Vivo Energy Kenya, an oil marketer, faced difficulties in accessing hard currency due to liquidity constraints and a weakening exchange rate, which hindered the fulfillment of external orders.
As a result, the company resorted to borrowing in US dollars to mitigate forex shortages. Amid a shortage of forex, Vivo Energy Kenya has decided to take out dollar loans as a safeguard. the parent company, reported in its 2022 annual report that the borrowings, including a $603 million bridge loan and additional bank debt of $233 million, were partially drawn from a bridge loan facility and short-term bank debt.
The report, however, did not specify the exact portion of the total outstanding borrowings of $1.53 billion that were attributable to the Kenyan unit, nor did it indicate the extent of the currency swap arrangement applied to the Kenya loans.
Vivo Energy Kenya’s borrowings were necessitated by the country’s liquidity constraints, which compelled it to seek foreign exchange borrowings and swaps to remain operational.
The company cited the need to fund working capital requirements as one of the factors driving its increased borrowing, which was partly attributable to the proceeds from the bridge loan and the short-term financing.
Vivo Energy also disclosed that it used cross-currency swaps to mitigate the impact of future depreciation of the local currency against the US dollar, which would have raised its finance costs on dollar-denominated debt.
The oil marketer, which holds the largest retail market share in Kenya at 22.79%, is among the largest buyers of dollars in the country, given the high monthly payments the country makes for oil imports.
These imports account for almost a third of Kenya’s total monthly import bill, contributing to the scarcity of dollars in the economy. The depreciation of the Kenyan shilling has further exacerbated the situation, with the official exchange rate published by the Central Bank of Kenya at an all-time low of 130.10 units to the dollar.
Retail buyers in banking halls pay even more, up to Sh144 per dollar, and large buyers face daily purchase limits.
To address the dollar shortage, the Kenyan government has secured a credit deal with Saudi and UAE governments to extend the time required to source dollars for fuel payments from five days to 180 days.