Kuramo Capital will have veto powers on a range of decisions including sale of assets, issuance of new shares, compensation, hiring and removal of TransCentury chief executive and chief financial officer.
NSE-listed infrastructure company TransCentury is set to give sweeping powers to new shareholder Kuramo Capital as part of a deal that will see the struggling firm receive Sh2 billion debt and equity investment from the New York-based private equity firm.
The Nairobi Securities Exchange-traded firm says in a circular to shareholders that Kuramo will have veto powers on a range of decisions including sale of assets, issuance of new shares, compensation, hiring and removal of its chief executive and chief financial officer.
Board decisions, including payments of dividends and compensation of managers earning above Sh632,000 per month, will also have to get Kuramo’s backing to be valid.
Kuramo must also give its approval of any business plan, loans to directors exceeding Sh1 million and initiation or settlement of lawsuits with a value exceeding five per cent of the company’s total assets.
The veto powers are seen as a move by the PE firm to enforce financial discipline at the firm to protect its multi-billion shilling investment.
TransCentury sought the investment from Kuramo to help retire the Sh8 billion bond it issued in 2011 that was due in March.
As part of the agreement, Kuramo will get three directorship in the company that will have a total of nine board members.
All important decisions must be approved by at least seven directors, meaning that the PE firm has to back the resolutions before they are implemented.
Founder shareholders of TransCentury, who will be diluted 24.99 per cent by the entry of Kuramo, are entitled to three directors while three others are to be independent board members.
The investment company listed Zephaniah Mbugua (chairman), Dennis Awori (non-executive) and Ng’ang’a Njiinu (chief executive) as its current board members, paving the way for appointment of new directors after a recent shake-up saw the exit of three members including former Kenya Revenue Authority boss Michael Waweru.
Besides getting veto powers in TransCentury, Kuramo has also secured a debt and equity deal that could see it earn handsome returns in the medium term.
The Sh2 billion investment is split into Sh1.3 billion for which it will be allotted 93.7 million ordinary shares equivalent to a 24.99 per cent stake in the company.
The shares are priced at 13.85 each, representing a 13 per cent premium on the trading price of Sh12.25 on the Nairobi bourse on Friday.
The remaining Sh708.2 million is a loan in the form of non-convertible preference shares and which will earn Kuramo a profit of Sh774 million at the end of the seven-year term, more than doubling the principal.
The PE firm will be allotted 70,120 preference shares, each with a price of $100 (Sh10,100).
TransCentury says the preference shares will earn an interest of 4.9 per cent annually, representing an income of Sh34.7 million or Sh242.9 million in total over the seven years.
The principal will also be redeemed at a premium of 75 per cent, representing a markup of Sh531.1 million.
TransCentury, which was not in a position to settle the Sh8 billion bond in cash, said it had reached an agreement with the majority of the bondholders that halved the outstanding amount to Sh4 billion.
Cash from Kuramo will pay half of the remaining debt, with the balance to be rolled over into a new three-year loan earning an interest of eight per cent.
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