Costly loan holds back East African Portland Cement

Costly loan holds back East African Portland Cement
Published: 25 November 2008

East African Portland Cement is not making much progress in its negotiations with Treasury over a costly loan the company is currently servicing in Japanese yen.

Wary of the effects of the strengthening of the Japanese currency against the Kenya shilling on its revenue, the company’s management is exploring ways of shielding the loan’s repayment programme against currency fluctuations.

Among the options that the listed cement manufacturer is exploring include investing in Treasury Bills and negotiating with local financial institutions to hedge the loan.

“We will be presenting the options to the board next month so that it can decide which one is the best,” EAPC managing director, Engineer John Nyambok, said on Monday.

According Engineer Nyambok, even if the loan’s repayment rate is 2.5 per cent, they are paying up to 10 per cent in interest on the loan due to the continued strengthening of the yen.

“We could hedge the loan if, for instance, we invest in the long-term in T-Bills at 14 per cent,” he told the press at the company’s Athi River offices during its 75th anniversary celebrations.

EAPC got the Sh1.7 billion yen-dominated loan in 1996 to expand its production capacity . However, due to the strengthening of the yen over the local currency, the loan increased to Sh4 billion by 2005. It currently stands at Sh3.8 billion.

The managing director admitted that early retiring of the loan, an option that the company has unsuccessfully pursued in the last decade, might not work.

“Since it was a government-to-government arranged loan, there is little likelihood that we will be able to re-negotiate it,” he said during a function presided over by area MP and Youth assistant minister Wavinya Ndeti.

Source: Daily Nation (Kenya)