Listed firms are facing higher finance costs as a result of the weakening of the shilling against the dollar. Exposing the risk carried by foreign currency loans to local firms.
Companies such as Kenya Power, KenGen, Centum, Safaricom and most large banks carry significant exposure to currency rate risk. Owing to significant dollar borrowings from external lenders and development finance institutions (DFIs) to finance capital expenditure; and in the case of banks for on-lending to customers.
These loans are repaid and serviced through dollars bought from the local market, which is subject to exchange rate fluctuations. This year, the shilling has depreciated against the US currency by 3.9 %; exchanging at an average of 117.80 units from 113.14 at the beginning of the year.
Kenya Power said in its annual report for the year ending June 2021 that it had Sh78.3 billion worth of dollar-denominated loans, while KenGen held Sh54.3 billion worth of such loans in the same period.
National carrier Kenya Airways also holds significant dollar loans, totalling Sh78.3 billion at the end of 2021. Safaricom also announced last November that it had taken up a one-year bridge facility of $400 million (Sh47.1 billion) to finance its Ethiopia entry.
Banks have also borrowed significantly from DFIs such as the International Finance Corporation (IFC); in recent years to fund their SME lending businesses. Firms have also faced problems accessing dollars in the local market to make overseas obligations which include payment to suppliers, dividend remittances and loan repayments.