Kenya has bought back Sh77.5 billion ($600 million) syndicated loans by tapping proceeds from the recent Sh193.8 billion ($1.5 billion) Eurobond issued last month.
The government only used up Sh74.9 billion ($579.6 million) from the newly issued Eurobond, which matures in 2036, to partially redeem holders of a Sh116.2 billion ($900 million) Eurobond maturing in 2027.
This means the National Treasury retained a balance of Sh118.9 billion ($920.4 million), surpassing the syndicated loans buyback target, which would leave a balance of Sh41.4 billion ($320.4 million).
The buyback of syndicated loans represents a ramp-up of the government liability management operations programme whose main goal is to reduce pressure from upcoming external debt redemptions.
“In February 2024, Kenya undertook a $1.5 billion liability management operation on the $2 billion Eurobond maturing in June 2024 and executed a further liability management operation targeting a $900 million Eurobond maturing in 2027 and high interest in syndicated loans in the debt portfolio to a tune of $600 million,” the National Treasury told the National Assembly Liaison Committee in submissions on the medium-term debt management strategy.
“The operation will reduce near-term maturities, improve overall debt sustainability, and boost investor confidence.”
Syndicated loans refer to bank facilities financed by a group of lenders, mostly commercial banks.
The Treasury debt register does not distinguish between syndicated loans and other commercial loans in its books but lists all external commercial loans, which are mostly issued by global banks.
The stock of external commercial bank loans stood at Sh312 billion as of last September, according to the Exchequer data.
The external commercial bank loans comprise borrowings from renowned international banks, including the Africa Export-Import Bank (Afrexim Bank), Citigroup Global Markets Deutschland AG, Mizuho Bank Europe N.V, Societe Generale, Trade and Development Bank and Standard Bank Limited UK.
Syndicated loans feature relatively higher interest rates than semi-concessional and concessional loans, making them a key target for the Treasury liability management.
Fiscal space
The buyback of the commercial loans will see the note holders sell their papers back to the government, mostly at a premium, eliminating the costly debt service costs associated with the facility.
This will result in the creation of fiscal space by freeing revenues, which would have otherwise gone into servicing the syndicated loans.
The buyback of the syndicated loans is the third such deal since last year when the government raised a Sh198.3 billion ($1.5 billion) Eurobond, deploying the proceeds in the buyback of noteholders in Kenya’s debut Sh258.4 billion ($2 billion) Eurobond issued in 2014, which matured last June.
The buyback helped stagger payments on the sovereign bond, relieving a foreign exchange pressure buildup which resulted from investor jitters over a potential default on the Eurobond.
Last week’s buyback of the Eurobond, meanwhile, cleared the bulk of maturities on 2027 Sh116.2 billion ($900 million) debt, which was to be paid in three equal tranches across two years to May 2027.
Kenya, for instance, now only has to redeem notes worth Sh41.3 billion ($320.3 million) over the same period.
