Kenya’s government signed a $600 million two-year loan with three foreign banks that will be repaid at an interest rate of 475 basis points above the London interbank offered rate, Finance Minister Robinson Githae said.
The syndicated loan, Kenya’s first, was underwritten by Citigroup Inc. (C:US), based in New York, Standard Bank Group Ltd., Africa’s biggest lender based in Johannesburg, and London-based Standard Chartered Plc (STAN), Githae told reporters today in Nairobi, the capital. The funds will be used to finance infrastructure spending, he said.
“The loan will have significant positive impact on the economy,” Githae said. “It will also ease pressure on the domestic interest rates and boost the international reserves of the central bank, thus stabilizing the Kenyan shilling.”
Kenya, East Africa’s biggest economy, is rated by both Standard & Poor’s and Fitch Ratings at B+, which is four steps below investment grade, and the same as Cape Verde and Zambia. The loan comes after the government cut its domestic borrowing target by half for the 2011-12 fiscal year as the central bank held interest rates at a record 18 percent, boosting Kenyan bond yields.
The loan is “competitively priced when compared with other similar African debt financings,” Githae said, citing yields on Ghanaian, Senegalese and Gabonese 10-year bonds that have coupons ranging from 8.2 percent to 8.75 percent. Kenya’s central bank sold two-year bonds at a weighted average yield of 13.8 percent on April 25, according to the bank’s website.
The first $240 million portion of the loan will be disbursed immediately, subject to relevant conditions being fulfilled, while the remainder will be released within 30 days, David McCaig, the global head of debt products at Standard Bank, said in an interview today in Nairobi.
The loan will be repaid through the issue of a sovereign bond “on or before its term,” Githae said today.
Kenya currently has 1.51 trillion shillings ($17.8 billion) of outstanding public debt, made up of 686 billion shillings of foreign debt and 830 billion of domestic borrowings, according to Githae. He dismissed concern “in the press and by other parties” that the government may have difficulty in repaying the debt.
“The amount borrowed in absolute numbers is high, but the correct way to consider debt burden is in terms of the size of the economy and the capacity to repay,” Githae said. “The debt is sustainable and there is low risk of debt distress.”
The shilling pared its loss to 83.85 per dollar, or 0.2 percent lower, by 7:08 p.m. in Nairobi after weakening as much as 1.1 percent earlier in the day, according to data compiled by Bloomberg.
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