Nairobi — East African Portland Cement Company shareholders have approved the directors' decision to issue a Sh3 billion bond to repay a nagging yen-denominated loan.

Mr John Nyambok, the company's managing director, told the annual general meeting held on Thursday that proceeds from the bond would fully cover the loan's outstanding balance.

The company expects approval from the Capital Markets Authority and subsequent sale to take place before March 31, 2010, he said.

In 1990, the company borrowed a Sh7.6 billion loan in yen currency, through a guarantee from the Kenya Government to renovate its plant.

The loan had a grace period of 10 years, at a 2.5 per cent annual interest and Portland started repaying it in 2000.

However, repayment of the loan, which has to be in Japanese yen, has undermined the company's profitability, as it has to convert either shillings or US dollars into yens.

This has posed a perpetual foreign exchange risk to the company, where the exchange rate often times changes unfavourably before the currency is converted.

The company now wants to engage in foreign exchange risk hedging, where it will use US dollars or shillings to buy all yens required to fully pay the loan. The outstanding loan is equivalent to Sh3 billion.

Portland will, however, not repay the loan at once but will deposit this money in a bank account and make withdrawals as repayments fall due.

The shareholders also approved a first and final dividend of Sh1.30 a share.

Mr Mark ole Karbolo, the company's chairman, said the year ended June 2009 had seen strong growth in the construction sector, with cement volumes growing ahead of expectations.

"Our growth strategy will involve growing existing markets, expanding and deepening cement share of the construction industry and taking advantage of opportunities across the value chain," he told shareholders.

Mr Karbolo said that more demand for cement in East Africa had triggered capacity expansion projects and entry of new players.

As a result of improved governance, international organisations are also funding many new projects, he said.