Centum Investments Company plans to repay Sh2.3 billion worth of debt using part of the proceeds from the sale of its stake in Sidian Bank to Nigeria’s Access Bank.
This is part of the Nairobi Securities Exchange-listed firm’s effort to become debt-free at the group level, a move that will see only subsidiaries take loans for their projects.
“The company’s strategy is to completely de-gear the balance sheet by the financial year ending March 2024, and has committed to applying part of the proceeds (Sh2.3 billion) from the sale of its investment in Sidian Bank to debt repayment in [the current financial year],” Centum said in a statement.
The company had borrowings of Sh4.1 billion as of March. Its subsidiaries on the other hand had debt amounting to Sh16.4 billion which is secured by their respective assets and cash flows.
Centum previously sourced funding for its various businesses but changed tack to allow the subsidiaries to take loans they can repay without recourse to the parent firm.
The investment firm in June signed an agreement to sell its entire 83.4 percent stake in Sidian Bank to Access Bank for Sh4.3 billion.
The proposed transaction is going through regulatory approvals.
After the partial debt payment, Centum will be left with about Sh2 billion it could reinvest in other assets.
One of the company’s current priorities is using part of the proceeds it receives from transactions to investing more in income-producing securities including government bonds.
Centum will sell Sidian Bank at a loss compared to its original investment but at a major premium compared to the subsidiary’s current valuation.
The investment firm spent a total of Sh4.76 billion to get the 83.4 percent stake in the lender whose growth was slowed down by the outbreak of the Covid-19 pandemic and the introduction of interest rate controls in September 2016.
Centum's ownership in the bank is now valued at Sh2.77 billion, representing a premium of about 55 percent.
Becoming debt-free at the parent company level is part of the company’s strategy of reducing risk and building investor confidence after receiving feedback that it was carrying too much debt.
Its share price had dropped to a record low of Sh8 on July 27 and from there gained 15.2 percent to close at Sh9.22 on Friday.
Centum has a market value of Sh6.1 billion, which is a fraction of the Sh41.3 billion book value it reported as of March.
The company narrowed its net loss by two percent to Sh1.33 billion in the year ended March as weaker performance in its Two Rivers real estate asset offset improved profitability in other divisions.
The investment firm had posted a net loss of Sh1.36 billion the year before.
