Interest rate spikes to push up Kenya’s loan repayment to Sh12b

Kenya is set to pay Sh12 billion in interest and other costs for a syndicated loan due in 10 months.

The loan was arranged by Citigroup, Standard Bank and Standard Chartered in 2015.

Central Bank of Kenya’s (CBK) printed financial statement shows the $750 million (Sh7.7 billion) two-year commercial loan was borrowed at eight per cent interest, including other costs.

Initially, it was estimated that the loan would come at a paltry 5.7 per cent interest rate, considered reasonable for its short tenor as compared to the Eurobond, which in 2014 attracted an interest rate of 5.875 per cent for a $500 million (Sh5.1 billion) five-year bond and 6.875 per cent interest for a $1. 5 billion (Sh154 billion) 10-year note.

“Treasury also frontloaded some of the planned foreign financing by drawing in early November on a two-year syndicated loan of $750 million (about 1.2 percent of GDP) at about eight per cent effective cost,” said CBK in the financial statement.

The revelation offers a sneak peek into the web of syndicated loans which unlike open market loans are usually discreet and little is revealed about their terms of agreement.

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They usually contain punitive clauses in case of debt distress and or default.

Treasury, led by Cabinet Secretary Henry Rotich (pictured), is already negotiating another syndicated loan of $1 billion (Sh103 billion) arranged by four banks - Standard Chartered, Standard Bank, Citigroup and Rand Merchant Bank - having secured $250 million (Sh25 billion) from Rwanda-based East African Trade Finance (PTA) Bank.

With some of the banks arranging the current loan already exposed to the 2015 offer, the country is likely to attract rates above the eight per cent, especially given the US Federal Reserve’s bullish view of increasing interest rates faster in the coming years. The rates will, however, depend on the tenure, especially as the Government may prefer longer-term debt considering it is currently under pressure of maturing loans.

Kenya’s total debt increased by almost a third (28.7 per cent) last year from Sh2.8 trillion in 2015 to Sh3.6 trillion in June last year, according to CBK data. Interest paid back to our creditors rose to Sh172.9 billion from 139.7 billion a year earlier with interests on external debt doubling to Sh42.6 billion from Sh29.3 billion recorded in the 2014/15 financial year.

CBK said during the period under review, financing was sourced from the domestic market as well as disbursements from the Chinese Government through Exim Bank, International Development Association, African Development Bank and the two-year syndicated loan.