Standard Bank, China in US$108 million deal for Kenya’s new heavy fuel oil plant

Standard Bank, China in US$108 million deal for Kenya’s new heavy fuel oil plant

An 83 Megawatt-heavy fuel oil plant costing US$108 million is currently being built in Kenya, courtesy of a debt financing package concluded between South Africa’s Standard Bank Group and Industrial and Commercial Bank of China (ICBC) and Triumph Kenya, the Johannesburg-based bank said on Wednesday.

CfC Stanbic Bank, a member of Standard Bank Group, provided US$28 million of debt funding as mandated co-lead arrangers, while ICBC supplied the remaining US$80 million for the plant, which is currently being built 25km from Nairobi, the pan-African financial institution added.

Kenya Power has signed a 20-year agreement with Triumph to purchase power from the plant, which will be a crucial supplier to the utility during times of drought when the country’s hydroelectric generating capacity becomes constrained.

The World Bank’s Multilateral Investment Guarantee Agency (MIGA) will provide US$102.5 million in breach of contract insurance should Kenya Power fail to honour its 20-year power purchase agreement with Triumph. MIGA’s insurance will also cover the Kenyan government’s obligations under its Letter of Support.

“The highlight of this transaction is that it marks the first time that a Chinese commercial bank has used MIGA cover for a non-recourse transaction,” Kwame Parker, East Africa head of debt solutions and infrastructure finance at CfC Stanbic, said in a statement.

ICBC has a 20% stake in Standard Bank, the parent company of CfC Stanbic Bank. Standard Bank is Africa’s largest bank in terms of assets and market capitalisation.

“It’s also likely the first time a Chinese financial institution is directly lending to a project company for a transaction in Sub-Saharan Africa that is not related to resource extraction, with no explicit sovereign guarantee,” Parker added.

Kenya has historically relied on hydropower for most of its electricity needs and has a current installed generating capacity of 1,672 MW, compared with peak power demand of 1,330 MW. The nation’s economy has expanded at an average rate of 4-5% over the last three years.

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