Stanbic Bank Kenya has raised its revolving loan to Sanlam Kenya by 67 percent to Sh5 billion, with the insurer’s parent firm providing the guarantee.
South Africa’s Sanlam Limited, which owns 57.14 percent in Sanlam Kenya, says the revolving credit facility has been increased from Sh3 billion.
Sanlam Emerging Markets (SEM), which is part of Sanlam Limited had in 2020 entered into a performance guarantee agreement with Stanbic Bank Kenya for a revolving credit facility to be provided to Sanlam Kenya to an aggregate limit of about Sh3 billion.
“Sanlam Limited will be providing an irrevocable guarantee to Stanbic Kenya for the due performance by SEM of its obligations to Sanlam Kenya in terms of the SEM Guarantee,” the multinational said in the latest trading update.
The upward review will support Sanlam Kenya, which has been grappling with liquidity challenges. The firm had already utilised a guarantee worth Sh3.4 billion by the end of June, according to its parent firm.
Sanlam Kenya—made up of life and general business— cut net loss by 90 percent to Sh54.07 million in the financial year ended December 2022 from Sh542.36 million a year earlier.
The Kenyan unit posted Sh171.95 million net loss in six months ended June compared with Sh9.08 million. Its accumulated losses stood at Sh1.85 billion by the end of June.
Borrowings increased to Sh4.33 billion at the end of June from December’s Sh4.08 billion. Sanlam Kenya last year restructured a Sh4 billion Stanbic loan to get a two-year period of not paying interest, extending the loan’s maturity to March 2025.
The firm has already indicated that it will require a shareholder capital raise to retire the Sh4 billion debt well ahead of the repayment date.
This means that the company’s shareholders including Sanlam Limited and billionaire investor Baloobhai Patel (20.9 percent stake) will be asked to provide new capital that will dwarf the insurer’s current market value of Sh1.04 billion.
The debt, which has prompted the need to raise new fundraising, has its origins in December 2017 when the insurer started borrowing from Sanlam Capital Markets Property Limited—a unit of its parent firm— to recapitalise its insurance businesses and finance the completion of the Sanlam Tower in Nairobi among other corporate purposes.
The firm refinanced the loan facilities with a three-year Sh3 billion credit line from Stanbic Bank, which was further restructured in 2022 into a two-year Sh4 billion facility in a move that extended its maturity date to 2025.
Interest on the loan is referenced to a three-month average of the Government of Kenya 182-day Treasury Bill Rate plus a 4.95 percent margin, placing the effective finance cost at more than 14 percent based on the prevailing rates on treasuries.
