Kenya plans to start negotiations on a sovereign bond after agreeing to borrow $600 million in a debut two-year syndicate loan from foreign creditors at an interest rate of 4.75 percent above Libor, the finance minister said on Tuesday.
The loan, which replaced a planned Eurobond and is meant to substitute nearly half of a 119 billion shillings local borrowing target for the 2011/12 (July-June) fiscal year, would go towards ongoing infrastructure projects, officials said.
Treasury said in April it had postponed the Eurobond to the 2013/14 fiscal year, and analyst said the success of the syndicate loan was a good pointer at the ability of the biggest economy in east Africa to access the global financial markets.
Kenya is rated B+ by Standard & Poor’s and Fitch.
“Now we can start negotiating on the sovereign bond for the next fiscal year … because the intention was to retire the expensive domestic debt,” Finance Minister Robinson Githae said at the loan signing.
“The syndicate loan is competitively priced at an interest rate of 4.75 percent per annum over Libor, and is also competitively priced when compared with other similar African debt financing.”
Kenya decided to borrow internationally late last year after yields on government securities soared to highs of 20 percent in December from as low as 2 percent in January.
This made it costly to borrow domestically, especially to fund the government’s infrastructure development plans which are core to its economic growth aims.
Yields have since edged down in oversubscribed auctions this year as inflation dropped for five straight month to 13.1 percent in April.
“The market had evidently nosed out the imminence of the loan and this is evidenced in the sharp fall in government yields,” said Aly Khan Satchu, an independent analyst.
The arrangement of the loan was done by a consortium of foreign banks including Citibank London, Standard Chartered Bank and South Africa’s Standard Bank, who also fully underwrote the loan facility.
“We are particularly proud to have effectively delivered this financing solution for the sovereign during what has been a challenging period in the markets,” David McCaig, Global Head of Debt Products at Standard Bank, said.