Mortgage financier HF Group has offered land and houses to settle a Sh1.59 billion loan owed to international investment fund Crescent Finco LLP.
The deal has seen the two firms form a joint investment fund, which will hold custody of the assets, generating returns that will help the financier recover its money.
HF said in its 2019 annual report it has transferred Sh2.38 billion assets into the joint fund, in form of housing units (Sh1.768 billion), land (Sh553.35 million) and Sh60 million in cash.
With the debt conversion giving Crescent a share of Sh1.59 billion in the assets transferred to the fund, HF’s stake is worth Sh788 million in the new vehicle.
The mortgage lender was looking to restructure the loan due to its high interest charge of 18.5 percent, which was a primary cause of high financing costs that were eating into the lender’s profitability.
The debt was contracted in 2017 and 2018 in two tranches by HF group’s fully owned subsidiary HF Development and Investment Limited, which was formerly known as Kenya Building Society.
“In June 2019, HFDI Limited, a subsidiary of HF Group, formed a limited liability partnership property fund with Crescent Finco LLP named Housing Finance Development and Investment LLP. Crescent Finco had lent HFDI Limited Sh1.59 billion, which it converted into an investment in the property fund,” said HF in its annual report.
“The assets owned by the property fund will be realised progressively and the proceeds distributed to the partners in accordance with the partnership agreement. Crescent Finco will receive cash distribution first until its investment plus a return of 12 percent is fully paid. The residue will be distributed to HFDI Limited.”
As a result of the transfer of housing units to the new joint investment, HF saw the outstanding value of its inventory of housing units fall from Sh2.54 billion to Sh514.4 by the end of last year.
The lender also repaid fully two other expensive loans, which alongside the debt from Crescent Finco had raised concerns that HF was being forced to pay a premium to access credit.
HFDI has now settled fully a Sh454 million loan owed to Shelter Afrique, which had been taken up in 2015 at 18.7 percent, and a short term loan facility of Sh516.3 million taken up in 2017 from fellow listed lender NIC Bank (now NCBA) #ticker:NCBA at 14 percent.
The Shelter Afrique loan was for the development of housing units at Komarock Estate in Nairobi’s Eastlands.
Overall, the lender cut its total debt from Sh10.4 billion to Sh5.8 billion during the year.
Last year, HF cut its net losses by 81.6 percent to Sh110.1 million despite a fall in income, helped by reduced operating costs.
The fall in costs was largely supported by a 12.1 percent or Sh149 million drop in staff costs while loan loss provisioning was also cut by seven percent to Sh350.4 million.
Following the downturn in the local property market that has seen many developers struggle to move units, HF has shifted from real estate project financing and development to issuing end-user mortgages to customers.
Industry data showed HF opened 2019 with 5,079 mortgage accounts valued at Sh33.7 billion. Some 518 accounts had non-performing loans valued at Sh5.11 billion at the start of last year.