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UPDATE 2-Kenya extends syndicated loan, giving it time to resolve Eurobond delay

delay@

* Wins 3-month extension on $600 mln 2-year loan

Had planned to use Eurobond to pay off loan

* Govt official "hopeful" Eurobond can be completed

* Fitch: loan extension won't affect Kenya rating

(Adds Fitch ratings agency's comments)

By Duncan Miriri

NAIROBI, May 15 (Reuters) - Kenya has won a three-month extension on a $600 million syndicated loan, a senior Treasury official said on Thursday, giving it time to continue discussions on its first ever dollar bond which has been delayed.

The east African nation took out the two-year loan at an interest rate of 7 percent in 2012 to fund development projects and had intended to use some of the proceeds of the planned Eurobond, which could be worth up to $2 billion, to pay it off.

The Eurobond has been delayed by volatile market conditions and by a political row but Kamau Thuge, the Finance Ministry's principal secretary, said he was "hopeful" the process of issuing the bond would be completed. If not, the government would use its foreign reserves to pay off the loan.

"What we have done is just to extend the repayment ... by another three months as we continue discussions on the sovereign bond," Thuge told Reuters.

Ratings agency Fitch said the need to extend the loan highlighted the refinancing risk some African nations faced as they turned to international markets for financing rather than relying on concessional loans.

Underwritten by Citigroup, Standard Chartered and Standard Bank, the $600 million loan was due for full repayment on May 16.

Kenya's first dollar bond was delayed again last month by a political row over payment of debts to international firms.

Parliament opposed payments worth a total of 1.4 billion shillings ($16 million) to two foreign firms, saying they involved deals made a decade or more ago that a parliamentary committee said were awarded by past governments in violation of the law. British and Swiss courts ordered the payments be made.

The Finance Ministry must either ignore the MPs' request or ignore an international legal ruling, which could harm Kenya's reputation as it seeks to borrow more in international markets.

A group of lawyers asked the Kenyan high court to stop the government from paying the two firms, a request the high court declined last week. The lawyers are appealing against the ruling.

Thuge said Kenya would use its foreign exchange reserves to pay off the loan if the Eurobond issue did not go through in the next three months.

Fitch, which affirmed Kenya's rating of "B+" with a stable outlook in January, said it would not be changing the rating.

"The creditors had proactively offered this option to the authorities as part of a debt and reserves management operation, and it is not the case that without the extension, a missed interest or principal payment would be likely," Fitch said in a statement.

Kenya's foreign reserves would still be comfortable if it had to use them to repay the syndicated loan, Fitch said.

The central bank had foreign exchange reserves of $6.23 billion, equivalent to 4.36 months worth of import cover, at the end of February. ($1 = 87.3500 Kenyan shillings)

(Editing by Edmund Blair and Susan Fenton)