The financing will support the 411-kilometre Tabora–Kigoma section of Tanzania’s standard-gauge railway, known as Lot 6.
Once connected to the wider network, the line will provide producers in western Tanzania with a high-capacity route to the Indian Ocean while expanding trade with the Democratic Republic of Congo through the ports of Kigoma and Kalemie on Lake Tanganyika.
The transaction also brings British financial institutions directly into one of East Africa’s largest current infrastructure financings.
HSBC, FirstBank UK and Bank of Africa United Kingdom are among nine banks participating in the facility. International insurers, including Lloyd’s syndicates, will also absorb part of the project’s credit exposure.
The African Development Bank announced the signed facility on November 4, with Tanzania’s Finance and Transport ministries subsequently confirming the development to local media.
How the $1.2 billion financing works
The African Development Bank acted as the initial mandated lead arranger and structured a partial credit guarantee of up to $800 million—its largest guarantee of this type.
The commercial facility was co-arranged by Deutsche Bank and Société Générale. The remaining lenders are HSBC, Commerzbank, Nedbank, Stanbic Bank Tanzania, First Abu Dhabi Bank, FirstBank UK and Bank of Africa United Kingdom.
The banks collectively committed $720 million in guaranteed lending and another $480 million against Tanzania’s sovereign credit risk.
Individual commitments were not disclosed. It would therefore be inaccurate to attribute a specific portion of the $1.2 billion to HSBC or either of the two UK-based African banks.
The AfDB guarantee covers the principal of the protected tranche and two years of interest. London-based insurance broker Texel has distributed $405.5 million of the exposure among international insurers, including Lloyd’s syndicates.
At the conversion used in Tanzanian reporting, the signed facility is worth approximately TSh3.1 trillion ($1.2 billion).
The structure allows Tanzania to attract commercial lenders while reducing part of the repayment risk they would ordinarily assume on a project of this size.
It also means the financing should not be described as a $1.2 billion AfDB loan. The money is being provided by the nine-bank syndicate, supported by the development bank’s guarantee and international insurance capacity.
Railway could open a new route to the DRC
The Tabora–Kigoma line is designed to carry agricultural produce, minerals and other bulk goods from western Tanzania to domestic and international markets.
Kigoma sits on Lake Tanganyika opposite the Congolese port of Kalemie. Connecting the town to Tanzania’s wider railway network would give businesses trading with eastern DRC another route to the Port of Dar es Salaam.
The broader railway programme is also intended to improve Tanzania’s transport connection with Burundi.
Tanzania expects the project to lower freight costs, improve market access and attract investment into agriculture, mining and manufacturing along the Central Corridor. Construction and railway operations are also expected to create employment, although the government has not published a verified jobs estimate.
Transport Permanent Secretary Godius Kahyarara said the financing would enable the country to connect Tabora, Kigoma and Burundi through Lot 6.
Three financing figures that must not be combined
The signed $1.2 billion facility is part of a wider financing structure, but the larger numbers attached to the railway do not represent money already secured.
The overall package planned for the Tabora–Kigoma section is $2.3 billion. Besides the signed commercial facility, it is expected to include an export-credit-agency tranche and another component to be mobilised with a co-guarantor.
Separately, Tanzania mandated the AfDB to structure and mobilise up to $3.2 billion for its broader regional railway programme.
The $2.3 billion and $3.2 billion figures are therefore not additional completed investments that can be added to the $1.2 billion. They describe wider financing requirements and mobilisation mandates.
The immediate development is that Tanzania has signed the $1.2 billion commercial tranche, backed by the AfDB’s record guarantee and a group of international lenders and insurers.
The deal gives British financial institutions direct exposure to infrastructure designed to connect East African farms, mines and industrial centres with one of the region’s largest neighbouring consumer markets.
Source: africa.businessinsider.com
