Chandaria’s firm pays off Sh1 billion bondholders early

Kaluworks, a manufacturer of aluminium utensils and roofing sheets, has bought back its Sh1 billion bond five years to maturity as it moves to lower its debt exposure.

Accumulation of liabilities saw the company’s credit rating last year downgraded by South African agency GCR from a BB+ a year earlier to a BB.

Kaluworks, owned by industrialist Manu Chandaria’s family, has exited the rating process after it refinanced its debt position.

“The withdrawal is at Kaluworks’ request and follows the refinancing of the company debt facilities, including the full redemption of the bond issue,” said GCR in a statement.

The firm issued the Sh1 billion bond with a tenor of seven years in 2012 to fund its expansion plans, which saw its debt position soar to Sh4.6 billion at the end of 2012, compared to Sh1 billion in 2008.

The family also owns Mabati Rolling Mills that has in the past issued corporate bonds.

ALSO READ: Profit growth earns MRM positive rating

Analysts close to the deal, who cannot be named without compromising their position, said the company had decided to consolidate its debt after investments in higher production resulted in increased capital flows. The company management could not be reached for comment.

GCR had warned that debt restructuring would not address Kaluworks’ core problem of being in excess debt given its gearing ratio of 287 per cent then.

“If not adequately addressed, the high level of debt will continue to place significant liquidity pressure on Kaluworks and severely restrict operational ability. This would likely lead to further rating downgrades,” warned GCR.

The agency advised Kaluworks to bring on board a strategic investor.

The debt issue was limited to a small group of investors who were being paid a 14 per cent semi-annual fixed rate of return. Kaluworks is likely to get a better price for debt following a drop in interest rates that had peaked in 2011.

GCR in the report last year said Kaluworks posted a net loss in the seven months to July attributable to high costs of financing. It also noted that capacity expansion had helped the company report an increase in revenues with production volumes going up.

It, however, said operating profit had been consumed by onerous interest charges leading to depressed net earnings from 2010 to 2012.

In 2011, Kaluworks reported a net profit of Sh36 million, having paid out Sh226 million in financing costs, its largest expense item.

Kaluworks manufactures bowls, basins, buckets, cooking pots, sauce pans, cans and other cookware as well as aluminium roofing sheets.

The sufuria-maker enjoys a market share of more than 60 per cent in Kenya, more than 57 per cent in Tanzania, over 63 per cent in Uganda, above 50 per cent in Ethiopia and over 50 per cent in Rwanda.

Principal shareholders of the company are listed as the Kenya Aluminium and Industrial Works Limited (72 per cent) and Clovis Aluminum SA who own 28 per cent of the ordinary shares.