Ruto Rejects Ksh161B Offer from Trade Development Bank
On Tuesday, January 30, during his address in Rome, Italy, President William Ruto disclosed that Kenya had decided not to accept a syndicate loan of Ksh161 billion ($1 billion) extended by the Trade and Development Bank (TDB).
A few hours after President Ruto advocated for an extensive reform agenda for Multilateral Development Banks and called for a boost in concessional loans, the disclosure was made.
Syndicate loans involve the collaboration of multiple lenders to provide a unified, sizable loan. Unlike concessional loans, which are available at favorable rates, often below market value, syndicate loans can be costly and intricate to oversee.
Ruto mentioned that his government had abandoned reliance on the bank to disburse the loan as initially agreed upon in October 2023.
Before Ruto made the statement, it is important to highlight that Kenya had already received Ksh34 billion from TDB.
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The recently rejected syndicated loan of Ksh161 billion from TDB was intended to enhance Kenya’s foreign reserves and address upcoming external debts due in 2024.
Expressing confidence in Kenya’s economic position, Ruto stated that there was no longer a need to opt for a costly syndicated loan.
“Because of the situation that we now see in the market, we believe that it would be a lot easier even for us to raise that money in the market, rather than through syndication,” he stated as quoted by Reuters.
One week prior, the Central Bank of Kenya disclosed plans to conduct an auction for infrastructure bonds valued at Ksh70 billion (USD429 million), earmarked for funding various development initiatives.
How a syndicate loan is acquired
A country like Kenya approaches a financial institution like TDB, Bank of China, or J.P Morgan for a huge loan.
If the financial institution agrees to extend the loan, it assumes the responsibility of finding several lenders who will pool resources to raise the cash.
Kenya now pays the mobilizer of the syndicate loan who in turn compensates investors who raised the amount. Due to the complexities and risks involved, the mobilizers demand high interest rates for such financial arrangements.
Ruto Rejects Ksh161B Offer from Trade Development Bank