Kenya is courting commercial banks to help her pay part of the Sh200 billion debt that falls due this year after Treasury opted against tapping the Eurobond market again.
Half of the amount could be disbursed as early as next month in the form of a syndicated loan that the Trade and Development and Standard banks are arranging on behalf of the government.
"Kenya is seeking to use these funds to finance part of its expected maturities while another portion will go into funding development expenditure. This syndicate will also allow the government access to credit line for an additional $250 million (Sh25 billion) if it deems fit to tap into," a source with knowledge of the matter said.
Kenya is staring at a Sh78.7 billion maturity next month of a loan advanced to it by Stanchart, Standard, Citi and Rand Merchant banks in March 2017, at a rate of eight per cent.
The government is expected to remit the principal of Sh81.6 billion and accumulated interest of Sh13 billion.
The Nation understands that TDB reached out to several financial institutions asking them to express interest to participate in the syndicate through book-building, which closed on Wednesday. TDB president Admassu Tadesse said the bank plans to raise the financing by April.
"The players have met some banks and agreed on this, including key terms of the loan syndication," he said.
"Some banks have responded to the negative on the call to participate."
Kenya is seeking loans with maturity of between seven to 10 years.
A source at Standard Bank confirmed its role as a "co-arranger" but declined to say what amount and tenor the bank would be looking at.
However, the Nation understands that three other banks would be part of the syndicate, offering the government the funds in three tranches: two seven-year loans of $710 million split into $410 million and $300 million, and a $250 million debt, with a 10-year tenor.
TDB has arranged nine syndicates for Kenya in the last four years and this will be the 10th, showing the country's latest preference of these types of loans to meet its debt obligations.
Sh250 billion Eurobond
National Treasury Cabinet Secretary Henry Rotich is walking a tight rope with regard to the country's debt and intends to cut back on foreign loans.
According to the 2019 debt strategy paper released on Thursday, domestic debt will fund 62 per cent of the budget deficit with external financing, most of it concessional, contributing 38 per cent.
The external portion is divided into concessional (26 per cent), semi-concessional (eight per cent) and commercial (four per cent)
Kenya had budgeted for external debt repayments of Sh250 billion for the 2018/19 financial year, and is facing large redemptions this year.
"Whereas debt redemptions are large in 2019, it is projected that over the medium term, the level of redemptions will decline," Treasury said in the report.
In December, Treasury PS Kamau Thugge said the ministry had opened discussions with lenders to roll over the two-year Sh76 billion syndicate arranged by TDB in the current financial year and lengthen its maturity to make debt repayments more manageable.
"We have paid lenders who wanted their funds. However, we have also agreed on a six-month extension worth majority of them. By April, depending on our debt maturing obligations, we will either get a syndicated loan or go back to the Eurobond market," Mr Rotich said then.
Treasury planned to raise Sh280 billion in external debt before June to help plug the 2018/19 budget shortfall, even as it stares at more than Sh200 billion in maturities.
The country saw its public debt rise by Sh233 billion in the six months to December 2018, to Sh5.273 billion up from Sh5.039 billion six months earlier.
In the same period, the country saw its stock of external debt rise by Sh1.63 billion.
Kenya is staring at another Sh37.1 billion loan repayment owed to TDB maturing in June. The country also expects the Sh75 billion Eurobond issued five years ago to mature in the same month.
Other repayments due include Sh21.4 billion to France, China and Japan.
The choice of a syndicated loan comes when Treasury has had a hard time raising money in the domestic market. Investors have in the last eight months shied away from bond markets, discouraged by the government's long tenor securities.
"We are working towards reducing our exposure to the dollar through contracting new debt in other currencies and matching external liabilities with currency composition of Kenya's forex inflows and international reserves," Treasury said.
Kenya had also indicated its plans to enter the international markets this year with a Sh250 billion Eurobond, which it was to use to cover its budget deficit and provide funds to roll over existing debt.
Mr. Rotich also admits that despite the country seeking to maximise its debt financing options through concessional terms, this source is 'shrinking' as a result of Kenya's middle income status.
"For this reason, we will continue to access commercial windows of multilateral institutions, maintain our presence in the international capital markets as we as using the export credit agencies (ECA's) to fiancé development expenditure," Mr. Rotich said in the report.