The Sh2.8bn debt write-off request that prompted Equity to go after TransCentury
East African Cables CEO Paul Muigai (right) engaging EAC’s Chairman Dr MG Waweru (centre) and TransCentury Plc Group Chairman Shaka Kariuki (left) during EAC’s 58th AGM. FILE PHOTO | NMG
Equity Bank Kenya declined a request to write off over Sh2.8 billion ($20 million) debt owed by TransCentury Plc and instead placed the firm in receivership, in a drastic turn of fortune for what was once Kenya's most promising publicly listed investment firm.
In a double blow to TransCentury, which has just come from a failed rights issue, Equity has placed its subsidiary East African Cables Limited under administration.
Administration offers East African Cables the chance to pay off its debt and avoid liquidation while receivership will likely lead to the stripping of Transcentury assets to pay off creditors.
“From Sh538 million funds raised (in the rights issue), the client proposed to pay down Sh108 million to our debt and requested significant discounts of over $20 million and a new restructure over the facilities. This proposal was reviewed and considered unacceptable,” Equity said in documents seen by the Business Daily.
The lender disclosed outstanding balances of Sh4.803 billion ($34.3 million) from TransCentury from a dollar-denominated facility and Sh1.948 billion local currency loan owed by East African Cables.
The beleaguered NSE-listed firms are joint at the hip. TransCentury controls a 68.4 percent stake in East African Cables through its 100 percent ownership of Cable Holdings —the largest shareholder.
Both TransCentury and East African Cables have been operating as going concerns and had defaulted on loans advanced to them by banks and other creditors.
This had left the two entities on the brink should their creditors call the maturities.
At the end of December 2021, TransCentury’s current liabilities outstripped current assets by Sh12.933 billion while those of East African Cables were above current assets by Sh751.68 million in the same period.
“As at 31 December 2020, the Group had outstanding loans of Sh3.314 billion respectively for which they had breached the loan covenants with the lenders. The breach had not been remedied,” says an audit of TransCentury books covering the year to December 2020.
At the end of the same period, TransCentury had bank loans amounting to Sh8.34 billion, including Sh3.95 billion in long-term facilities and Sh4.39 billion in short-term loans which were payable within 12 months.
TransCentury had taken a Sh2.7 billion ($20 million) US dollar facility from Equity which was initially due on January 5, 2018.
The facility was refinanced in May 2018 to a lump sum payment of Sh1.399 billion ($10 million) by October 31, 2018, with the balance to be repaid over four years. The restructuring facility had a Sh349.7 million ($2.5 million) principal and accrued interest every year while it was secured through security corporate guarantees by Cable Holdings, TransCentury Mauritius Holdings Limited and the shares of TransCentury in subsidiaries- EA Cables, Avery East Africa and TransCentury Mauritius.
The Equity facility attracted interest rates set at the six-month Libor rate plus 8.0 percent, subject to a minimum rate of 10 percent per annum on reducing balance.
On its part, East African Cables had outstanding balances of Sh1.814 billion from an Equity facility as of the end of December 2021.
Additionally, the cable manufacturer had facilities of Sh158.5 million from Ecobank Kenya, Sh283.4 million from SBM Bank Kenya and Sh561,000 (Tshs 9.589 million) from Mwanga Hakika Bank (Tanzania).
East African Cables had outstanding loans of Sh3.99 billion from which they had breached the loan covenants with the lenders.
The firm, however, restructured its Ecobank facility after the period, with new terms handing it a new five-year repayment period.
TransCentury and East African Cables booked net losses of Sh1.682 billion and Sh299.72 million as of the end of December 2021.
East African has been banking on the sale of idle assets to unlock new capital while TransCentury undertook a rights issue earlier this year to raise new cash to pay down debt, unlock working capital and meet the cost of auditing its 2021 books.
The rights issue which closed in early April nevertheless underperformed, generating Sh828.1 million against a target of Sh2 billion.
Part of the proceeds from the undersubscribed rights issue arose from a shareholder loan debt to equity conversion by Kuramo Capital, TransCentury’s largest shareholder.
Kuramo had a Sh1.9 billion shareholder loan in TransCentury which it had agreed to subordinate in 2020- ranking it behind that held by secured lenders.
Following the placing of the pair in administration and receivership, the companies’ directors’ powers of dealing with the business and the assets of the firms have ceased.
Muniu Thoithi and George Weru of PwC have been appointed joint receivers and managers.
The Editor's note: The earlier story had indicated that TransCentury had been put under administration while East African Cables was in receivership. It has now been updated to show the correct position.
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