Investment firm Centum is turning to international banks to borrow Sh6 billion for real estate development due to expensive credit in the Kenyan market.
The firm is seeking a dollar-dominated loan to develop the first phase of a real-estate project comprising offices, residential apartments, hotels, shopping malls and recreational facilities on a 100-acre piece of land in Runda. The developments will include a 255-bed hotel and 544 homes. It will price it rents in dollars.
The total cost of the first phase, which will begin next year and take two years is Sh10.8 billion, with the balance being plugged by Sh4.8 billion from equity financing and Sh2 billion from its coffers.
Centum CEO, James Mworia, said rents on the property would be paid in foreign currency to cushion the investment firm from currency losses that could arise from the dollar dominated loans.
“Lending is more likely to be in US dollars due to existing high interest in Kenya,” said Mr Mworia. “Rentals are likely to be in dollars that is not only the favoured currency for target tenants but will help us match our assets and liabilities.”
Location of the project, which is close to the United Nations offices in Nairobi and the leafy suburbs of Runda and Muthaiga, clearly signals that Centum is targeting diplomatic missions, multi-national companies and international civil servants.
The firm is shifting its focus to the region’s lucrative property market targeting the rising rental income and reducing the influence of stock market cycles and dividend payouts on its earnings.
Initially, the investment firm had hoped to take advantage of the rock-bottom lending rates in Kenya’s banking scene — which saw it borrow Sh2 billion — to finance the bulk of the real estate plans. But this was before the Central Bank of Kenya (CBK) to tighten monetary stance to check inflation — which jumped to 18.91 per cent last month — and to strengthen the shilling by attracting foreign capital.
This policy along with the rising cost of deposit has seen interest rates on loans increase by up to five percentage points since June, which is becoming a big headache for companies in need of cash to expand. As a result, Centum is looking to borrow from international banks to reduce its exposure from the rising cost of loans.
The firm says it would join the growing list of Kenyan firms including Kenya Airways, Toyota and Davis and Shirtliff in pricing its products in dollars, through dollar-dominated rents are common in high-end estates.
This would help it avoid the pitfalls that is facing firms such Athi River Mining and East Africa Portland Cement Company that are faced with huge foreign exchange losses brought home by foreign loans. The losses are the product of the weakening of the shilling against major currencies such as the dollar and the yen that have lost 21 per cent and 24 per cent respectively.