NCBA Bank Kenya #ticker: NCBA has lent Kenya Power #ticker: KPLC Sh6.75 billion, becoming the largest local lender for the electricity distributor by taking over the company’s overdraft facilities.
The bank that is listed on the Nairobi Stock Exchange granted the 12-year loan on October 9, 2020. Details of the loan are disclosed in Kenya Power’s annual report for the year ending June.
âDebt refinancing / restructuring has been identified as one of the recovery strategies that is being carried out. The procurement process for refinancing is currently underway. During the current financial year, an overdraft of Shs 6.7 billion was converted into a term loan, âKenya Power says in the report.
âThe overdraft balance has also been gradually reduced with the increase in revenue collection. The company has also reduced its dependence on overdrafts. “
The NCBA loan is denominated in local currency and carries an interest rate of nine percent, which comprises the Central Bank rate that is currently seven percent plus a margin of two percent.
The NCBA also receives a loan origination fee that banks charge to process a loan application as a fraction of the total value of the loan.
Rand Merchant Bank, NCBA and Standard Chartered Plc charged Kenya Power a combined loan origination fee of Shs 794.9 million in the year ending June.
The NCBA loan has a 36-month repayment moratorium starting in September 2020, Kenya Power said.
Other local lenders who have provided loans to the utility company include Equity Bank, which is owed Sh4 billion.
Kenya Power has also borrowed heavily from development finance institutions and foreign banks. NCBA is the latest to disburse a loan to Kenya Power as amounts owed to other commercial banks decrease in repayments.
The electricity distributor repaid loans worth 20.2 billion shillings in the review period, up from 12.4 billion shillings the previous year.
Kenya Power, for example, paid off the 2 billion shillings loans from Stanbic Bank, while the amount owed on one of the Standard Chartered Plc loans dropped from 29.3 billion shillings to 25.7 billion shillings. New loans from Kenya Power were also reduced to Sh8.5 billion from Sh14.6 billion.
The moves caused its financial costs to drop to Sh9 billion from Sh12.4 billion.
âFinancial costs recorded a reduction of 27.5 percent from Sh12.47 billion to Sh9.05 billion due to a decrease in loans and overdrafts as a result of a Sh20.26 billion repayment of business loans that included partial conversion of overdrafts on a term loan, âsaid the utility company.
The company, which has been receiving exemptions from lenders for defaulting on liquidity ratios, plans to further renegotiate its debt with the aim of reducing interest expenses and increasing cash flows.
The company invited expressions of interest (EOI) for the refinancing of commercial debt in April and a request for proposals was issued to bidders with a closing date of August 6.