Companies

BBK races ahead of StanChart to win KenGen deal

Barclays Bank of Kenya (BBK) has won the bid to advise power producer KenGen on how to secure Sh425 billion for new electricity plants.

The power firm plans to increase its capacity to 3,000 megawatts, from the current 1,183 megawatts, by 2018 to meet growing electricity demand amid robust economic activity, according to a proposal it has sent to top banks.

The financing, which will be staggered over a six-year period, will be the biggest fundraising by a single company in corporate Kenya.

Barclays won the deal, which is expected to generate huge advisory fees and an opportunity for its parent company to grow their financing portfolio, ahead of rival Standard Chartered Bank.

“Barclays’ joint bid with its affiliate Absa Bank was successful and the consortium will offer the advisory services to KenGen,” said a senior executive at Barclays who did not wish to be named since KenGen is yet to officially announce the winner.

“This will also enable the consortium to package competitive loans for the power firm in a debt option,” the source added. South Africa based Absa is owned by Barclays Bank, which owns a 60 per cent stake in BBK.

The power producer plans to hire a financial advisor for two years, but the tenure of the contract is open for review.

The proposal guiding the search of the adviser stated that KenGen was looking at a mix of financing options, including a syndicated loan, joint ventures, public private partnerships, as well as local and international bonds.

The power producer is targeting a financing structure made of 30 per cent equity and 70 per cent debt — translating into Sh300 billion worth of bank loans and corporate bonds.

KenGen’s total borrowing stood at Sh64.1 billion in the year ended June 2011 compared to Sh59.6 billion the year before.

Lack of cash has made it difficult for KenGen to build new power plants to match the growing demand for electricity, promoting the state-owned firm to increasingly consider joint ventures to match government’s objective to add 1,500 megawatts of new power capacity by 2019.

The company had earlier said that the government, its biggest shareholder with a 70 per cent stake, was willing to sell part of its shares to a strategic investor to help fund the expansion plan.

KenGen was previously fully-owned by the government. Currently, Kenya faces constant power blackouts as demand for electricity continues to outpace supply.

The country’s power deficit is below four per cent against the set optimum level of 15 per cent.

At Sh425 billion, this is the biggest fundraising effort in corporate Kenya and it remains to be seen if KenGen will be able to meet the ambitious target within the projected time frame.

The company, however, said it could revise the amount in consultation with the financial advisor.

The big-ticket loans could spark formations of bank partnerships involving international and local lenders, whose small balance sheets cannot support mega loans.

Kenyan banks are not allowed to lend more than 25 per cent of their core capital to a single borrower.

This means that KCB, the country’s largest bank by assets and profitability, can only lend a maximum of Sh8.9 billion to a single borrower based on its core capital of Sh35.9 billion in September.
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