KenGen eyes more loans as debt drops to five-year low

The Kenya Electricity Generating Company’s debt level has dropped to a five-year low, giving the power firm headroom to chalk up more loans for financing of new projects.

The drop in debt level was helped by the June rights issue that saw KenGen’s debt-to-equity ratio drop thanks to the Sh26.4 billion injected in new equity.

The listed power producer’s gearing ratio — the proportion of debt to equity — dropped to 43 per cent as at June 2016 from a high of 94 per cent in 2011.

The KenGen managing director Albert Mugo said the company is in talks with development finance institutions to fund its multibillion-dollar pipeline of projects expected to deliver an additional 706 megawatts by the year 2020.

“One of the objectives of our rights issue was to increase equity to allow us to borrow more for projects,” Mr Mugo said in an interview with Business Daily.

He said power generation being a capital intensive affair, the company will leverage on concessional funding from bilateral and multilateral lenders.

They include Japan International Co-operation Agency (JICA), European Investment Bank (EIB), French Development Agency (AFD), German Reconstruction Bank (KfW), World Bank, Export-Import Bank of China, and National Bank of Belgium (NBB) – which have repayment periods of up to 20 years with interest rates as low as 0.5 per cent.

The State-controlled electricity generator keeps a capital structure of debt to equity ratio of 70 per cent to 30 per cent, the managing director said.

Conversely, KenGen’s self-financing ratio — ability to bankroll projects from own resources — surged to an all-time high of 61 per cent in June 2016 from 41 per cent the previous year and 17 per cent in 2014.

READ: KenGen raises Sh26.4bn in the largest rights issue at Nairobi bourse

The company’s total borrowing dropped to Sh136.9 billion in the period to June 2016 from Sh146.6 billion a year earlier. The KenGen loans comprise of State-guaranteed loans, on-lent from government, direct borrowings and bank overdrafts.

This is after the National Treasury took part in the recently-concluded cash call by converting Sh20.15 billion of on-lent loans advanced to the power producer to equity, further easing KenGen’s debt burden.

The power firm’s finance costs grew marginally to Sh3.1 billion from Sh3.01 billion in the period under review.

This 4.04 per cent growth is attributed to the delays in holding the rights issue which forced KenGen to rely on expensive bank overdrafts to finance operations.

KenGen early this year borrowed a short-term loan of Sh1.55 billion from Citibank. This loan must be repaid by next month, according to the firm’s annual report.

With a current installed capacity of 1630.05MW, the planned power plants — mostly renewable energy such as steam and wind — will see the firm’s output hit 2,336MW in the next four years.

Kenya’s largest electricity generator was forced to stop dividend payments for the first time since listing in order to plough back profits to fund capital expenditure, the company said after announcing full-year results.