Kenya Requests Extension on Repayment of $750 Million Loan

NAIROBI (Capital Markets in Africa) – Kenya has repaid 10 percent of a $750 million two-year syndicated loan that was due in October and asked creditors to give the government until April to pay the rest, Treasury Secretary Henry Rotich said.

East Africa’s biggest economy secured the loan from Citigroup Inc., Standard Bank Limited and Standard Chartered Plc in October 2015. It intended to return the cash using the proceeds of a Eurobond that’s yet to be sold, Rotich told reporters Tuesday in the capital, Nairobi.

“We had plans to extend to until we can pay off with proceeds from a Eurobond, but there were some who requested to be paid off,” he said. “We have extended by six months to April, and we are prepared to refinance to have a much longer period of time.”

In 2014, Kenya extended the maturity of another syndicated loan by three months as it awaited better conditions to issue a Eurobond. The Treasury plans to borrow 256 billion shillings ($2.47 billion) from external creditors in the fiscal year through June 2018 to help finance its fiscal deficit.

Yields for its five-year Eurobond fell 1 basis point to 4.06 percent by 8:41 a.m. in London. Rates on the country’s $2 billion of bonds due June 2024 traded little changed at 6.12 percent. The shilling weakened 0.2 percent to 103.65 against the dollar by 12:10 p.m. in Nairobi, heading for its biggest decline since Sept. 19.

Kenya’s public debt stood at 4.43 trillion shillings at the end July, according to central bank data, compared with 3.61 trillion shillings a year earlier. The nation has fallen behind in its domestic borrowing program, with 50 billion shillings in new borrowing in the five months of this financial year, compared with a prorated target of 80 billion shillings, according to Kenneth Minjire, head of securities at Genghis Capital.

Rating Review
Kenya will keep evaluating market conditions to determine when and where to raise fresh funding, Rotich said. It’s in the past considered issuing Sukuk or Samurai bonds.

“We are still going to be active in the market once we conclude business here on the political side,” he said. “We want this election over as quickly as possible to engage investors to get back, to gauge the appetite and tenure.”

Kenyans were forced back to the ballot box last month after their Supreme Court ruled that an initial presidential election in Aug. 8 was flawed. While President Uhuru Kenyatta was declared winner of the election boycotted by his main opponent, several cases were filed on Monday to overturn that outcome. 

Rotich said the prolonged electioneering are hurting the $71 billion economy, which is now seen expanding by 5 percent this year, from an initial 5.9 percent forecast.

It’ll be “a lot tougher” raising Eurobond money, according to Minjire, after Moody’s Investors Service last month placed Kenya’s B1 rating on review for a downgrade. The ratings company warned that persistent and large deficits and high borrowing costs will continue to drive public debt higher.

“If Kenya goes to the market, they will pay in a premium because investors will price in higher risk from the credit downgrade,” Minjire said.

Source: Bloomberg Business News