Kenya set to conclude talks on $750 mln syndicated loan

By Duncan Miriri NAIROBI (Reuters) - Kenya is about to conclude talks for a syndicated loan of up to $750 million in the next two weeks in an effort to reduce local borrowing and curb surging interest rates, a senior Finance Ministry official said on Friday. Yields on Kenyan Treasury bills jumped to more than 20 percent this week after the central bank embarked on a tightening cycle in June following extreme volatility in the exchange rate. "We have been working this time on a syndicated loan, which could be up to $750 million," Kamau Thugge, principal secretary at the Treasury, told reporters. "We expect that money to come in the next two weeks. Once we have that money we should be able to reduce interest rates back gradually." The loan is being arranged by Standard Chartered, CFC Stanbic and Citi, Thugge said, adding that the interest rate was still under negotiation and that it would be based on Libor. "It is reasonable compared to domestic borrowing ... If you are borrowing even at 6 percent, and now that the shilling is strengthening, it is a much better deal," he said. Finance Minister Henry Rotich set the fiscal deficit at 570.2 billion shillings ($5.54 billion), or 8.7 percent of GDP, for the financial year starting July. External borrowing for the year was set at 340.5 billion shillings while local borrowing would amount to 229.7 billion shillings. Thugge said they may borrow more externally and reduce local borrowing in order to lower interest rates. "We want to lower the cost of borrowing and then, once interest rates come down, we can then come back to domestic borrowing," he said. Kenya first tapped international capital markets last year when it issued its debut Eurobond at favourable rates. It has left its options open in terms of the instruments it will use to borrow abroad again, with even an Islamic Sukuk bond being under consideration. Thugge said the government was focusing on reducing non-priority expenditure, confirming an earlier statement made to Reuters by the International Monetary Fund. He did not give details of the cuts in non-essential spending. He said the government's revenue agency missed its collection target in the first quarter of the financial year starting July, which could put more pressure on public finances. He did not give details about the missed target but said the agency could still meet its targets as the year progresses. ($1 = 102.9000 Kenyan shillings)