Investment firm Centum has restructured a N3.1 billion dual currency loan from Standard Bank of South Africa into a shell facility, allowing the company to avoid exchange rate risk on the facility in the event of future weakness of the local currency against the dollar.
The loan, which was held under the books of the subsidiary known as Vipingo Development Plc, consisted of a dollar component of $5.9 million (Sh762 million at the current exchange rate), with the remaining portion denominated in shillings.
The dollar portion was priced at the three-month London Interbank Offered Rate (LIBOR) plus 5.75 percentage points, while the shilling portion was priced at the Standard Bank base rate of 9.91% plus 4.5 percentage points.
However, Centum’s latest annual report shows that at the end of the year to March 2024, the dollar portion of the facility was converted into shillings, at the prevailing 182-day Treasury rate plus 3.5 percentage points.
The facility is secured by a mortgage on the Vipingo land and is also guaranteed by the holding company – Centum Investment PLC.
“During the year, Vipingo Development Plc refinanced its existing facility split into two components: a US dollar component and a shilling component into a fully shilling facility. The facility was priced at a 182-day Treasury note base rate and a spread of 350 basis points,” Centum said in the report.
In addition to the Standard Bank loan, Centum has cancelled dollar facilities held with Stanbic Bank Kenya, the lender’s local subsidiary in South Africa.
Stanbic Bank’s outstanding overdrafts and term loans stood at Sh1.9 billion as of March 2024, down from Sh2.2 billion a year earlier.
In 2023, this exposure had a dollar component of $4 million (Sh517 million), which was reduced to zero in 2024. The facility was priced at the 182-day Treasury bill rate plus 2.7 percentage points and is secured by the company’s marketable securities portfolio.
The loan restructuring came as lenders were phasing out the last of LIBOR as a pricing tool for loans worldwide.
At the end of December 2021, all GBP, EUR, CHF, JPY instruments, and USD instruments for a week and two months, stopped using this rate.
The USD debt instruments will be converted to overnight, one-month, three-month, six-month and twelve-month LIBOR in June 2023.
Most dollar loans have shifted to the US Treasury’s overnight secured funding rate, with loans in other major currencies shifting to benchmark rates developed by their respective financial authorities, such as the overnight sterling index average, the short-term euro rate, and the overnight Tokyo average rate.
Overall, Centum’s stock of dollar-denominated loans stood at Sh8.03 billion in March 2024, up from Sh7.3 billion a year earlier.
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