Investment firm Centum has restructured a Sh3.1 billion dual currency loan contracted from Standard Bank of South Africa into an all-shilling facility. This allows the company to avoid exchange rate risk should the local currency weaken against the dollar in the future.
The loan, held under the books of the company’s subsidiary known as Vipingo Development Plc, had a dollar component of $5.9 million (Sh762 million at present exchange rate), with the remaining portion denominated in shillings.
The dollar portion was priced at three months Libor (London interbank offered rate) plus 5.75 percentage points, while the shilling component was priced at Standard Bank Prime Rate of 9.91 percent plus 4.5 percentage points.
Centum’s latest annual report, however, shows that at the end of the year to March 2024, the dollar portion of the facility had been converted into shillings, at a rate of the prevailing 182-day Treasury bill plus 3.5 percentage points.
The facility is secured by a charge over Vipingo’s land and is guaranteed by the holding firm—Centum Investment Company Plc.
“During the year, Vipingo Development Plc refinanced its existing facility split into two components: a US dollar component and a shilling component into an all-shilling facility. The facility is priced at a base rate of the 182-day Treasury Bill and a margin of 350 basis points,” said Centum in the report.
In addition to the Standard Bank loan, Centum did away with a dollar facility held with the South African lender’s local subsidiary Stanbic Bank Kenya.
The outstanding amount on the overdraft and term loans at Stanbic stood at Sh1.9 billion as of March 2024, down from Sh2.2 billion a year earlier.
In 2023, this exposure contained a dollar component of $4 million (Sh517 million), which had dropped to nil in 2024. The facilities are priced at the 182-day T-Bill rate plus 2.7 percentage points and are secured against the company’s marketable securities portfolio.
The restructuring of the loans came in a period when the last of the Libor rates were phased out by lenders as a pricing tool for loans globally.
At the end of December 2021, all British pound, euro, Swiss franc and Japanese yen instruments, and the one-week and two-month US dollar instruments stopped using the rate.
The US dollar overnight, one, three, six and 12-month instruments transitioned from Libor in June 2023.
Most dollar loans shifted to the US Treasury’s secured overnight financing rate, with loans in other major currencies moving to reference rates developed by their respective financial authorities, such as the Sterling Overnight Index Average, Euro Short Term Rate and the Tokyo Overnight Average Rate.
Overall, Centum’s stock of dollar-denominated loans stood at Sh8.03 billion in March 2024, up from Sh7.3 billion the previous year.
