Private equity firm Kuramo Capital could raise its stake in TransCentury to 83 percent through the conversion of a shareholder loan to equity via the company’s rights issue, which reopens on March 20.
TransCentury shareholders are expected to vote on the proposed shareholder loan conversion at an extraordinary general meeting on March 16.
Kuramo has resorted to using the debt conversion to pay for its share of entitlement in the reopened rights issue offer instead of injecting new cash into the business.
All shareholders are expected to have a third stab at the offer with those snubbing the cash call set to undergo a massive dilution.
“Shareholders who transfer, or who do not exercise their rights granted under the reopened right offer, and assuming that all the new shares are fully subscribed, will suffer a dilution of 83 percent to their pre-rights proportionate ownership. Their voting rights will also decrease by 83 percent,” TransCentury told shareholders in an updated circular.
The infrastructure investment company has, however, not specified the quantum of the loan to be converted to pay for the rights issue.
An analysis by the Business Daily shows that Kuramo will raise its stake in TransCentury to 83.7 percent from 25 percent currently should the conversion involve its entire shareholder loan of Sh1.9 billion.
The switch would see Kuramo take up 1.79 billion shares of the 1.876 billion units on offer based on the rights issue price of Sh1.10 per share.
The private equity firm is not expected to buy out minority investors in the company having applied and obtained exemptions from the Capital Markets Authority.
Despite the shareholder loan conversion not being representative of new capital injection to the company, TransCentury says the transaction is aligned with the right issue’s objectives of debt reduction and enhancement of working capital.
“The conversion of shareholder loans into shares will reduce TransCentury’s debt profile,” the company said.
“Together with the proceeds of the rights offer, TransCentury will have the leverage to further reduce the debt at the group level.
“This will save a significant amount in finance costs incurred by the business annually and regularise the group’s loan position.”
The reopened rights issue is expected to run until March 31 with TransCentury disclosing the results of the issue on April 7.
The infrastructure investment firm had initially opened the rights issue from December 29 to January 23 before extending the offer to February 3 having failed to raise the target of Sh2 billion in new capital.
Proceeds raised in the rights issue are expected to be channelled towards defraying statutory obligations, creditors and repaying part of group debt while unlocking additional working capital to finance TransCentury’s operating businesses.
