Electrical and communications wires manufacturer East African Cables has hired a consultant to help in spacing out its Sh3.06 billion debts in a sign of the heavy load that the borrowings are exerting on the company.
Group Chairman Michael Waweru says in the latest annual report that the Board and management are working jointly with the debt restructuring consultant and the lenders to convert short term loans into maturities of at least five years.
“The Board has engaged the services of a debt restructuring consultant who is working with the management and our lenders to come up with a workable solution,” said Mr Waweru.
The consultant is expected to conduct independent review of the business and advise the management and the lenders to facilitate refinancing of existing loans.
The group is also in talks with its main lenders to restructure the entire short-term portion of bank loans amounting to Sh3.06 billion.
“The discussions are aimed at restructuring the short-term loans into a five-year term loan including a one-year moratorium on principal debt, and obtaining a new unfunded credit facility of at least Sh1.36 billion to be used in working capital financing.”
According to the group’s financial report, a big chunk of this loan is owed to Standard Chartered Bank of Kenya (Sh2.26 billion). The dollar portion is priced at nine per cent while the shilling denominated one attracts 14 per cent interest.
Standard Chartered Bank of Tanzania is also owed Sh478.3 million, which is dollar-denominated and priced at 6.5 per cent. Others are Ecobank Kenya (Sh223.2 million), under-receivership Chase Bank (Sh314.9 million) and Credit Bank (Sh141 million) all priced at 14 per cent.
The group incurred a loss of Sh663 million during the year ended 31 December 2017, marking the third straight year in losses. Its current liabilities exceeded current liabilities by Sh1.59 billion mainly due to bank loans held by the group amounting to Sh3.06 billion which are current and due in 2018.
“The consultant was hired by EAC, purely to have a second look at business prospects and projects as well as the most optimal debt structure. The next step is to negotiate with our financiers, a process that is ongoing,” said the East African Cables CEO Paul Muigai on Tuesday.
But more worrying to the cable maker is that it has already defaulted on some debts. As at end of last year, the group and the company had overdue loans amounting to Sh2.2 billion and Sh1.7 billion respectively.
“These loans are due and payable on demand and in the event that the lenders recall the loans due, the group and company do not have the ability to settle these loans in the normal course of business, “the company notes in the financial report.
The negative working capital and losses made its external auditors, KPMG cast doubt on the group’s and company’s ability to continue as a going concern.
The group has offered for sale three properties located in Nairobi and Dar es salaam with a carrying value of Sh640 million and hopes to use the proceeds to boost working capital.