Financial markets in Kenya remain nervous as the government puts the final touches to a $600 million off-shore loan it has negotiated with three international commercial banks.

This is the first loan of this kind for the country, and markets are waiting for the conclusion of the deal with a sense of anticipation and anxiety — well aware that the loan will affect the regularity and volumes of issuance of Treasury bills and bonds, with major ramifications for the prices of financial assets.

In terms of size, the loan is equivalent to nearly 50 per cent of the domestic borrowing requirement for this year.

New details about the massive loan have begun to emerge. It is a two-year loan with a coupon of 4.7 per cent.

When legal fees, arrangement fees and other costs are added on, it is estimated that the total cost of the borrowing will be about 7.3 per cent.

Interest will be payable every six months. Kenya had initially planed to issue a euro bond but opted out due to unpredictable conditions in the international financial markets.

It is understood the government is calculating that in two years’ time — after Kenya will have conducted the forthcoming general election — it will issue a longer-term euro bond and use the money to service the $600 million commercial loan.

A consortium comprising Stanchart Bank, Citi Bank and Standard Bank of South Africa came up with the most competitive offer.

Also coming up with a competitive offer was Credit Suisse Bank. According to well-placed sources, the material difference between the two most competitive offers was the fact that the winning consortium offered to underwrite the whole amount.
Apparently, Credit Suisse, while agreeing to the condition of disbursing $240 million on the date of signing the deal, did not want to commit to underwriting the remaining $360 million — offering to syndicate the money on the basis of “best effort.”

As we went to press, the government was yet to formally award the tender to the winning bidders.