Troubled fashion and clothing retailer Deacons East Africa is up to Sh1.9 billion underwater, administrators of the collapsed firm have disclosed.
Creditors and shareholders of the company would have stood to get only Sh63 million if Deacons was liquidated on November 23 last year, joint administrators Peter Kahi and Atul Shah told stakeholders Tuesday while presenting a statement of affairs of the company.
The joint administrators painted Deacons in a precarious position, arguing that only a shareholders’ injection of about Sh450 million would keep the business running and help to ease its debt distress.
“To preserve value, we need to keep the engine running. In the event of liquidation, creditors are likely to lose 95 percent of their debt, with unsecured creditors likely to lose 100 percent of their debt,” said Mr Shah of PKF Consulting.
“The only significant assets available for sale are stocks, fittings and fixtures in the retail stores as well as some office equipment and motor vehicles.”
The liquidation option would heavily hit NIC and UBA banks, which are owed Sh387.55 million and Sh152.81 million respectively.
Other losers would be the Kenya Revenue Authority (Sh62.34 million), and former and current staff (Sh41.6 million).
Deacons shareholders would also lose their issued and called up capital worth Sh857.7 million.
The company’s creditors Tuesday voted to retain it under management as administrators said they had written to shareholders asking for fresh capital.
Mr Shah said they will be looking for Sh50 million to support working capital and a further Sh400 million towards debt redemption.
"We intend to call for a meeting with shareholders to find out how they would like to proceed with capitalisation of the company. If we are not going to get capital injection, it will put further strain on the business,” said Mr Shah.
The administrators say that as at November 25, 2018, the business was in Sh628 million loss, making it unattractive to potential investors or buyers.
They want to remain with eight branches and trim staff count from 153 to 60 to cut operating expenses.
According to their joint report, revenues have dropped to Sh646 million per year compared to prior years’ average of Sh2.3 billion.
In addition, creditors approved that administrators look for independent transaction advisors to help identify any potential buyers.
They hope to put up an expression of interest by March and close the transaction by end of September if any buyer comes forth.
According to Mr Shah, relying on the current flow of revenue to pay the debt would take at least 15 years before clearing the debt, a period he says may see interest payments on bank loans soar to over Sh50 million.
Among top shareholders who will be relied on to steady the company include Swedfund International Aktiebolag with a 14.03 percent stake, PinPoint Investments and Bird Diana with 8.73 percent and 7.66 percent stakes respectively.
Deacons’ top 10 shareholders own a 66.59 percent stake in the company while another 690 shareholders control 33.41 per cent.