TransCentury CEO Gachao Kiuna. The loss from the RVR divestiture could partly be mitigated by how the firm deploys the cash it received in the March transaction. Photo/FILE
What you need to know:
TransCentury has already issued a profit warning informing investors that its net earnings for up to December this year could drop by more than 25 per cent.
It has not stated whether the forecasted lower profitability will affect shareholders’ dividends.
Infrastructure investment firm TransCentury is set to book a Sh1 billion loss this financial year from its recent divestiture from Rift Valley Railways (RVR), the company has revealed in its latest annual report.
TransCentury earned Sh3.78 billion in March from sale of its 34 per cent stake in RVR to Cairo-based private equity fund Citadel Capital.
The amount was, however, lower than the Sh4.79 billion cumulative fair value of the investment, the company has disclosed.
“This disposal transaction… occurred after the reporting period and will be reflected in the group’s financial statements for the year ending December 31, 2014,” TransCentury says in the report.
The firm decided to exit the investment which gave the concessionaire exclusive rights to run the Kenya-Uganda railway for 25 years.
TransCentury has already issued a profit warning informing investors that its net earnings for up to December this year could drop by more than 25 per cent. While the loss will be accounted for in its 2014 income statement, TransCentury says it has recovered its entire cash investment in RVR.
The profit warning means the company is projecting a material decline on the Sh626.4 million net profit it earned last year.
It has not stated whether the forecasted lower profitability will affect shareholders’ dividends compared to the Sh0.40 per share it is set to pay for the year ended December 2013.
TransCentury said it sold its stake in RVR due to delays in its financing programme which eroded the outlook for its returns.
“RVR continued to face severe challenges owing to delays in debt funding with the remaining $70 million (Sh6 billion) of debt funding not being made available to the Company in 2013 thereby leading to the capital investment programme stalling just at the time that RVR had achieved EBITDA break-even,” said the statement.
EBITDA refers to earnings before interest, tax, depreciation and armotisation. “The stalling of the capital investment programme severely impacted expected equity returns for the project, which relied on a holistic capital expenditure programme being fully realised with entire debt and equity funds committed.”
Some of the financiers of RVR include Equity Bank and development finance institutions FMO (Dutch), and KfW (German).
Its net profit stood at Sh626.4 million in the review period, compared to Sh740.6 million a year earlier, with sales declining 12.4 per cent to Sh11.8 billion.
TransCentury said the performance was affected by delayed execution of construction projects for Civicon, its engineering division. The loss from the RVR divestiture could partly be mitigated by how the company deploys the cash it received in the March transaction.
“The disposal of RVR means that the group can re-deploy the funds towards supporting growth of the power and engineering divisions and executing other higher return opportunities within our pipeline of investments,” TransCentury said in a statement.
It added that one of the projects in which the cash will be used is a new geothermal power plant in Menengai.
The company said it had teamed up with a consortium of investors to negotiate a power purchase agreement for the project. The firm’s share is currently trading at Sh24.2 and has remained unchanged for six months.
