Citibank’s loans to oil and power sectors hit Sh8.5bn

What you need to know:

Citibank’s total loans to Kenya’s oil and energy sector has hit Sh8.5 billion in tandem with rising demand for funding by explorers and developers of renewable power
Citibank said it taps into its global capacity to close some of the huge transactions that may not be accommodated by its local unit
Other lenders have opted to open representative offices in the country through which they can source for deals. Such banks include Britain’s HSBC Bank, America’s JP Morgan, India’s HDFC and South Africa’s FirstRand Bank and Nedbank

Citibank’s total loans to Kenya’s oil and energy sector has hit Sh8.5 billion in tandem with rising demand for funding by explorers and developers of renewable power.

Citi’s group chairman for industry energy and natural resources, Niel Kirk, said the bank has lent cash to Kenya Power, Thika Power and geothermal power developers.

“These are interesting times for Kenya as the findings are significant in a global scale,” said Mr Kirk in an interview during a visit to Nairobi last week.

International lenders have been positioning themselves to participate actively in Kenya’s energy sector given that local banks lack the financial muscle to fund capital-intensive exploration activity.

Citibank said it taps into its global capacity to close some of the huge transactions that may not be accommodated by its local unit.

Nigeria’s GT Bank acquisition of a 70 per cent stake in Fina Bank is seen as a strategic entry into Kenya’s oil and minerals sectors.

Other lenders have opted to open representative offices in the country through which they can source for deals. Such banks include Britain’s HSBC Bank, America’s JP Morgan, India’s HDFC and South Africa’s FirstRand Bank and Nedbank.

Last week, British oil exploration firm Tullow found fresh oil deposits in Turkana, further deepening the prospects of Kenya becoming an oil producer and raising its profile as a viable frontier market investment destination.

Mr Kirk said although it is difficult to quantify the period taken before commercial production of oil, its speed was dependent on availability of both equity and debt capital.

Tullow Oil and Africa Oil, that are partnering in exploratory activities in the country, have raised capital through debt and equity in the last month.

Tullow has floated a Sh42.5 billion ($500 million) bond to raise money for repayment of debts while Canadian firm Africa Oil raised Sh38.3 billion ($450 million) through a private placement.

Barclays Bank recently agreed to fund Marriot Drilling Africa Limited (MDAL), an oil exploration company and subsidiary of UK-based Marriot Drilling Group in a Sh1.1 billion deal to acquire an oil drilling rig.

In a report released earlier this year, Tullow Oil said it expects to spend $800 on local suppliers this year, increasing the bankers’ potential borrowers to companies with contractual obligations with the exploring firm.

Listed investment company TransCentury recently provided a Sh1 billion war chest for its engineering Civicon Group to provide oil field services support.

Government-owned power transmitting company, Ketraco, distributor Kenya Power and producer KenGen are also expected to borrow funds as they push to achieve the target of adding 5,000 MW on the national grid by 2030.

Mr Kirk pointed out that the recent unrest by the locals in North Eastern Kenya where the drilling is taking place was not likely to hamper the activities as the oil and gas industry is good at managing political and sovereign risk.