A syndicated loan or a syndicated bank facility is financing offered by a group of lenders, who are then referred to as a syndicate, who work together to provide funds for a single borrower, according to US Based website, Investopedia.
The borrower can be a corporation, a large project, or a sovereign government. The loan can involve a fixed amount of funds, a credit line, or a combination of the two.
Did Hamis Kiggundu acquire a syndicated loan from Diamond Trust Bank -DTB?
This will be one of the many questions that will face the Court of Appeal and
the legal fraternity as a whole.
Diamond Trust Bank filed a notice to appeal the ruling in which
the commercial court declared the activities of DTB-Kenya in Uganda, including
lending to Ham Enterprises and Kiggs International, as well as deducting money
from his accounts to repay the loan, illegal.
The commercial court agreed with Ham that DTB Kenya could
not carry out such financial institution activities in Uganda, since it was not
registered in Uganda.
DTB Uganda and DTB Kenya had advanced credit facilities
amounting to 41 billion shillings, to the companies owned by Hamis Kiggundu, but
as the companies continued to pay, DTB Kenya through DTB Uganda continued to
deduct money from his accounts in Uganda, which according to him had totaled over 100 billion
The Bank of Uganda, in pronouncing itself on the case, agreed that DTB Kenya was not registered or licensed in Uganda, but added
that it did not have to, since it was not taking public deposits of Ugandans,
not lending out of money collected from Ugandans.
The 24-member Uganda Bankers Association said it intended to
join Diamond Trust in appealing the decision, which they said was putting at
risk the loan syndication business, which in Uganda is currently at about 5.7
When asked whether the credit facilities were advanced as a
syndicated loan, Uganda Bankers Association, UBA could not be clear on this.
What is a syndicated loan?
syndicated loan or a syndicated bank facility is financing offered by a group
of lenders, who are then referred to as a syndicate, who work together to
provide funds for a single borrower, according to US Based website,
borrower can be a corporation, a large project, or a sovereign government.
loan can involve a fixed amount of funds, a credit line, or a combination of
Syndicated loans come as a
result of a project too large to be financed by a single lender, or when a
project needs a specialized lender with expertise in a specific asset class.
will also ensure reduced risk since the uniting lenders will be able to share it.
According to Uganda Bankers Association Chief Executive
Officer, Wilbroad Owuor, syndicated loans require an arranger.
“It could be your lead bank or it could be a financial
consulting firm who in that case would be called a transaction advisor”, says
While a bank will seek the help or either local or foreign partners,
the borrower may contact a bank or financial consultant firm to arrange the
syndication, according to Owuor.
Francis Kamulegeya, the Senior Partner at PricewaterhouseCoopers says, "Loan Syndication is beneficial to the borrower as it enables him or her to access the finance needed by dealing with one bank instead of having to borrow from different banks to raise the money."He says it is always cheaper for the borrower.
In the period between 2011 and 2016, Mr Kiggundu acquired
different credit facilities from DTB Uganda and DTB Kenya in tranches of a loan facility of $6,663,453, a demand
overdraft facility of sh1.5b, a temporary demand overdraft facility of sh1b; a term
loan facility of $4,000,000 and a term loan facility of $500,000.
In 2018, he decided to consolidate the loans.
Lawyer Isaac Semakadde
says the question the court of appeal will have to answer is whether this
amounted to a syndicated loan:
“The expected litigation in appellate courts is
going to rotate around the question whether the foreign-sourced lending in
Ham’s case was in compliance with the Financial Institutions Act. It is
extremely premature and irresponsible to speculate about other transactions.”
He also wonders if Ugandan banks are not
capable of raising such a facility without looking for a partner.
Syndicated loans have previously been acquired to fund large
scale projects in Uganda including, including 702 million dollars raised by 11
financial institutions to finance Bujagali
hydropower project in 2007, while in 2019, power distributor, Umeme secured a $70 million Syndicated loan from the International Finance Corporation (IFC),
Standard Chartered Bank and Stanbic bank.
In syndicated loans, the total loan amount is paid by the
borrower as a single debt, as agreed by the financiers and the lead arranger,
with the guidance of the loan consultant.