Category Archives: EADB

All about EADB

The East African Development Bank (EADB) is a development finance institution, headquartered in Kampala, Uganda and has country offices in Kenya, Tanzania and Rwanda. It was one of the  few institutions that survived the collapse of the original East African community. Its main products are medium-term financing and its long-term loans for projects that can be durations of 12 years. 

The bank is in the news over a case involving Kenya’s Cabinet Secretary Raphael Tuju over their demand that he repays $13.6 million (~Kshs 1.4 billion) that arose from a $9.19 million loan in April 2015. 

Excerpts from the 2019 EADB annual report:

  • The bank is owned by four East African countries; the Governments of Kenya 27%, Uganda 27%, Tanzania 23% and Rwanda 9.5%. Other shareholders are the African Development Bank with 8.8% and FMO Netherlands with 2.7%. 
  • EADB has $374 million in assets, which includes $190M in cash in the banks. It earned a profit of $8.7 million (~Kshs 944 million). It is exempt from taxes in all members countries but pays no dividend as their policy is to build up capital of the bank.
  • Had $152 million (~Kshs 16.5 billion) of loans of which $58M (38%) are to Tanzania ventures, $39M to Uganda, $36M to Kenya ones and $17M to Rwanda borrowers. $109 million (71%) of the loans are in US dollars which is the preferred currency of most borrowers.
  • Of the loans, $92M are in stage one (performing normally), $52M in stage two (higher credit risk) and $7M are in stage 3 (impaired). 
  • During the year, existing clients – Kayonza Tea Growers, Centenary Rural Development Bank, Opportunity Bank, and the Government of Tanzania all increased their borrowing. Also in 2019, some long term loans paid off and exited the bank including Nkumba University, Sugar Corporation of Uganda and New Forest Company. The bank also participated in the official launch of the Lake Turkana Wind Power which they partially-financed while Strathmore University completed a Law School Centre for which EADB has provided a Kshs 422M loan.
  • The bank disbursed $21.3 million to new projects during the year. Some were: in Tanzania (National Housing Corporation, $30M to Iyumbu Satellite Centre, and to Tanzania Petroleum Development Corporation to distribute natural gas to 30,000 households), in Uganda ($6.3M for a medical consumables manufacturing plant in Kampala), in Rwanda ($10M to a new cement plant and four lines of credit to a national development bank) and in Kenya (Kshs 30M working capital to Jumuia Hospitals in Huruma), Sidian Bank (EUR 2 million credit line) and Musoni Microfinance  (EUR 1 million credit line). 
  • They have borrowed $81 million from multilateral development banks and other financial institutions including the European Investment Bank, African Development Bank ($22M), CBA ($9M), the Arab Bank for Economic Development in Africa ($10M) and a new line from KFW Germany ($7.8M) whose recipients include Sidian Bank, Musoni Diary and West Kenya Sugar. 
  • Kenya’s  Treasury Principal Secretary, Dr. Julius Muia sits on the board while Treasury Cabinet Secretary, Amb. Ukur Yattani sits on the Governing Council along with other East African finance ministers.

Older notes on how EADB is different from a typical commercial bank:

  • EADB disburses payments to third parties e.g. supplier or contractors for work done/services rendered to sponsor. Disbursements are made against presented supplier invoice or completion certificate for building works. They insist that sponsors procure through open tendering as much as possible.
  • Most EADB loans are repaid quarterly except leases which are monthly. Projects are required to set up standing orders for loan repayment. 
  • They don’t have a deposit-taking, commercial bank so borrowers make repayments to special accounts at other banks (escrow accounts) e.g. payments from buyers of apartments financed by EADB are made into such accounts.
  • Companies are required to submit quarterly accounts for monitoring and failure to submit accounts can delay further disbursement to a project.
  • EADB lending approval decisions are made based on the loan amount involved and applications that are larger than $1 million are approved by the board of directors.
  • As a DFI, some criteria for the financing of projects include economic measures such as increasing the level of real consumption, contribution to government revenue (corporate tax, VAT, excise, export taxes), foreign exchange saved, and employment opportunities created.
  • Projects in arrears get transferred to their “Work Out Unit,” a special department that determines how to resolve these – either by a recovery (sale of assets), write-off (after selling assets), or a turnaround (reviving projects to normal) which is the preferred and most successful option. Sometimes, the borrower is asked to recommend a buyer of assets (provide leadership) if it becomes necessary to sell some of them. 
  • The bank enjoys immunity from prosecution and this has been raised by Tuju’s lawyers in several pleadings. In the past, EADB has also faced challenges including petitions to wind it up, such as a decade ago when they trying to recover over $13M from Blueline, a Tanzanian transporter.  
  • edit On September 28, the OPEC Fund for International Development signed a $20 million loan in favour of the East African Development Bank to go towards supporting SMEs and infrastructure projects in East Africa, in the third loan of this kind that the OPEC Fund has provided to EADB.

