Car& General has cut its dollar-denominated borrowings following improved supply of the currency, citing the need to reduce exposure to foreign exchange losses.
The firm, whose dollar loans had risen by 21.5 per cent to an equivalent of Sh4.72 billion as of September 2022, says it accumulated the amount on the back of difficulties in accessing hard currency.
The rise, however, exposed the company to higher forex exchange losses as the shilling shed more than a quarter of its value against the American dollar last year.
Car & General Chief Executive, Vijay Gidoomal, says the firm – whose key business lines include distributing motorcycles and three-wheelers that require dollars for imports – started cutting down on the foreign currency loans towards the end of the third quarter of last year.
“There was a time we couldn’t get dollars. That was a dangerous exposure. As soon as dollars started being available, we converted most of the loans and moved to shillings,” said Mr Gidoomal without specifying the exact amounts.
Car & General issued a profit warning in October, citing foreign exchange losses as part of the reason it expected earnings for the 15-month period ending December 2023 to fall by at least 25 per cent.
The firm had in the year ended September 2022 seen a rise in interest rates on dollar-denominated loans from 6.22 to 9.52 per cent in the period foreign exchange losses rose from Sh10.31 million to Sh261.67 million.
The swings on the local currency against the dollar also posed pricing challenges.
