Investment firm TransCentury’s top owners have lost more than Sh5 billion of paper wealth since the company went public four years ago.
The massive wealth erosion took place on the back of a plummeting share price that has mirrored the company’s dwindling fortunes in the past three years.
In the past three months, for instance, TransCentury’s share price has shed more than a quarter of its value to close Thursday’s trading at Sh13.50. The investment firm went public 2011 by introduction at a listing price of Sh50.
Nairobi Securities Exchange (NSE) chairman Eddy Njoroge and Michael Waweru, the former Kenya Revenue Authority commissioner-general, are among the big losers in what has been a bumpy ride for a company whose rapid growth in the past decade inspired thousands of Kenyans to pooling resources for investment.
TransCentury’s listing had thrust Mr Waweru into the elite club of NSE billionaires after the value of his 7.96 per cent stake in the company rose to Sh1.06 billion. That stake is now worth Sh289 million, meaning the former taxman has lost a whopping Sh772 million in paper wealth.
The estate of the company’s former chairman James Gachui, which is the majority shareholder, has since listing lost more than Sh700 million and is now holding on to Sh290 million worth of paper wealth. Mr Gachui’s stake is now held by his wife Anne Karimi Gachui following his demise in 2010.
Mr Njoroge, who also served as managing director of electricity producer KenGen, has seen the value of his stake fall to Sh129 million from Sh771 million — though he has sold some of the shares in open trading.
Analysts do not anticipate a quick recovery of the share price, indicating that the founders must prepare to hold their positions in the long term to avoid actualising the losses.
“It may take much longer for TCL (TransCentury Limited) to recover. For someone looking at the long term, it is a good time to enter but in the short term I see it staying below Sh15,” said Eric Munywoki of Old Mutual Securities.
Plans by the company to raise additional cash through a rights issue have further dampened the stock price as investors fear probable losses in the looming dilution while others simply await details of the offer.
“The price has come off quite significantly and is likely to remain so till there is some clarity on the rights issue,” said Eric Musau of Standard Investment Bank.
TransCentury says it plans to use proceeds of the cash call to repay the $80 million (Sh7.5 billion) convertible Eurobond it issued in 2011.
Holders of the bond had an option of converting the debt to equity but Mr Musau does not expect them to exercise this option given the current low share price and the ongoing depreciation of the shilling.
The bond conversion was to be done at Sh47.20 per share if executed this year and at Sh49.60 next year. The conversion was also to be done at a fixed foreign currency rate of Sh80.50 to the dollar.
The shilling closed Thursday’s trading at 96.50 units to the dollar.
As at end of last year TCL had accrued Sh1.2 billion interest burden from the bond that is expected to rise to Sh1.7 billion next year.
“To report a profit in 2016 the firm will need to have done over Sh3 billion in earnings before interest, taxes depreciation and amortisation (EBITDA),” said Mr Munywoki.
TransCentury is said to be looking at other financial options to sort out its books, including taking a loan from a local bank. Mr Munywoki reckons that most shareholders may avoid the cash call and even try to exit before it is made, fearing the impact it may have on the share price.
The rights issue will see shareholders pump in nearly double the company’s current market capitalisation of Sh3.8 billion — exposing investors who sit out to significant dilution.
Details of the rights issue, including the expected gross proceeds and pricing of the new shares, are expected to be published after approval of the increase in the share capital.
The company has, in preparation for the cash call, announced plans to double its authorised shares to 1.2 billion from the current 600 million units.
Jimnah Mbaru, a founder, has traded 9.4 million shares equivalent to a 3.3 per cent stake he held in February and quit the list of top owners. It remains unclear whether Mr Mbaru actually sold the shares or transferred them to another entity or person.
Mr Mbaru joined Ndung’u Gathinji, who is no longer listed as one of the top shareholders of TransCentury and who held a 4.1 per cent stake at the time of its listing in 2011.
Major shareholders in the company include the chairman Zephaniah Mbugua with a stake worth Sh181 million down from Sh832 million at listing.
Since its listing TCL has exited three of its investments contrary to the pre-listing period when it completed nine acquisitions.
TransCentury was founded as an investment group and popularised the pooling of funds for investment in Kenya through what is commonly referred as chamaas. It has been the poster child of investment groups in East Africa.
The recent plummeting of the firm’s share price followed a Sh2.2 billion loss it made last year and attributed to the sale of its 34 per cent stake in railway operator Rift Valley Railways (RVR). The fair value loss stood at Sh1 billion.
TransCentury had pumped Sh2.9 billion in RVR over eight years, beginning 2006, pushing its shareholding to 34 per cent. The stake was, however, valued at Sh4.8 billion, forcing it to recognise the book loss.
Analysts, however, said TCL’s core subsidiaries, East African Cables Limited and Civicon, are in healthy state with positive outlooks.
Some of the projects being undertaken by the company include a 35MW power plant in Menengai valued at Sh6.5 billion. TCL has signed a power purchase agreement with Kenya Power at eight cents per Kwh while it will be buying steam at three cents per Kwh, giving it a net tariff of five cents per Kwh for 25 years.
The company management has also announced that it has been awarded power and transport projects across the region (Kenya, Tanzania, Rwanda, DRC and Mozambique), which are valued at over Sh200 billion.