Tunis-based African Development Bank (AfDB) has made an equity investment of $24 million in the East African Development Bank (EADB) to strengthen the latter’s balance sheet and improve its international credit rating.
Of the total amount, $10 million will be paid in one tranche while the balance will be paid upon request by EADB.
EADB is based in Kampala and is owned by the governments of Kenya, Uganda, Tanzania and Rwanda.
AfDB currently owns a 6.76 per cent stake in EADB and it was not immediately clear by what percentage its stake will increase following the equity investment.
The governments of Kenya, Uganda and Tanzania, each own a 27.2 per cent stake while Rwanda has a 4.34 per cent stake.
EADB will use some of the funds to support capital market development in specific member countries. The intention is to make it easier to mobilise financial resources from affordable capital markets to meet the growing demand for investment in East Africa.
“The capital injection will help EADB consolidate the gains of its successful restructuring programme and assist the current business strategy of the bank by strengthening its capital base,” said a statement from AfDB.
EADB is seeking to position itself as the leading development lender in the region, which is its core objective.
According to the bank’s strategic plan for 2011 to 2015, funding for key economic sectors such as SMEs, food production, education and skills development, health, trade and infrastructure will be increased through direct lending to projects and programme loans to countries.
Rating agency Fitch last year improved EADB’s credit rating from B- (minus) to B with a stable outlook. The rating covers the bank’s ability to meet its financial obligations in the short and long-term.
AfDB’s investment in EADB is also expected to improve the quality of the callable capital of the bank, which is a major factor in credit rating. Callable capital is the money that is requested to meet emergency obligations.
EADB will also receive a technical assistance package from AfDB under the latter’s Fund for African Private Sector Assistance (FAPA), a multi-donor fund that aims to support the implementation of AfDB’s private sector development strategy by providing untied grants for technical assistance and capacity building to African governments.
AfDB said its additional investment in EADB is a strategic one as it seeks to exploit the synergies the two institutions have as regional development financiers.
“With its field presence and local knowledge of the EAC market, it provides a logical conduit for AfDB to reach out to end-customers, including small and medium-sized enterprises by efficiently leveraging its scale,” noted AfDB.
The investment is also part of AfDB’s East African Integration Strategy, with focus being on sub-regional development finance institutions and on key pillars of AfDB’s forthcoming Long-Term Strategy, particularly private sector development and regional integration.