Kenya to Float Bonds in April to Raise KSh.50 Billion to Fill Syndicated Loan Gap

Kenya is planning to sell the 10 and 20-year Treasury Bonds to raise a total of 50 billion shillings it plans to borrow locally in April to supplement the budget.

The funds raised could also be used to service part of the country’s maturing external debt.

Currently, the government has only raised 220.4 billion shillings in bond issues for the current financial year. The amount is 2.7 percent short of the target, which was set at 226.6 billion shillings.

The Central Bank announced that it will continue receiving bids for the two bonds until April 9. It will then auction the bonds a day later. Nevertheless, the details on the interest have been withheld by the government.

READ Government Opens Third M-Akiba Bond Offer to Raise Ksh.250 M

Notably, the Kenya Revenue Authority (KRA) is projected to gather 1.605 trillion shillings of 2018/2019 budget that stands at 3.01 trillion shillings. The deficit of 562 billion shillings is to be raised through debts.

The National Treasury is obligated to meet the 870.6 billion shillings for the current financial year but due to low revenue collection, there is pressure mounting.

Earlier in March, KRA in a meeting with the Parliamentary Finance Committee admitted that it was behind in revenue collection schedule for the 2018/2019 financial year by 55 billion shillings and thus, it may miss hitting the 110 billion-shilling target.

In April, the state is expected to clear a syndicated loan worth 80 billion shillings obtained from Standard Chartered, Standard Bank, Citi, and Rand MerchantBank in April 2017.

The loan was part of the 153 billion-shilling syndicated loan meant to supplement a fiscal deficit amounting to 9.7 percent of Kenya’s Gross Domestic Product (GDP) in its budget for the 2016/2017 financial year.

Treasury Under Pressure

In December 2018, the government was planning to roll over a syndicated loan totaling 78 billion shillings in the 2018 financial year in a bid to ensure manageable repayment.

READ Kenya to Roll Over KES 78 Bn Syndicated Loan for Sustainable Repayment

Also, in February 2019, the government hinted that it was seeking 1 billion dollars through a syndicated loan amid warnings to go slow on contracting new debt.

The concern was also due to pressure rising to settle credit maturing in the first half of the year. The planned debt was expected from at least three commercial lenders organized by the Trade and Development Bank and Standard Bank.

The move by the National Treasury to seek new funds followed the Cabinet Secretary, Henry Rotich’s acknowledgment for the need to cut back on foreign loans to ease repayment concerns.

According to the 2019 Medium Term Debt Management Strategy (MTDS) released by the Treasury in February, the Treasury stated that there would be a cap on commercial loans at four percent of the total external debt.

READ Kenya Seeks Sh368 billion Loan from China to Extend SGR, Despite loss

Further proposals were made, which included gross external debt financing of 38 percent against 62 percent gross domestic financing.

“On the external debt, concessional is proposed at 26 percent, semi-concessional eight percent and commercial four percent,” the Treasury said then.

The capping proposal was a clear indication that the Treasury is under pressure to cut the appetite for sovereign and syndicated loans, both of which have overrun external borrowing in the past half a decade.

This was also the reason why the government has shown that Kenya was planning to borrow more funds worth 100 billion shillings to service the syndicated loans.

Rolling Over of the Loans

On the other hand, the Rotich affirmed that the government would probably consider the option of extending the maturity of the syndicated loan.

“We are doing a syndicate to term out 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 the longer-dated loan as part of liability management,’’ Rotich said to the press.

The CS, however, offered no response from queries as to whether the government still plans to roll over the debt or clear the loan using proceeds from the planned bond.

Since January, the government has been issuing bonds worth 40 billion shillings every month. The January bond received bids of up to 101.9 billion shillings, which was an oversubscription of 254.7 percent.

Also, the February bonds; the 50 billion-shilling five-and 10-year bonds also received bids which were oversubscribed by 156 percent.

The 50 billion-shilling, 25-year infrastructure bond issued early in February is the only one not performing well and by Friday, 23 March, it had received only 29.4 billion shillings.

SEE M-Akiba Misses Out on the Ksh. 250 Million Target Once Again

The state also plans to spend 76.5 billion shillings to service the first tranche of the first Eurobond maturing in mid-June, 2019, attracting the interest of 22.95 billion shillings towards interest servicing of the entire bond.