Capital Markets

Centum to inject Sh1.2bn bond proceeds into K-Rep Bank

Centum chief executive officer James Mworia. PHOTO | DIANA NGILA
Centum chief executive officer James Mworia. PHOTO | DIANA NGILA 

Centum is set to inject Sh1.2 billion additional capital into K-Rep Bank from the proceeds of its Sh6 billion bond whose sale kicked off on Monday.

The listed investment firm disclosed in its information memorandum for the fixed-rate and equity-linked notes that it will direct 60 per cent of the money—or Sh3.6 billion— into K-Rep.

The balance of Sh2.4 billion will go towards paying off a short-term bridging facility taken at the time of raising stake in K-Rep bank last November, that took its holding to 65.6 per cent from 1.66 per cent.

Other Centum bond proceeds will go towards the investment firm’s real estate project in Entebbe, Uganda and power projects in Lamu and Olkaria, Nakuru.

“Centum further intends on increasing the capitalisation of the bank and has committed to invest an additional Sh1.2 billion towards this capitalisation. This will allow the bank to attract higher deposits as well as enable the them to offer more loans and advances,” said the information memorandum, which did not disclose the intended form (debt or equity) of investment.

“Centum has already made a Sh2.4 billion investment in K-Rep funded by a short-term facility (and) intends to utilise part of the proceeds of the bond towards refinancing this facility.”

Companies take up bridging debt facilities to provide immediate cash flow to meet current financial obligations before they secure permanent financing.

Such facilities are usually short-term in nature, carrying relatively high interest rates.

K-Rep mainly lends to small and medium enterprises (SMEs) and would benefit from the capital injection which would increase its ability to give loans to the fast growing sector.

The bank recorded a 42.8 per cent rise in post-tax profit to Sh514 million in the year ended December 2014, largely benefiting from cheaper sources of funds.

In power projects, Centum said it will use 35 per cent of the bond proceeds or Sh2.1 billion in financing part of its equity stake in both Akiira Geothermal project in Olkaria and the Lamu coal power plant.

Akiira will receive Sh1.2 billion (20 per cent of total) while Amu Power gets Sh900 million (15 per cent) as per the information memorandum.

Akiira Geothermal has already embarked on recruitment of key staff as it plans exploration drilling, having advertised for engineers, environmental scientists, geochemists, geologists and technicians last week.

The firm has also called for quotations for provision of fuel supplies and security services.

Centum is part of a consortium—Amu Power Company— that won the tender to construct the $2 billion (Sh190 billion) Lamu coal power project and the bond cash will go towards financing its equity obligation in the project.

“Further investments in the project(s) will be funded from internally generated funds,” said Centum.

The remaining five per cent of the bond proceeds will go towards financing the Pearl Marina real estate project in Uganda (3.7 per cent or Sh222 million) and paying off transaction costs for the bond (1.3 per cent or Sh78 million).

Centum says it has started putting up 102 residential villas and supporting infrastructure for first phase of the project. This phase will cost Sh2.75 billion, funded 40 per cent through equity and 60 per cent by debt.

Pearl Marina sits on 385 acres of land situated between Entebbe International Airport and Kampala.