Total Kenya’s capital base has risen by Sh5 billion after the conversion of the oil marketer’s shareholder debt into preference shares.
The change in the Nairobi Securities Exchange (NSE)- listed oil marketer’s capital structure is captured in its nine months financial report, which also reveals a drop in the debt position.
“The balance sheet was strengthened with the increase of the company’s paid up share capital by Sh5.2 billion, resulting from the issuance of additional preference shares,” said Alexis Vovk, the managing director of Total Kenya.
Total Outre Mer, the parent company of Total Kenya, injected additional capital into the local outfit by taking up 331 million redeemable preference shares at Sh15.71 each as conversion of its debt to the firm.
The Paris-based parent firm advanced the loan to its Kenyan unit to finance Total’s acquisition of American oil marketer Chevron Kenya’s assets, then operating as Caltex Kenya, when the international oil dealer was exiting the African continent.
The debt has, however, cost the firm due to high financing costs.
The company’s debt to equity ratio improved from 145 per cent to 61 per cent following the conversion.
The oil marketer also halved its total liabilities to Sh13.1 billion compared to September last year.
The financing expenses of the company dropped by Sh240 million in the three months to September due to the reduction in the debt burden and the concurrent decline in interest rates.
In the nine months to September the company posted a net loss of Sh243 million compared to Sh69 million profits in a similar period last year.
Total’s sales volume increased by 14 per cent to 779 kilometric tonnes (KMT), which it attributed to sales to other oil marketing companies under the Open Tender System (OTS).
The company’s entry into the OTS bids, cost management and development of non-fuel revenues during the quarter saw it make an operating profit of Sh16 million during the quarter, the first in 18 months.
The transaction guaranteed the parent firm a dividend regardless of the performance of the Kenyan unit.
The company’s management said the pricing formula used by the regulatory body, ERC, to set prices needed to be reviewed so as to reward capital investments as it was locking the potential of Total’s asset base.
“The ERC pricing formula still fails to fully take into account the real cost of financing working capital requirement and the inflation costs at all levels of the supply chain,” said Mr Vovk.
The parent company has stated it will redeem the preferential shares in future through a rights issue or repurchase from retained profits.
Preference shares is class of ownership in a company which gives the holder a priority on dividends and a higher claim on assets in case of liquidation, but do not usually confer voting rights.
Total Outre Mer owns 87.27 per cent of Total Kenya, with 41.36 per cent or 123 million shares being redeemable preference shares.
The preference shares each valued at Sh31.58 were in exchange of a Sh3.9 billion investment in 2010 in the Kenyan business.