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World Bank bets billions on Kenya’s private firms

Delta Centre in Upper Hill, Nairobi, where the World Bank offices are located. photo | file
Delta Centre (right) in Upper Hill, Nairobi, where the World Bank offices are located. photo | file 

The World Bank’s private sector lending arm, the International Finance Corporation (IFC), has invested Sh17.7 billion in two Kenyan companies in the first two months of the year in a move that signals increased interest in local firms.

The IFC says the two investments have pushed the cumulative value of its presence in Kenya, including pending commitments and exits, to $1.9 billion (Sh194.6 billion).

Companies in diverse sectors of the Kenyan economy have received major investments from the international financier in the form of equity, debt or a mix of both.

The IFC has financed the investments directly or through private equity and most of the investments have been largely used to fund growth in the local and foreign markets.

Kenyan firms are increasingly taking debt and equity investments from the IFC and other global financiers, including European Investment Bank (EIB), Agence Française de Développement (AFD), Proparco and DEG to compensate for the limited funding opportunities in local capital markets.

IFC has invested in more than 150 local companies including Britam #ticker:BRIT, KTDA Power Company, Goodlife Pharmacy and KCB Group #ticker:KCB.

Healthcare investments

The global fund’s latest investment commitments include a Sh15.2 billion loan to Co-op Bank #ticker:COOP and a Sh2.7 billion debt and equity investment in a hospital to be built on Nairobi’s Kiambu Road.

The financier says it intends to provide $22 million (Sh2.2 billion) in equity and $5 million (Sh505 million) in debt to an investment vehicle that is building the hospital.

Owners of the hospital have acquired three acres on  Kiambu Road for the facility.

The hospital is among several investments the IFC has lined up in the local and regional healthcare sector.

“The project is expected to increase access to affordable, quality healthcare and specialist services in East and southern Africa, where there is an undersupply and increasing demand across all income groups,” the IFC said.

Co-op Bank is set to take a new $150 million (Sh15.2 billion) seven-year loan from the IFC for onward lending to small firms.

“The project comprises a senior loan … to help strengthen the bank’s long-term funding position and enable it to expand its lending operations to the underserved micro small and medium enterprises (MSMEs) segment in Kenya,” the IFC said in a statement.

Commercial banks

Local banks have taken substantial loans from the global funds, attracted by relatively more favourable terms of the debt including lower interest rate and longer maturity.

The lenders have complained of a mismatch between long-term loans and deposits that are mostly short-term in nature, exposing a gap that they have chosen to fill by credit from the institutions which charge single-digit interest rates.

International borrowing has also gained ground after the local corporate bond market was shaken by the collapse of Chase Bank and Imperial Bank, which owe bondholders nearly Sh10 billion excluding interest.

The IFC did not say what interest rate it will charge on the Co-op Bank loan but it has priced previous similar facilities to the lender at the London Inter-bank Offered Rate (Libor), a global benchmark, plus an unspecified premium.

The 12-month Libor rate, for instance, currently stands at 2.4 per cent.

A weaker shilling is one of the major risks facing banks borrowing from international markets where the loans are denominated in hard currencies such as the dollar and euro.

The IFC says the new loan to Co-op Bank will help it meet its social investment goals of expanding credit to SMEs in the agricultural, manufacturing and trade sectors.

“IFC anticipates that the project will increase access to financial services for underserved groups, particularly bottom of the pyramid borrowers and microenterprises, through its demonstration and market awareness effect which enhances its potential for replication by the rest of the banking sector,” the financier said.

The expansion of the IFC’s activities in the local market has seen companies benefit from relatively easier access to long-term finance to fund their growth.

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