Local banks up the ante in financing mega projects

The move by a consortium of local and international banks to finance a $350 million (Sh35.7 billion oil pipeline deal in Kenya - one of the country’s mega projects is changing the financing dynamics in the country, with local banks fighting for a pie of the lucrative projects.

The project’s financing banks include Co-operative Bank, CfC Stanbic Bank, Citibank, Commercial Bank of Africa (CBA), Rand Merchant Bank and Standard Chartered Bank. The transaction is an indication of Kenya’s attractiveness and willingness of local and international financiers to support the growing infrastructure development needs.

The facility signed last week will fund the replacement of Kenya Pipeline Company’s (KPC) 450km pipeline running from Mombasa to Nairobi. “This Sh35.7 billion syndicated project loan is to be contributed equally among the six banks in the consortium, with each contributing $58.33 million (Sh6 billion),” said KPC Acting Managing Director Flora Okoth during the signing ceremony in Nairobi last week.

Kenya pipeline’s infrastructure spans over 900kms, from Mombasa to Nairobi, extending to Eldoret and Kisumu. The replacement of the 35-year old pipeline, is expected to address capacity constraints and ensure sustained, reliable and efficient transportation of petroleum products in the region.

Kenya is the region’s largest economy with promising growth levels and strong fiscal and institutional strength, making it one of the most attractive investment destinations in Africa.

Coupled with KPC’s financial performance, the impact of the pipeline on petroleum demand for the local and regional economy makes it one of the country’s most valuable financing arrangements to date. KPC, a key strategic State-owned entity, supplies petroleum to Kenya and her neighbouring countries of Uganda, Rwanda, Burundi, DRC, South Sudan and Tanzania.

Syndicated financing

This is the second successful syndicated financing undertaken by KPC - the company having raised similar borrowing for its Line Four, spanning 325kms from Nairobi to Eldoret. With this new financing, KPC reaffirms its reputation in the market as a key borrower - attracting capital from domestic and international banks, as well as development finance institutions.

“The successful fundraising of such substantial magnitude - notably in foreign currency marks the coming of age of Kenyan banks in large-scale infrastructure financing,” said Co-op Bank’s Director for Corporate and Institutional Banking Lydia Rono. This is a pointer to the potential of Kenya, and by extension the region, to source the much-needed financing for infrastructure development locally without having to resort to conventional global financiers, including development financing institutions, euro bonds and global merchant banks.

Of particular note is the rise of indigenous banks in forex-denominated infrastructure financing, in this case the Co-operative Bank and CBA. CBA upstaged dominant players with the revolutionary M-Shwari mobile banking suite that has pioneered full service banking from the mobile phone.

Co-operative Bank has also continued to stamp its presence in large-scale deal-making. The list of deals that Co-op Bank has funded include the Sh7.2 billion financing facility to Centum’s Two Rivers Project coming up in Runda and the Sh2.5 billion Lake Basin Mall project at the Mambo Leo Junction in Kisumu County. The mall, which includes a three-star hotel is owned by the Lake Basin Development Authority. Erdemann Properties Ltd is the Co-developer. It is due for completion in October 2015.

Co-op bank has also entered motor vehicle leasing business by financing auto firms to supply Government with vehicles worth Sh3.4 billion. To date, it has bought 107 vehicles through Vehicle and Equipment Leasing Ltd to the tune of Sh1 billion in addition to financing Rentco to the tune of Sh2.4 billion to buy 530 vehicles from CMC Motors for onward leasing to the State.

It has approved financing to Angelica Medical Supplies Ltd for $14 million (Sh1.5 billion). “The financing will go towards supply, installation, testing, maintenance and replacement of medical equipment and associated training for county and sub-county referral health facilities through a Managed Equipment Services arrangement,” the bank said in a statement.