Shareholders of Sanlam Kenya will be required to provide new capital to settle a Sh4 billion loan from Stanbic Bank, which the insurer has been unable to repay from ongoing operations amid losses.
The bank loan is among several credit facilities that the Nairobi Securities Exchange-listed firm has been grappling with in recent years.
“Sanlam Kenya Plc has restructured the loan facility, temporarily resolving the liquidity challenge as the group isn’t expected to service the interest payments of the debt facility for an additional two years until the facility is due in February 2025,” the insurer says in its latest annual report.
“Shareholder capital raise is required to retire the Sh4 billion debt issued by Stanbic Bank well ahead of the February 2025 repayment date.”
This means that the company’s shareholders including South Africa’s Sanlam Limited with a controlling 57.1 percent stake and billionaire investor Baloobhai Patel (20.9 percent) will be asked to provide new capital that will dwarf the insurer’s current market value of Sh1.1 billion.
Sanlam also has over 3,000 retail investors. Those who will sit out the capital raise will suffer major dilution in the process.
The company’s share price has dropped to trade at Sh7.9, a level that was last seen in 2005.
The debt, which has prompted the need to raise new fundraising has its origins in December 2017 when the insurer started borrowing from Sanlam Capital Markets Property Limited –a unit of its parent firm— to recapitalise its insurance businesses and finance the completion of the Sanlam Tower in Nairobi among other corporate purposes.
The firm refinanced the loan facilities with a three-year Sh3 billion credit line from Stanbic Bank, which was further restructured in 2022 into a two-year Sh4 billion facility in a move that extended its maturity date to February 2025.
Interest on the loan is referenced to a three-month average of the Government of Kenya 182-day Treasury Bill Rate plus a 4.95 percent margin, placing the effective finance cost at more than 14 percent based on the prevailing rates on treasuries.
Sanlam narrowed its net loss to Sh54 million in the year ended December compared to a Sh542.3 million net loss recorded a year earlier, with the performance driven by reduced claims and lower operating expenses.
The insurer would have posted a profit were it not for the payment of deferred taxes which inflated its total obligations to the Kenya Revenue Authority by a large margin.
Sanlam paid taxes amounting to Sh381.8 million in the review period which surpassed its pre-tax profit of Sh327.7 million.
The insurer is the latest NSE-listed firm to tap shareholders for funds after investment firm TransCentury, which raised Sh528 million in new capital in the rights issue that was concluded in April.
