Is Kenya being auctioned?? government set to borrow Sh100 billion to pay old debts

Revelations that the government plans to borrow Sh100 billion to settle two other syndicated loans maturing next year have once again turned the spotlight on the rising level of debt.

On Saturdayy, National Treasury Cabinet Secretary Henry Rotich came out to explain the decision amid public outcry, saying the latest move, said to be arranged by the Trade and Development Bank (formerly PTA Bank), will only help to lengthen the maturities of the Eurobond debts beyond the 2019 date.

“We are doing a syndicate to term out (lengthen maturity) of a maturing two-year syndicated loan taken in April 2017. This is a standard practice worldwide to retire short-dated loan and replace it with longer-dated loan as part of liability management,” Mr Rotich said.

The Cabinet Secretary denied reports that Kenya was opting for a more expensive syndicated loan option to settle the Eurobonds taken in 2014. Such a move could pile more repayment pressure on the loans since it is almost impossible to secure a syndicated loan at a rate equal to or lower than the 5.75 per cent Eurobond was secured at.

Critics of the syndicated loan approach, however, believe the country may be running out of options to go back to the international market. This is after conditions worsened with lenders now demanding more returns coupled with the public scrutiny that followed the floating of the first and second Eurobonds.

Under the syndicate loan arrangement, a bank (syndicate) is used to source for the borrowed billions from various lenders, including other financial institutions and individuals, who remain unknown, at usually higher interest rates compared to the open debt market.

With no need of a prospectus to explain the finer details of the loan to the public, the quick loans may have become Treasury’s resort to fund its expenditures including loan repayments.

Economist David Ndii described the move as a fallback strategy for Kenya, which is now less optimistic to go back to the international market to float another bond.

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“We are in a financial distress and Kenya knows that should we go to the international market now we will obviously get pricing even above 10 per cent.

“A syndicate is like a shylock unlike going to a corporate bond where you can be advised on better options. It will be important to know whether this is in addition to the corporate bonds or an alternative,” Mr Ndii said.

The loan will be the sixth syndicated one arranged by the Trade and Development Bank, according to disclosures made in a Eurobond prospectus earlier this year.

Do you support this move of taking a loan to settle another loan?

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