KenGen eyes Sh1.8bn Treasury debt pay cut after rights issue

Power producer KenGen is targeting a Sh1.8 billion cut in annual debt repayments to the Treasury through a balance sheet restructuring planned for the first three months of next year.

The firm has applied to the regulator for approval of a Sh28 billion rights issue in which the government is expected to participate by converting part of its Sh41.2 billion loan to the company into equity.

KenGen, which on Monday reported a 307.5 per cent jump in net profit to Sh11.5 billion for the year ended June, is 70 per cent owned by the Treasury — which is not keen on injecting cash into the firm given other pressing national government expenditure.

The NSE-listed firm says the rights issue, whose details are currently under review by the regulators, will enable it to reduce its government debt burden and receive a cash injection from minority shareholders.

“There are plans for a Sh28 billion rights issue in the first quarter of next year. The government will most likely participate by converting some of its loans into shareholding, not giving us cash,” said KenGen’s finance director John Mudany at an investor briefing Tuesday.

“This will reduce our debt service since we repay them around Sh1.8 billion every year,” he added.

KenGen’s rights issue dates back to December 2013 when the firm received shareholder approval to create 7.78 billion shares of which up to 2.21 billion were to be offered to its owners.

The power generator has appointed Standard Investment Bank, Renaissance Capital, Dyer & Blair and Faida Investment Bank as its transaction advisers.

READ: KenGen to get Treasury debt write-off in rights issue plan

The cash call is meant to boost KenGen’s plans to increase installed capacity from the current 1,611 megawatts to 2,122 megawatts by 2018 at a cost of $1.75 billion.

These include a 50-megawatt wellhead for leasing, three new 350-megawatt Olkaria geothermal projects, a 400MW wind project in Meru and the rehabilitation of the Olkaria 1 plant.

“The funds from the rights issue will give us a boost to fund these projects but we still need to look for other ways to raise off the balance sheet,” said Mr Mudany.

These options, he added, include public private partnerships and asset leasing and asset-backed-securities and additional funding from multilateral lenders and commercial banks.

KenGen’s direct borrowing portfolio stood at Sh39.3 billion at the close of the financial year to June and is set to grow given that it is in talks with the likes of Africa Development Bank and Japan International Cooperation Agency to fund its geothermal projects.

The power company Tuesday announced that it had raised its dividend payout by 62.5 per cent after recording a three-fold jump in net profit, powered by increased sales and a Sh2.8 billion tax credit.

Revenue from electricity sales grew 46.9 per cent to Sh25.6 billion in the review period as the near doubling of its geothermal capacity to 509 megawatts paid off.