Money Markets
Total gets Sh7.5bn loan to buy Chevron’s Kenya assets
Oil marketer assembles a consortium of six Kenyan banks for a five-year cash deal
Posted Tuesday, September 29 2009 at 00:00
Oil marketer, Total, has turned to local banks for money to conclude the buyout of American rival Chevron’s assets in Kenya, it has emerged.
The French multi-national, through its Kenyan subsidiary, has signed a Sh7.5 billion loan agreement with local lenders pulling through the first such mega loan in Kenya since the onset of the global financial crisis late last year.
Managing director Felix Majekodunmi said a consortium of six local banks had signed up to offer a Sh4.7 billion syndicated five-year loan to the oil marketer and that an additional Sh2.8 billion would be raised through “short term facilities.”
He did not identify the banks, citing confidentiality agreements.
The loans deal, signed on Friday, puts Chevron Kenya’s purchase price at Sh11.4 billion, which Total is partly financing through the creation of new preference shares valued at Sh3.9 billion.
The firm last week announced that it was issuing 123 million new redeemable preference shares to the parent company, Total Group, in exchange for Sh3.9 billion to buy Chevron assets.
Citibank, Standard Chartered, KCB, Barclays, Stanbic and Bank of Africa are listed as the company’s lenders in Total’s financial statements, but people familiar with the deal said other banks may have been involved in the deals.
The conclusion of the transaction — billed as Kenya oil industry’s biggest ever – should leave Total Kenya with the task of generating profit for shareholders as it manages the huge financing costs that comes with the new debt.
Mr Majekodunmi said the acquisition gives Total Kenya control of slightly over a quarter of Kenya’s petroleum market, adding that “the projected increase in sales volumes will be critical for the survival of the company.”
Analysts at Renaissance Capital and African Alliance investment banks however said Total Kenya shareholders should brace for tough times ahead, arguing that soaring financing costs will almost certainly cut the Sh2.50 dividend payout that they have enjoyed over the past five years.
The combined Total Kenya pro-forma balance sheet post the acquisition shows the firm will carry short term bank borrowings of Sh9.75 billion, and a further Sh1.2 billion payable to its parent company and tax authorities.
Net finance charges and other operating expenses, as per the simulated combined income statement for last year will double to about Sh681 million and Sh3.5 billion respectively. Interest payments on the loans will be pegged on the prevailing three-month Treasury Bill interest rate “plus a premium”.
The income statement shows Chevron, which operated locally under the Caltex Kenya brand, made an after-tax loss of Sh366 million in 2008 a boom year for local oil marketers driven by a steep rise in international crude oil prices.
Caltex is a private company and was therefore not obliged to make public its performance. Total Kenya made an after tax profit of Sh704 million in the period while its listed competitor, KenolKobil, announced a Sh1.2 billion profit in the same period.
“The additional financing costs are huge and are likely eat into dividends payable to shareholders,” said Eric Musau, a research analyst at Renaissance Capital.
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