Addis Ababa, April 28, 2022 (FBC) – Standard Chartered Bank Kenya was one of the major banks that lent Safaricom a total of 400 million USD last year, helping the telecom operator pay for its Ethiopian licence.
A consortium led by Safaricom paid 850 million USD to gain entry into the new market, with the telco relying heavily on short-term loans to fulfil its part of the capital obligations.
“We led a landmark financing for a telecommunications client in the East African region. This was the largest loan syndication to the tune of 400 million USD,” StanChart says in its latest annual report.
“The 400 million USD facilities comprised of a short-term stand-by letter of credit and a 12-month term loan which allowed the consortium to submit and fund the winning bid for the first full-service mobile telecommunications licence for a private sector operator in Ethiopia.”
StanChart did not disclose the other banks with which it worked to fund Safaricom. The other lenders could include its London-based parent company Standard Chartered Plc and local big banks.
The telco had earlier separately disclosed the short-term loans without identifying the banks, adding that it was negotiating to convert them into long-term borrowings to free its cash flow.
“To support the payment of license fees for the telecommunications licence awarded to the Safaricom-led consortium by the Government of Ethiopia, we undertook a one-year bridge facility of 400 million USD to finance this venture,” Safaricom said when it announced its results for the half-year ended September.
“We are currently seeking to term out the bridge facility through a long-term arrangement so as to manage our working capital requirements in the short term and minimize the currency risk for the dollar loan.”
Converting the loan into a long-term facility will generate substantial interest income for the banks which would otherwise need to look for another borrower to lend to.
The pricing of the loan has not been disclosed but dollar facilities typically attract interest rates in the mid-single digits.
For Safaricom, the extension of the maturity period has saved it from a major repayment headache at a time when the weakening of the shilling has inflated the dollar-denominated debt.
The telco earns most of its revenue in Kenya shillings and this is the biggest loan it has ever taken in hard currency, raising its total debt burden.
Safaricom’s total bank borrowings rose to a record 659.7 million USD in the half-year ended September, underlining the impact of the 400 million USD syndicated loan.
The consortium had sought a $500 million loan from the US International Development Finance Corporation (DFC). The American State agency has, however, delayed the disbursement of the funds, citing uncertainty over the ongoing unrest in Ethiopia.
Source: The East African