TransCentury chief executive Gachao Kiuna during a past interview. FILE
What you need to know:
Firm leverages its East African Cables stake as it targets joint ventures for growth.
Infrastructure investment company TransCentury has taken out a further Sh450 million loan from its credit line with Equity Bank, raising the total amount drawn so far to Sh2.3 billion.
TransCentury made the disclosure in its latest annual report, which also revealed that it used its shareholding in East African Cables (EAC) as collateral for the debt.
TransCentury has announced an intention to raise its stake in EAC, in which it is already the majority shareholder.
Earlier this year the company announced an intention to buy out private equity’s fund Aureos East Africa’s stake in cables firm through a share swap. East African Cables produces electricity and telecom cables.
The loan was taken by TransCentury’s subsidiary Cable Holdings, in which Aureos East Africa has a minority stake of 5.2 per cent.
“Cable Holdings has given a guarantee and indemnity and supported a pledge of its shares in East African Cables to secure borrowings by Trans-Century Limited from Equity Bank Limited,” said the firm in the annual report.
Cable Holdings is a subsidiary of TransCentury that controls a 64.8 per cent stake in EAC.
The stake is valued at Sh2.4 billion based on the current trading price of Sh14.8 per share, covering the Sh2.3 billion debt.
The Equity Bank loan was Sh1.9 billion in 2012, meaning that it leveraged its EAC stake to borrow an additional Sh450 million from the bank last year. The cash is expected to be spent on closing acquisition and joint venture deals in the region.
For Equity Bank, the move to advance large loans is in line with its strategy of reducing reliance on its founding model of high-volume low-value loans to retail borrowers.
The bank last month advanced Sh3.8 billion to owners of Nairobi’s Village Market who are expanding the shopping mall. Other big-ticket loans advanced by Equity in the past few years include Sh5.6 billion lent to Kenya Power and Sh1.5 billion to Rift Valley Railways.
Nearly half of the bank’s outstanding loans are now held by small- and medium-sized firms, with the lender aggressively growing its presence among big corporate borrowers.
Lending to big companies is ordinarily more lucrative since it has relatively few default rates and lower administration costs.
TransCentury said that it expects to complete its buyout of Aureos’ minority interest in Cable Holdings at the end of this month, giving it greater control of the cable manufacturer.
Aureos will cede its stake in EAC in exchange for an undisclosed number of TransCentury’s stock in the share swap transaction.
Post-transaction, TransCentury will have an effective 68.3 per cent stake in EAC, up from the current 64.8 per cent.
EAC is one of TransCentury’s key subsidiaries, whose key customers include Kenya Power and contractors wiring homes and office blocks.
TransCentury is increasingly focusing on its power and engineering divisions after exiting the transport business following the recent disposal of its 34 per cent stake in Rift Valley Railways for Sh3.8 billion.
The firm incurred a Sh1 billion loss from the divestiture and its net profit for the year ending December is set to decline materially from the Sh626.4 million it earned in 2013.
Its share price has remained unchanged over the past six months at Sh24.2.
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