May 15 (Bloomberg) -- Kenya plans to sell its inaugural Eurobond by mid-August, when its $600 million syndicated loan is scheduled to mature after it agreed to a three-month extension with lenders, Treasury Principal Secretary Kamau Thugge said.
East Africa’s largest economy had intended to settle the loan with part of the proceeds of the sale of as much as $2 billion of Eurobonds, which has been repeatedly delayed since September because of organizational and legal challenges.
The Kenyan government accepted an offer by the three arranging banks to extend the facility at the same terms, even though it had enough money to repay the entire loan, which had matured today, Thugge said by phone from the capital, Nairobi.
The Finance Ministry will “do its best” to issue the Eurobond within the three-month period, he said.
The repayment extension highlights the “refinancing risk” faced by some African nations that may not have sufficient reserves to pay debt, Fitch Ratings said in an e-mailed note today. It won’t affect Kenya’s sovereign rating, Fitch said.
The Kenyan government was considering repaying the loan with foreign-exchange reserves, which would have depleted them to a “comfortable level” of 3.4 months of import cover from the current 3.8 months, or $6.3 billion, according to Fitch.
Kenya’s long-term foreign currency debt is assigned a B+ by Fitch and Standard & Poor’s, four levels below investment grade, and it has the equivalent B1 rating from Moody’s Investors Service.
Citigroup Inc., Standard Chartered Bank Plc and Standard Bank Plc arranged the two-year syndicated loan at an interest margin of 475 basis points more than the London interbank offered rate. Some lenders in the debt syndicate will be repaid by the lead banks today, a person familiar with the matter who asked not to be identified as the terms are private, said today.
The Kenyan Parliament has yet to approve payments worth 1.4 billion shillings ($16 million) awarded by two European courts, which the government says it’s required by law to settle before issuing sovereign debt.
The Law Society of Kenya, which represents all lawyers in the country, has filed a case in the courts trying to stop the payments, which it says are connected to the so-called Anglo-Leasing scandal, in which the state awarded communications-equipment contracts to fake companies from 1997 to 2004.
Parliament is due to resume sitting on June 3.
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