdown, analysts have warned that a default would soil Kenya’s ability to tap into the international ...
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@TheEastAfrican

Kenya forced to borrow $750 million to repay loans from four banks

12 months ago, 13 Jan 19:04

By: Njiraini Muchira
Kenya has been forced to borrow $750 million to assuage fears by lenders about the country’s ability to service its mounting debt. The loan from the Trade and Development Bank — formerly PTA Bank — is reflected in the latest Quarterly Economic and Budgetary Review for the period ending September 30, 2017, which was released in November. Sources said the loan came about as four lenders of a $800 million syndicated loan frowned at Treasury’s request for an extension to April this year to settle the debt. The creditors were so anxious of default risk that one of them declined to grant the government a grace period, forcing the Treasury — itself jittery over reputation risks that the rescheduling carried — to take the more expensive contingent debt. “We drew down $107 million from this amount and used part of it to pay off one of the arrangers who wasn’t comfortable extending the October maturity by six months,” a Treasury official told The EastAfrican. Before extending the term of the syndicated loan, the government had managed to repay $80 million. Kenya had secured the two-year loan that came with an option of six months extension from Citigroup, Standard Bank, First Rand Merchant Bank and Standard Chartered in October 2015. The TDB facility has a tenure of eight years and will mature in 2025. It comes with higher servicing costs at 6.7 percentage points above the prevailing six-month London Interbank Offer Rate (Libor). In contrast, the syndicated loan taken in February last year was priced at 5.7 percentage points above Libor, which is currently at 4.85 per cent. It means the interest rate on the bridging loan is 11.55 per cent, a percentage point higher than the syndicated loan. Eurobond The bridging loan, however, has failed to pacify creditors who see the recourse to a development loan and opting out of an earmarked Eurobond issue as a red flag that the government is struggling to meet its short term obligations. National Treasury Cabinet Secretary Henry Rotich had for the better part of last year maintained the government would settle the loan through proceeds of a second Eurobond. This would have been the second time Kenya was issuing a Eurobond to repay a loan. The $2 billion debut Eurobond floated in 2014 settled a $600 million syndicated loan that was maturing in August the same year have made Eurobond not viable. Unfavourable international market conditions such as a bullish dollar outlook as the US Federal Reserve is expected to nudge up its benchmark lending rate in 2018 after doing so three times last year. “These are not good times to go to the international market to float a Eurobond when the dollar is expected to strengthen,” said Ken Gichinga, chief economist at Mentoria Consulting. With the syndicated loan falling due at a time when Kenya is grappling with missed revenue targets, increasing expenditures and an economic slowdown, analysts have warned that a default would soil Kenya’s ability to tap into the international ...
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