Bank Capital Raising Season

Away from the Chase Bank saga, banks continue to raise money to support their fast growth in recent years. It’s a bit harder to raise money and it’s clear the Imperial Bank fallout affected other bond and stock offerings that came in its wake.

In the News

  • Family Bank has a rights issue coming up, to be approved by shareholders.
  • Duet Private Equity Limited, part of the Duet Group, will inject Ksh1.9 billion into Fidelity Commercial Bank to strengthen the Bank’s core capital, and support its local and regional growth strategy.
  • EDIT Jamii Bora Bank just raised $12 million through two Private Equity funds – Equator Capital Partners  (through its managed fund, ShoreCap II) and Progression Capital Africa  (through through its managed fund, Progression Eastern African Microfinance Equity Fund). 
  • KCB Group shareholders are to approve a rights issue and (another) name change to KCB Plc. KCB is also paying shareholders a Kshs 2 dividend, with Kshs 1 in cash, and the other Kshs 1 as a scrip dividend. The intent of this is to allow its Shareholders to derive value on account of higher dividend in future due to increased shareholding. This is automatic, but shareholders have the option to receive the Kshs 1 in cash by  filling and returning a scrip election form to the bank by June 17. If all shareholders opt for the scrip, and get new shares at a price of Kshs 38 per share, this will increase the number of KCB shares by 2.5%.
  • National Bank was expected to have a rights issues in 1Q2016, and the government expected to raise Kshs 4.99 billion from a the issue in February 2016. The process has been delayed and it now appears that NBK may still be combined with two other smaller state-controlled banks –  Consolidated Bank and the Development Bank of Kenya.
  • Sidian Bank (formerly K-Rep), is expecting its minority shareholders to  provide Kshs 400 million capital to support its growth plans.The new capital comes after the majority shareholder, Centum Investment, injected its share of Kshs 1.2 billion last year after raising its stake in the lender to 67.5%.. Sidian chief executive officer Titus Karanja said  “They gave us their commitments and we are expecting the money by end of May.”
  • SMEP Microfinance Bank shareholders are expected to have a rights issue to increase their  share capital, issue a bonus (1 for every 6 held), and also create an employee share option program (ESOP). They  will target less than 100 people or institutions for the privately placed capital raising.
  • EDIT Credit Bank expects that Fountain Enterprises Programme (FEP Holdings) will pay Kshs 5.4 billion for an additional 70% stake in the bank..via a private offer priced at Kshs180 apiece and limited to members of the chama (investment club) which has a large following in the UK and US.

Away from right issues, some banks have recently signed funding deals:

  • CfC Stanbic Bank signed a $135 milllion dual tranche term loan facility in which Emirates NBD Capital Limited (ENBD) and Mashreqbank PSC were the Initial Mandated Lead Arrangers and Bookrunners of the financing. The financing, which will be used for general corporate purposes, including, trade-related finance, was oversubscribed from the initial launch amount of US$ 100,000,000.
  • Commercial Bank of Africa (CBA) and Standard Bank of Southern Africa (SBSA) executed a $25 million cross-currency repo transaction.  The deal, facilitated and guaranteed by Frontclear, is a first of its kind transaction and paves the way to a more robust, stable and inclusive interbank market in Kenya. In the transaction, CBA receives $25 million in 1-year funding from SBSA and provides Government of Kenya Bonds as collateral.
  •  The African Development Bank (AfDB) recently extended a $40 million, 10-year line of credit to the East African Development Bank (EADB) towards support of regional infrastructure, manufacturing, agribusiness and education sectors with a bid to increase economic and government revenue growth in the member countries.
Not forgetting Chase Bank:
  • The Chase Bank bond that was oversubscribed last year was suspended. The bank had also undertaken a private placement in which high net worth investors bought shares at Kshs 2,760 each. Chase Bank had said that proceeds of the private offer would be used to shore up the lender’s thinning capital ratios, grow the loan book and invest in technology.

What other bank rights issues are there?

 $1 = Kshs 102.

Financing Lake Turkana Wind

Monday saw the signing of final agreements for the financing of the Lake Turkana Wind Power – LTWP project.

This was the completion of a long, 9-year process that began with a fishing trip on Lake Turkana, that yielded no fish, but a lot of wind on the boat trip. The LTWP which will generate 300 MW, using 365 turbines in Laisamis (Marsabit) was registered in 2006. Aldwych International  was brought on  as an investment and development partner in 2009.

The signing of finance deals worth 498 million euros (~ Kshs. 60 billion), will go towards LTWP which at Kshs. 75 billion is arguably both, the largest single wind power plant in Africa and, the largest single private investment in Kenya. 

