Kenya could end up spending more than 80 per cent of the proceeds of last week’s Sh202 billion Eurobond on retiring syndicated loans contracted in 2015 and 2017, the prospectus used to secure the loan shows.
The Treasury took a $1 billion (Sh101 billion) syndicated loan from a consortium of banks in March last year, to mature in April 2019.
It is also due to repay $646 million (Sh66 billion) from the two-year $750 million (Sh76 billion) loan taken in October 2015, whose maturity was extended to next month.
The Treasury told investors in the Eurobond II prospectus that the two syndicated loans carry clauses that allow the lenders to call in their money early should the country issue a bond in the international market.
“Under the terms of the 2015 syndicated loan facility, the outstanding amount will be redeemed earlier on a bond issue by the government of Kenya or the final maturity date… the 2017 syndicated loan facility has a similar redemption feature, however, the lenders have discretion to waive this prepayment right following an issue of a new bond by Kenya,” says the Treasury in the prospectus.
“Accordingly, Kenya expects that part of the proceeds of the Notes (Eurobond) will be applied to repay all amounts outstanding under the 2015 loan facility and that part of the proceeds may be applied to repay a portion of the amount outstanding under the 2017 syndicated loans and manage the maturity profile of the government’s debt.”
The disclosure by the Treasury shows that the country is now firmly in the cycle of rolling over external debt, essentially using new debt to retire a maturing one.
This has been more common in the domestic debt market, but is only becoming entrenched now in the external debt market given that Kenya has only recently started taking commercial loans after leaving the club of low income countries, having previously subsisted on concessional lending that matures over decades.
The disclosure that the Eurobond money will pay off the 2015 loan however leaves questions over what the government intends to do with the proceeds of yet another facility taken last year to refinance this debt.
In October 2017, Kenya took a 10-year $750 million (Sh76 billion) loan from East and South Africa Trade Development Bank (TDB) to refinance the maturing 2015 syndicated loan.
Already, part of this money has been used to pay off investors who did not wish to extend the maturity of their loan to April, totalling $104 million (Sh10.5 billion).