PTA Bank raises Sh24bn for lending to small firms drivers

The president of PTA Bank, Dr Michael Gondwe.
The president of PTA Bank, Dr Michael Gondwe. 

Kenya’s economic growth drivers - small and medium enterprises - will benefit from PTA Bank’s enhanced lending capacity after the pan African lender tapped Sh24 billion from international markets through a Eurobond.

Michael Gondwe, President of the Bank, said the lender raised the funds to meet the increasing needs for credit by SMEs in PTA Bank’s member countries.

“The rationale of this programme is to diversify the bank’s source resource base and raise funding to meet the financing requirements of a growing pipeline of SMEs” said Dr Gondwe.

Alex Gitari, the PTA Bank director of finance said the continental lender has advanced an estimated Sh16 billion to Kenyan companies; which include Athi River Mining, Uchumi Supermarkets, K-Rep Bank, Family Bank, Magana Flowers and Mea Fertilizers.

Mr Gitari said the new funds will be loaned to businesses that show high growth potential.

“We are targeting businesses in all sectors of the economy including tourism, agriculture and manufacturing, and the interest rates applicable will be vary according to the credit risk of the individual business.”

The fundraising comes amid a growing need for financing amongst SMEs that are credited for driving the economies of most African states. The government estimates that this sector contributes a fifth of the Kenyan GDP while employing over three-quarters of the country’s workforce.

PTA Bank will repay the bond at a relatively low interest rate of 6.875 per cent, which will translate to less-costly financing for the businesses in an environment where commercial banks charge up to 20 per cent on loans.

A recent Top 100 SMEs Survey indicated that more than two-thirds of the Kenyan medium sized companies of annual revenues ranging between Sh70 million to Sh1 billion depend on bank loans to fund their expansion.

The Eurobond issue was the first tranche out of a Sh80 billion programme that PTA is seeking to raise.

The lender also has plans of increasing its capital base to Sh140 billion through fresh cash injection by its shareholders, comprising of the COMESA countries and the African Development Bank.

PTA says that it will be going to the market to seek additional funds within 18 months after assessing the uptake of the raised amount which will be open to businesses from the 17 member countries in the Eastern and Southern Africa region.

The decision taken by the bank to raise the funds in the international markets is informed by the lower interest rates that the international markets are offering as investors in developed countries seek better returns from emerging economies than would be available to them at home.

A comparable medium-term bond trading at the Nairobi Stock Exchange is paying a coupon rate of 8.5 per cent, meaning the bank got about two percentage points bargain by going to the international markets.

John Ngumi, the Business Development Director at Standard Bank – the lead arrangers of the issue, says that the international markets offered the depth that would support the level of borrowing sought by the bank.

“The amount sought by the bank, Sh24 billion, is a significant amount of money that would not be easy to raise in the local capital markets,” said Mr Ngumi.

The bond issue was the first ever for an African corporate entity to raise funds in the international markets owing to the perception amongst international investors that the continent posed a high credit risk profile thus making it unattractive.

He said that the success of the bank in raising the fund from the international markets signaled that it was time for local companies and governments to seek funds at the international markets.

“The success of the Eurobond issue by PTA bank demonstrates that the corporate entities and governments should look beyond the local capital markets to raise fresh funds,” he added.

The bank’s President noted that Africa is now high on the radar of international investors owing to the opportunities for strong growth that the continent presents.

It is particularly so considering that the bank received offers worth Sh56 billion, more than double the amount sought to affirm the confidence in the international community in Africa.

“The oversubscription affirms of the confidence that the international community has in Africa, it is now imperative that the continent has become an outstanding investment destination amongst investors,” he said.