Uganda has completed an interest rate swap deal with local units of banking giants Standard Bank and Standard Chartered on credit worth $646 million, part of a larger loan from China to finance a hydropower plant on the River Nile.
In 2014, Uganda secured a loan totalling $1.44 billion from China via its Exim Bank to help finance the 600 megawatt (MW) Karuma hydropower plant being developed on the Nile.
According to Uganda’s finance ministry, a portion of that loan amounting to $645 million carried a varying, LIBOR-linked commercial interest rate.
The remainder was concessional with a rate fixed at 2 percent.
The finance ministry said in a statement late on Monday Uganda had concluded the interest rate swap on the commercial portion of the loan with Stanbic Bank, a unit of South Africa’s Standard Bank and the Ugandan unit Standard Chartered Bank.
The rate on the $645 million portion of the Chinese loan has now been fixed at 6.08 percent and will be paid over a 15-year period.
The interest rate swap was “to ensure certainty and hedge against future rate fluctuations”, the ministry said.
Stephen Kaboyo, managing director of Alpha Capital Partners, a funds manager, said in a note the deal would help Uganda lower its debt service costs on the Karuma project.
A ministry of finance source told Reuters the government reckoned there was a higher likelihood of the U.S. Federal Reserve raising its benchmark rate in the near future and potentially increasing Uganda’s interest rate payments on the loan.
“The size and scale of the transaction is unprecedented in Uganda’s context … 6.08 percent fixed rate is the best pricing any entity can get in the current market environment,” Kaboyo said.
(Editing by George Obulutsa, Robert Birsel)