KenGen breaches conditions for Sh18.5bn long-term loans

KenGen has breached the terms attached to Sh18.5 billion worth of long-term loans, a move that could see financiers call back their debts within a year should the power generator fail to get its books in order.

The company in the year ended June saw its current ratio — a liquidity measure of a firm’s ability to pay short-term and long-term obligations — fall below the level set by the lenders as a condition for getting the loans.

This would have automatically seen the reclassification of the Sh18.5 billion long-term loans to short-term, meaning they would become payable within a year in what would squeeze KenGen’s cash flows.

The Nairobi Securities Exchange-listed firm is however scrambling to get a waiver from creditors, relying in some cases on the backing of the Treasury which has guaranteed part of the debt.

“At the end of the year, the company was in compliance with all the financial covenants other than the current ratio,” KenGen says in its latest annual report.

“The effect of non-compliance is to reclassify the related liabilities to current. The directors have commenced the process of seeking formal waivers from the financiers and National Treasury and are confident of a favourable outcome.”

While the current ratio has come under pressure, the company has not fallen behind on its repayment schedule. It spent Sh6.3 billion repaying part of its borrowings in the review period but also contracted Sh9.4 billion of new debt, leaving it with a net debt increase of Sh3.1 billion.

KenGen’s current ratio improved to 1.2 in the review period compared to 0.95 the year before, with failure to hit the undisclosed target indicating that financiers have set stricter terms to preserve the firm’s creditworthiness.

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All the five loans that were in non-compliance were guaranteed by the government, except Sh1.3 billion direct financing from Agence Francaise de Developpement (AFD) which issued KenGen a waiver that runs out this month.

Besides the general purpose loan, the French fund has also provided Sh9.4 billion to KenGen indirectly through the Treasury to finance part of the Olkaria power plants.

The European Investment Bank (EIB) has lent the electricity producer Sh636.2 million indirectly through the Treasury to also bankroll the Olkaria projects.

German fund KfW has provided KenGen with Sh7.1 billion worth of loans — which are guaranteed by the government — to fund Kindaruma and Olkaria power plants.

KenGen’s short-term loans stood at Sh10.7 billion in June and re-classification of the non-compliance debt will nearly triple the borrowings payable within a year to Sh29.2 billion as per the year-end amounts.

This will offset the impact of the company’s recent Sh26.4 billion rights issue that was largely meant to ease it debt burden, allowing it to borrow more to fund its capital-intensive projects.

KenGen says all the relevant financiers are aware of the non-compliance and the unspecified circumstances that engendered the violation of the debt terms.

Awaiting the outcome of the waiver applications, KenGen continues to classify the borrowings as long-term liabilities.