Kenya: Bamburi Cement lends its parent firm Sh3.5bn at 1.4% interest

Bamburi Cement has lent its parent company Sh3.5 billion at an interest rate of 1.44% while its subsidiary took a Sh2.2 billion loan from the building materials conglomerate at an interest rate of 5.41%.

The transactions involve Bamburi, its Ugandan subsidiary Hima Cement and finance entities controlled by Switzerland-based LafargeHolcim Ltd which also owns a 58.6% stake in the Nairobi Securities Exchange-listed firm.

“During the year the company invested a USD denominated short term deposit [of] Sh3.5 billion (2020 – Sh2 billion) with LafargeHolcim International Finance Ltd, a related party by virtue of common shareholding and/ or directorship,” Bamburi disclosed in its annual report for the year ended December.

“The deposit attracts interest of 3-months USD LIBOR plus margin of 0.03%. Interest earned from the deposit in the year amounted to Sh7 million (2020 – Sh1.7 million).”

The LIBOR refers to the London Inter-bank Offered Rate, a global benchmark. The three-month dollar LIBOR currently stands at 1.41%.

This gives an indicative interest rate of 1.44% –plus the margin— on Bamburi’s short-term investment with LafargeHolcim International Finance. Kenyan banks meanwhile are offering an average deposit rate of 6.6% for local currency deposits from cash-rich firms and individuals.

Hima Cement, in which the NSE-listed firm holds a 70 percent stake, is incurring finance costs of about 5.41% on a loan provided by another subsidiary of the Swiss multinational.

“As at the end of the year, the balance due to Cemasco B. V, a related company, from Hima Cement Limited … amounted to Sh2.2 billion (2020 – Sh2.1 billion),” Bamburi said in the report.

“The term of the loan is 5 years with a moratorium of 3 years. The loan is due for repayment in 2023. The loan is unsecured and attracts interest at 3-month USD LIBOR plus 4%.”

Current interest rates indicate that the loan to Hima Cement is accruing interest of 5.41%, inclusive of the margin.

Lafarge Holcim International Finance was founded on November 25, 2015. It holds investments and provides financing to entities of the LafargeHolcim group.

Bamburi is one of the cash-rich firms traded on the Nairobi bourse. The company closed the year ended December with cash and cash equivalents of Sh6.9 billion, up from Sh6.3 billion the year before.