The Kenya Government has committed to raising the country’s electricity generation capacity to 5,538MW (from the current 1,533MW) by the year 2017. 630MW of that will be from wind, and they have identified five strong wind areas in Ngong, Turkana, Kinangop, Kipeto, and Isiolo – and hopes that using renewable sources of energy like the wind will bring down the cost of electricity to consumers, and save on fuel import costs for the country. The government’s KETRACO agency will build a 428 kilometre, 400 kV line, from Loyangalani to Suswa Suswa to Laisamis that they say will be ready in 24 months and which will also link up with geothermal plants along the way.
Image from LTWP website

Financiers in LTWP include the African Development Bank (AfDB) who are the lead arrangers and who have provided a guarantee against some delays. The bank has also financed $1.7 billion in power generation in Africa, with 39% of that going to private sector companies. Others are the European Investment Bank. Standard Bank (Stanbic), FMO, Nedbank, EADB, PTA, PKF, DEG, Proparco and soon OPIC (US). Other partners in LTWP include Vestas (turbine supplier), the governments of Denmark (providing EUR 135 million including 120M in export credits), Netherlands, and Spain (who are financing the Laisamis- to Suswa transmission line).

Next, the Kenya government wants to expand the number of last-mile electricity connections while KETRACO also plans to extend the transmission lines to Northern and North Eastern Kenya – and on to Ethiopia, Tanzania and Uganda. This will serve the regional transmission purposes and also open up Northern Kenya. Joseph Njoroge, the Energy Principal Secretary, said additional electricity opens up opportunities such as enabling the pumping of crude oil, the possibility for electric trains to run on the Standard Gauge Railway, iron smelting, as well as clinker production (by Athi River Mining and Dangote).

edit October 2015: A deal by Google to buy shares from Vestas fell through in 2016.

edit March 2023. Some shareholding changes at Lake Turkana Wind Power as CPF UK Holdings to acquire a controlling 31.25% stake from other shareholders.

edit: The new investor buying out Finnfund, is the Climate Finance Partnership (CFP), a fund managed by BlackRock Alternatives. Finnfund, which was a shareholder since the construction began in 2014, exits after doubling its investments in “undeniably one of the best wind sites in the world” – that was built on time and on budget despite its size and remote location. Finnfund will continue to make more renewable energy investments, including a recent one in a geothermal power project in Nakuru County, Kenya.

Bank Tales II

Maina T kind of started this thread with a review of the P/E correction of Nairobi Stock Exchange (NSE) shares.

NSE: ½ full or ½ empty? – to take it further, how are NSE shares today compared to last October? If you considered them fairly priced then, you are frowning today, but if you considered them over-valued, are you smiling today?
estimates
– Shares that have appreciated since October 2007: 4% – BAT Scangroup, 3% – Access 3%, 1% – Unga
– Shares that have depreciated since October 2007: (83%) – Mumias (74%) NIC (59%) Nation Media Group, CFC (55%) – Housing Finance, (53%) – Sasini (51%) – Kenya Airways (47%) – Sameer (45%) – Kengen, Centum (44%) – Eveready (43%) – Williamson (42%) – Express, Jubilee (41%) – KPLC, Kenol
– Banking sector: Best (4%) – NBK, worst (-74%) – NIC, sector average is -32%

Interesting that despite the world financial meltdown of late 2008, the Kenyan financial sector is faring no worse than other sectors (agricultural, industrial) which are all down approximately 1/3,and remains the sector most likely to produce super-profits again this year. Best performing sector is commercial services (excluding Safaricom only listed in June 2008) which is down 20% from a year ago

Cheap M&A The depressed NSE prices bring out good and bad banking opportunities.
– Good for anyone speculating on buying into a Kenyan bank. The Helios stake in Equity is priced as almost what it was when the deal was signed, while the CFC/Stanbic merger is worth ½ as much as it was a year ago.
– Bad for the Government who are hoping to raise funds from further sale of NBK and Development Bank of Kenya share. It also raises a question of how Co-op Bank IPO shares will be received i.e. if you enter a train going down hill and you want to go up hill, where will you end up?

Family Bank a recent stockskenya discussion could indicate that a listing of shares could happen soon.

EADB: sad tales on the East African Development Bank.

Bank Safety Net

and other brief’s

Kenya’s deposit protection fund results are also out. They fund had about Kshs. 18 billion ($240 million) invested in government securities to protect depositors in case one of Kenya’s 45 banks collapses – and pay each account holder up to Kshs. 100,000 (~$1,333). The fund now covers account holders in the two new Shariah banks who were excluded a year ago

Lending crunch? wooing customers
– CFC/Stanbic – win out of the blue; open an account with Kshs. 10,000 and win one of 5 cruises, flat screen TV, digcam, ipods, satellite TV decoders (with subscription)
– Stanchart – take unsecured loan of Kshs. 750,000 or more and get a DVD player
– KCB – spend more than Kshs. 2,500 on your credit cards and you may win a DVD, TV, mobile phones or a holiday

Going regional Equity Bank hiring staff to work in South Sudan, while East African Development Bank is hiring staff to work in Rwanda

Mobile payments Old Mutual customers/fund investors can now pay their monthly subscriptions by M-Pesa – Safaricom’s mobile phone money transfer facility. Banks have already a ceded a significant chunk of the local the money transfer business to mobile phone, who are now expanding into investment and utility payment turf of banks.