East African Portland Cement Company has decided to hedge on a yen-denominated loan it got from the Japanese government to tackle foreign exchange volatility.
The repayment of the loan which has to be in Japanese yen undermines the company’s profitability as it converts either shillings or US dollars to yen. This poses a perpetual foreign exchange risk to the company if the exchange rate changes unfavourably before the currency is exchanged.
To confront this challenge, the company would do a sort of foreign exchange risk hedging where it will use US dollars or shillings to buy all yen required to fully pay the loan. The outstanding loan is equivalent to Sh3 billion.
"We are not saying that with the money we will repay the loan at once," Portland chairman Mark ole Karbolo told Daily Nation. "We will deposit this money in a bank account and make withdrawals as repayments fall due because what has been hurting us is the fluctuating exchange rate."