Stanchart, EADB in Currency Swap Deal

Posted 13 June 2006 @ 02:19 pm EET     Print     Reprint     E-Mail     Comments

Nairobi (IBTimes.com) - East Africa Development Bank (EADB) yesterday concluded a Sh1 billion currency swap deal with Standard Chartered Bank to cushion it from foreign exchange risks.

The deal covering a seven-year period will see EADB receive local currency in exchange for $14 million at a fixed exchange rate. After the period, the two would again swap back the currencies at the agreed exchange rate.

EADB would make interest payment to Standard Chartered Bank for the facility during the seven-year period. The currency swap would enable EADB to provide financing to its clients in local currency without passing on the currency exposure risks.

Godfrey Tumusiime, the director-general of EADB said the transaction provides EADB with an alternative avenue to mobilise resources to meet the local currency requirement of its clients. "Our main resource mobilisation challenge is marshalling sufficient long-term local currencies to meet our client currency preference," said Tumusiime.

He made the remarks during the signing of the currency swap deal at a Nairobi hotel. He said the transaction has shown that there are bright prospects in the development of long-term financing instruments in Kenya. The director-general noted that the transaction underlines the capacity of the local market in developing "custom made solutions" to meet the growing financing needs of the market.

This is the first currency swap transaction to take place in the local financial market. Previously, EADB has extended dollar dominated loans to its clients’ which had adversely affected clients’ revenues that are in local currencies due to exchange risks. A case in point is East African Portland Cement (EAPC), which has continued to incur huge expenses in financing a Yen dominated loan.

Tumusiime observed that the currency swap would help insulate borrowers from exchange rate risks. Speaking at the function, Mike Hart, the chief executive officer of Standard Chartered Bank said the financing agreement demonstrates the strength of Standard Chartered Bank in product innovation.

The seven-year swap is the latest in a series of moves by EADB to raise long-term local currencies. Over the past decade, since it floated the first local currency corporate bond in the region in 1996, the bank has raised over $125 million through nine bonds it issued in the three East African countries.

The director-general observed that EADB would continue to explore funding options locally in order to reduce its dependence on external sources of funds.