Total gets Sh7.5bn loan to buy Chevron’s Kenya assets

Mr Musau said the new debt burden will increase Total Kenya’s business risk, which would only be manageable if the oil marketer generates enough revenues to cover additional operating and financing costs.

“The firm however has the advantage of the parent company’s backing, as demonstrated by its uptake of new equity signalling that it is here for the long haul,” said Mr Musau.

Half year accounts show Total Kenya closed last year in a negative cash flow position of Sh4.7 billion, putting into doubt its ability to generate sufficient cash to pay out dividends to an increased pool of shareholders.

Contrary to ordinary preference shares that generally attract a constant dividend payout that is not pegged on a company’s annual performance, the new preference shareholder will get dividends from the same pool of after tax earnings as ordinary shareholders.

The new preference shares make about 70 per cent of the oil marketer’s 175 million issued shares. African Alliance analysts said it could take up to five years (after the Sh7.5 billion loan is repaid) for Total Kenya shareholders to start earning dividends similar to the current pay out.

Local oil dealers have to contend with high operating costs partly due to inefficiencies of the Kenya Petroleum Refinery where they are required to process half of their oil imports.

The Kenya Pipeline Company, another state corporation that is charged with pumping oil upstream from the Mombasa Port has also been suffering efficiency and capacity constraints, forcing oil marketers to rely on the more expensive alternative of road transportation to supply inland markets.

A requirement by the Kenya Revenue Authority for upfront payment of taxes on oil imports and delays in VAT refunds has further added to the oil marketers’ working capital requirements.

The African Alliance researchers said Total Kenya could ultimately benefit from the transaction depending on how efficiently the new combined entity is run.

“The strategy by local marketers is to grow profits by increasing volumes, it is quite a challenge to increase profit margins due to the tough competition,” said the African Alliance analysts.

Mr Majekodunmi said Chevron’s outlets had performed “above expectations” in the last four months, while Total Kenya had turned around from the dip in its half-year performance.

“The improved performance will be reflected in the third quarter results which we will be announcing shortly,” said Mr Majekodunmi, who however added that Chevron’s performance will only be integrated into the group after a final shareholders’ approval of the transaction expected on October 19.

Total Kenya is also expected to cede at least 21 retail petrol stations and other assets that previously belonged to Chevron Kenya to a buyer of its choice within the next 14 months to get the commissioner of monopolies full approval for the transaction.

The targeted assets were chosen on the basis of location while the commissioner also considered whether possession of other facilities such as lubrication plants would make Total an unduly dominant player in the respective niches’.

It was earlier thought that the government would force Total to cede the assets to the state backed marketer the National Oil Corporation (NOCK), but Mr Majekodunmi said the property would be sold to any willing buyers.