Government asks banks to pool Shs300b for new planes

Thursday October 18 2018

In air. A prototype of the Uganda airlines

In air. A prototype of the Uganda airlines Bombardier CRJ900 aircraft. COURTESY PHOTO 

Kampala. The government is in intense negotiations with four financial institutions to urgently raise at least Shs300b as advance payment for two aircrafts from Airbus SE for the planned revival of Uganda National Airlines Company, Daily Monitor can reveal.
Airbus SE, the manufacturer, requires down-payment of $80.3m (Shs300b) as a pre-delivery commitment for the aircrafts.
Finance ministry has subsequently requested for, and received financing proposals from four financial institutions on how to quickly muster resources to meet the pre-delivery payment obligation.
The institutions are dfcu Bank, East African Development Bank, Investec Bank Limited and African Export-Import Bank Limited, which submitted a proposal to co-finance the project under a syndication arrangement.
A loan syndication implies that multiple lenders pool together funds for a single borrower, in this case government of Uganda, and is common with international transactions, often time involving unlike currencies and “a necessary banking cooperation to guarantee payments and reduce exposure”.
Under the syndicated credit facility, Afreximbank is expected to contribute $25 million, EADB $20 million, Investec Bank $20 million and dfcu Bank $15.3 million to raise the threshold $80.3m amount.
According to correspondence between Bank of Uganda, which was tasked on August 14 to undertake due diligence on each of the institutions’ ability to raise the money, and Finance ministry, “the facility will be repaid in one bullet payment at aircraft delivery or 30 months, whichever comes earlier”.
The government expects to repay the debt from proceeds of the aircraft financing facility and its budget allocations while the Finance Ministry Permanent Secretary Keith Muhakanizi is expected to give a letter of comfort.
Accordingly, the supervision directorate of the Central Bank conducted an assessment of dfcu Bank Limited, a copy of which this newspaper has obtained, while the due diligence on EADB was delayed as it required detailed engagement with the management of the bank, specifically with officials directly involved in the Uganda Airlines project financing.

Advice
In a letter dated September 24 to Finance Minister Matia Kasaija, BoU Governor, Mr Emmanuel Tumusiime-Mutebile, noted that “this is to advise that dfcu Bank Limited is adequately capitalised, has sufficient liquidity and the requisite risk management processes to ably undertake the proposed airlines financing project of Shs57.6 billion”.
Mr Mutebile noted that dfcu’s beneficial shareholders, including the Norwegian Investment Fund for Developing Countries (NORFUND), the Netherlands Development Finance Company (FMO) and Rabobank, have the requisite capitalisation to support dfcu Bank Ltd in any financing venture.

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