ATI backs PTA Bank’s $60 million loan to a regional air carrier
NAIROBI, 1 September, 2011– Availability of reliable air transport in the East African region has posed a challenge to tourists and companies seeking affordable options. Smaller carriers have long suffered from lack of adequate financing which has left them unable to compete with large and more established brands. PTA Bank, one of the few regional financing institutions that can provide long-term financing recently released a $60 million (Ksh 5.5 billion) 10-year term loan to fund the expansion of a government-owned carrier in East Africa. The loan was supported by a Ministry of Finance Guarantee that was strengthened with an insurance policy from the African Trade Insurance Agency (ATI) covering the risk of non-payment by the Ministry.
Financiers often shy away from investing in projects involving government owned institutions as in this case where the airline is a majority state-owned company. Non-payment issues are among the main risks that dissuade lenders and investors and may lead to the demise of these types of projects. As a counter measure, governments can use political risk insurance to back their guarantees to investors. On this loan, ATI stepped in to support the deal against failure by the government to honour its guarantee, ensuring the project’s survival.
“This deal supports PTA Bank’s mandate to finance viable projects that might not otherwise receive financing from commercial lenders. Our objective here was simple. To help the government create a financially viable carrier that will eventually become a profitable investment for the private sector. ATI’s insurance support made this possible,” commented James Kabuga, Director of Project & Infrastructure Finance for PTA Bank.
Groups such as the African Civil Aviation Commission and the EAC are attempting to address some of the barriers to the development of the air carrier industry – namely high tariffs, lack of harmonized regulations and private sector investment, poor infrastructure, security apparatus and mismanagement.
Speaking at a recent meeting on the harmonisation of air transport regulations, Beatrice Kiraso, the EAC deputy secretary-general in charge of political federation noted that “the contribution of this sector to tourism, horticultural development, regional investment, employment and skills development cannot be underestimated.”
“We consider PTA Bank to be an important partner in the region. We are both invested in supporting projects that are instrumental to sustainable economic development. ATI and PTA Bank have demonstrated that solutions to some of Africa’s financing challenges do not necessarily have to come from outside the continent. When you bring together a lender and an insurer who can both take long-term risks in Africa the result is a strong affirmation that Africa is indeed a continent of many possibilities” notes Humphrey Mwangi, ATI’s Acting Chief Underwriter.
ATI has stepped up its support of largely government-supported infrastructure projects in recent months. These have included projects valued at over $400 million in the transportation and energy sectors such as the rehabilitation of energy, roads and water infrastructure. Since 2003, ATI has supported PTA Bank’s loans in Burundi, where it insured a loan facility towards the expansion of the country’s leading brewery, and in Malawi where ATI insured the Bank’s $50 million credit facility to finance the importation of petroleum products. ATI has also insured PTA Bank for a power project in Tanzania and the two institutions are in the process of concluding a landmark US$ 100m energy sector deal in Zambia.