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Cytonn inks Sh650m loan deal with SBM Bank

by kenya-tribune

Market News

Cytonn seals deal for Sh650m loan with SBM Bank

Cytonn CEO Edwin Dande. FILE PHOTO | NMG 

Cytonn Investments Management Plc has reached a deal with mid-tier SBM Bank Kenya for a Sh650 million loan, the investment management firm said on Monday, signalling a plan to diversity its funding sources.

Edwin Dande, the chief executive, said terms for the three-year facility, the first loan for the upstart firm, have been finalised with a symbolic signing set to be done “within a week.”

The cash will be deployed towards completion of Cytonn’s Alma project, a mixed development featuring 477 residences and commercial blocks, in the upmarket Ruaka area in Kiambu.

“In terms of diversity of funding, it’s important for a real estate player. We are going to do this (bank financing) more and more,” Mr Dande said in Nairobi on the sidelines of symbolic launch of Cytonn Asset Managers, its wealth management arm.

The long-term capital raising strategy, he said, is to gradually cut the share of mezzanine finance (a hybrid of debt and equity funds) in the firm’s capital structure to 30 percent from 50 percent while growing bank financing to 50 percent with the remainder being equity.

“This (bank loan) demonstrates that there are good brands that have looked at our strategy and are comfortable,” he added. “We will be talking to other banks so that we will have around 50 percent of our capital structure being bank funding.”

Last November South African-based Global Credit Ratings (GCR) downgraded Cytonn’s creditworthiness based on its books as at last September, citing absence of bank loans in its capital structure.

Cytonn’s rating was consequently downgraded to “B” for long- and short-term issuer compared to “BB” for long-term and “B” for short-term issuer ratings the firm received in September in 2017.

“The ratings are currently constrained by Cytonn’s curtailed access to capital given limited recourse to bank facilities. As such, group debt largely comprises short-dated loans/notes from mezzanine investors,” said GCR.

“While the rigour of governance and risk management structures is noted, the ratings are also constrained by Cytonn’s short track record and untested ability to execute multiple real estate projects at relatively competitive project LTVs [loan to value], timeously roll over capital while achieving targeted returns,” GCR said at the time.

The growth-hungry firm, largely focused on upmarket and mid-income real estate developments, says it has so far raised Sh22 billion with most of it coming from high-net worth individuals, institutional investors and joint ventures.

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