Kenya eyes new loan to settle maturing Sh51.6 billion TDB debt

The Treasury has opened talks with the Trade and Development Bank (TDB) to secure fresh funding in order to clear a Sh51.6 billion ($400 million) syndicated loan that falls due next month.

The move is meant to ease the pressure on government revenue at a time when expenditure is rising against slower growth in collections.

Treasury Cabinet Secretary John Mbadi said discussions are underway with TDB for a cheaper loan to offset the maturing facility. He explained that the refinancing plan is part of efforts to restructure Kenya’s public debt by lowering interest rates and spreading repayment obligations over a longer period.

“We are looking to refinance TDB, but if they are not going to offer us a competitive rate, then we would rather get some money and pay it off,” said Mbadi.

“We will either refinance the TDB facility or pay it off from our revenue collection. This is the biggest external debt we are confronted with. This will help us deal with commercial debt, which has been a big problem for us.”

Should TDB agree to refinance, Kenya will replace the current loan with a new facility on better terms and extend the repayment timeline.

Alongside the TDB plan, the Treasury is also in talks with China to convert the dollar-denominated standard gauge railway (SGR) loans into Chinese yuan, a swap expected to halve interest payments.

Kenya currently spends about Sh130 billion annually to service the SGR debt.

The government projects that the interest rate on the Chinese loan will drop to around three percent from the current 6.37 percent if the deal is concluded.

Mbadi noted that the negotiations with Beijing are at an advanced stage, adding that the shift is in line with efforts to diversify the currency composition of Kenya’s external debt.

The Treasury has already carried out two Eurobond buybacks this year to ease future repayment pressures.

It issued new bonds to retire the 2024 Eurobond of Sh258.4 billion ($2 billion) and another Sh116.3 billion ($900 million) bond maturing in 2027. Mbadi said the government is now considering similar buybacks for Eurobonds maturing in 2028 and 2031.

The 2028 Eurobond is a bullet repayment of Sh129.2 billion ($1 billion). “We realised we had a problem with commercial and bilateral debt. Commercial debts are mostly Eurobonds and syndicated loans, mostly to TDB,” he said.

“We will deal with the closest Eurobond maturity in 2028 and spread it out. We will then deal with maturities in 2031 and 2032 and spread the payments between 2034 and 2048 when we will have no other Eurobonds maturing.”

Data from the Treasury shows that commercial loans, including Eurobonds, stood at Sh1.16 trillion or 23 percent of total external debt by the end of December. These, alongside bilateral loans such as those from China, have been singled out as the biggest burden on Kenya’s debt position.

To further diversify funding sources, Kenya recently tapped Sh21.8 billion ($169.42 million) Samurai financing from Japan to support the local motor vehicle assembly and energy sectors.

The loan, which is subject to Japanese regulations, was issued as part of efforts to shift external borrowing away from heavy reliance on dollar-denominated instruments.