TransCentury mulls over options of retiring Sh8 billion Eurobond debt
TransCentury chief executive Gachao Kiuna declined to comment on the matter. PHOTO | FILE
What you need to know:
The company has appointed a team of advisors to help it chart the way forward.
Whichever source of funding the firm goes for, it will have a major impact on its shareholders and balance sheet.
Pressure is piling on investment firm TransCentury to finalise a plan of how it will repay an $80 million (Sh8.1 billion) convertible Eurobond it floated in 2011.
The debt, due on March 25, 2016, is expected to be repaid in cash as the company’s share price has fallen significantly below the pre-set conversion target.
The Nairobi Securities Exchange-listed firm recently doubled the number of its authorised shares to 1.2 billion units from the previous 600 million units in preparation for a rights issue expected to raise cash to clear the debt.
Analysts at Standard Investment Bank (SIB) had expected the cash call to be undertaken by the end of this year, but that is now unlikely to happen.
Rights issues take weeks to conclude, with time spread between getting regulatory approval, publication and circulation of the information memorandum and receipt of funds. The TransCentury CEO Gachao Kiuna declined to comment on the matter.
A source familiar with TransCentury’s plans told Business Daily that the company has appointed a team of advisors to help it chart the way forward, indicating that it could be considering other options besides the rights issues. Whichever source of funding the firm goes for, it will have a major impact on its shareholders and balance sheet.
Going for a rights issue means TransCentury will be asking shareholders to pump in four times its market capitalisation of Sh1.9 billion, heralding a significant dilution.
TransCentury has so far issued 280.2 million shares held by some 1,600 investors, representing 47 per cent of the 600 million authorised units.
The cash call will test investors’ appetite for the stock that has lost 86 per cent since listing in 2011 at an offer price of Sh50.
The company could also offer better conversion terms to the bondholders to entice them to take shares instead of cash. At the current price of Sh7 apiece, the TransCentury stock is way below the conversion target set at between Sh40 and Sh49.60.
The exchange rate is also fixed at 80.49 units to the dollar, but the Kenyan currency has weakened to the current 102 units to the greenback, making the conversion option on the original terms even more expensive.
It is these major deviations in the two factors that has seen the firm opt for the rights issue ahead of the bond’s maturity on March 25, 2016. TransCentury could also sell a stake to a strategic partner or take on new debt to pay off the dollar-denominated bond.
The bond has an annual interest rate of six per cent besides an additional six per cent to be paid at the end of its life to investors who will not have converted their portions into shares.
Only a small portion of the debt was converted into shares amounting to 6.9 million units in 2011, with the investment firm having set aside a total of 150.9 million shares to accommodate a potential full conversion.
Conversion of the debt into equity would have eased pressure on TransCentury, which has little cash on hand.
The firm in the half year ended June had a negative cash flow of Sh513.8 million, with most of its assets held in the form of property, equipment and receivables. TransCentury made a net loss of Sh676.1 million in the half-year ended June, narrowing the negative earnings from Sh1.6 billion the year before.
Its sales grew five per cent to Sh5.2 billion but expenses –including finance costs— rose by a larger margin. The firm is betting on public infrastructure projects to grow its earnings by boosting demand for its electrical cables and engineering works.
TransCentury has also ventured into power generation projects with partners.
