Investment firm TransCentury has restructured debt worth Sh1.6 billion owed by its subsidiary East African Cables.
In a joint statement, the companies said they had made a series of changes in EA Cables' liabilities without giving specific details, including whether TransCentury will take more shares in the cables manufacturer.
It was also not immediately clear whether the investment firm has forgiven part of the debt owed by the subsidiary.
The deals are meant to alleviate the cable manufacturer’s heavy debt burden which has put a strain on its operations and hurt its ability to deliver on new contracts.
“The transaction that has a material impact on the capital structure of the company, has resulted in reduction of debt by Sh1.65 billion representing 44 percent of total debt,” reads the joint statement.
The life of EA Cables’ remaining debt has also been extended to 10 years and a two-year moratorium on principal repayment and six months on interest payments put in place.
The parties said the moves will result in over 80 percent reduction in debt service cash requirement in the next two years.
TransCentury owns a 68.38 percent stake in EA Cables and both companies are listed on the Nairobi Securities Exchange (NSE).
According to the latest available disclosures, the cables manufacturer had total debt of Sh5.1 billion in the year ended December 2017.
This included bank loans of Sh3.4 billion, a loan of Sh446.2 million from TransCentury and deferred tax liability of Sh346 million.
EA Cables in April 2014 took an unsecured loan of $4 million (Sh400 million) from TransCentury with a plan to repay the debt in 20 months at an interest rate of 9 percent per annum.
The loan was converted to long-term debt and interest continues to accrue at 9 percent per annum. In October 2015, the loan was subordinated to bank borrowings and reclassified to long-term liabilities.
TransCentury itself has a Sh370 million loan from its major shareholder Kuramo Capital, with most of the debt secured by millions of EA Cables shares.
The parent company says the debt restructuring will help to grow the subsidiary’s business.
“This will allow the business to realise the pent-up value in the current contracted order book that is in excess of Sh5.2 billion and effectively service the even bigger non contracted retail market order book, where East African Cables is a household name,” the statement said.