Kuramo Capital is set to convert its shareholder loans into shares of infrastructure investment firm TransCentury, which has been struggling to raise Sh2 billion in a rights issue.
The private equity firm has provided loans worth Sh1.9 billion to the Nairobi Securities Exchange-listed firm, which now says it is ready to convert the debt into equity as part of the cash call, marking a rare case where a rights issue does not raise new capital.
It was not immediately clear whether Kuramo will convert the entire Sh1.9 billion into shares or just part of the liabilities.
“The board of directors have resolved and obtained the approval of the Capital Markets Authority to re-open the rights issue offer period,” said TransCentury in a statement.
“This is to allow the company to seek shareholders’ approval to enable the conversion of shareholder loans to ordinary shares as a mode of payment for rights.”
Kuramo is expected to raise its ownership in TransCentury by a large margin in the debt-to-equity conversion.
Should Kuramo convert the entire shareholder loan of Sh1.9 billion, for instance, the firm would be taking up 1.79 billion shares or more than 95 percent of the 1.876 billion units on offer in the rights issue.
The full conversion of the loans would raise Kuramo’s stake to 83.7 percent from the current 25 percent.
TransCentury said the rights issue will be reopened on March 20 to March 31, marking the second time the cash call has been extended.
The rare debt-to-equity conversion is a departure from Kuramo’s earlier statement, which indicated that it would invest up to Sh1.1 billion in the rights issue to help ensure its success.
The cash call, which has not hit its target, is priced at Sh1.1 per share.
Kuramo had earlier agreed to restructure its shareholder loans to TransCentury before the latest proposal to settle the debt by raising its stake in the company.
“A shareholder of the company, Kuramo…agreed to subordinate all shareholder loans and signed amended terms for shareholder loans amounting to Sh1.9 billion on April 22, 2022, to extend the maturity of the loans to December 31, 2022,” TransCentury said in the information memorandum published in connection with the cash call.
“On September 2, 2022, the shareholder extended the subordination to September 30, 2023.”
The move by Kuramo to convert its shareholder loan to equity is expected to deny TransCentury the much-needed cash to provide working capital to the company including funds to cater for debt repayments. The firm also owes Equity Bank Sh3.01 billion.
