CIC gets Sh425m interest relief on Co-op Bank loanTuesday April 19 2022
CIC Insurance Group #ticker:CIC last year obtained a moratorium on interest payments on a Sh3.4 billion loan owed to Co-operative Bank #ticker:COOP , saving the underwriter Sh425 million in finance costs in 2021.
The insurer, which has secured the credit facility using a 200-acre parcel of land it owns in Kiambu County, said it will resume its triannual interest payments in October this year.
The five-year loan matures in September 2024 and carries a fixed interest rate of 12.5 percent, with the principal due in a single bullet payment at the end of the period.
“During the year, the company obtained a moratorium of repayment of interest until October 2022, hence no interest repayments have been made during the year,” CIC says in its latest annual report.
“The loan is secured by Kiambu land … an investment property held by the group whose fair value at December 31, 2021, was Sh3.8 billion.”
The moratorium on interest payment is part of the accommodation Co-op Bank has given the insurer to give it more financial flexibility. The loan was previously secured — in addition to the land — by cash deposits and corporate guarantees but these have since been dropped.
Co-op owns a 24.8 percent stake in the insurer. The two institutions also share common ownership in the form of Co-op Holdings Co-operative Society, which holds a stake of 64.6 percent in Co-operative Bank and an indirect aggregate interest of 40.8 percent in CIC Group.
The loan was part of the funds that the insurer mobilised to settle its Sh5 billion corporate bond in October 2019.
CIC had earlier tied the repayment of the loan to the sale of the land, which it had initially sought to dispose of as a block, but recently opted to subdivide into plots for easier sale.
Land sale strategy
Dividing it into pieces and selling to different buyers is not just likely to make the disposal easier, but would also help the insurer fetch a higher price overall —assuming the whole land is ultimately sold.
A quarter-acre plot in the area is going for Sh7.5 million, implying that the insurer could raise up to Sh6 billion from the new selling strategy.
CIC said it expects the sale of the plots to take up to two years, which if met, would allow it to raise the principal owed to Co-op Bank well before the loan maturity date of September 2024.