CIC Insurance Group #ticker:CIC took a last-minute Sh4.5 billion loan from its significant shareholder Co-op Bank #ticker:COOP to help repay its Sh5 billion corporate bond on October 2, 2019.
The insurer has disclosed details of how it financed the debt settlement in its latest annual report.
Co-op Bank, which has a 24.8 percent indirect stake in CIC, wired the funds a day before the bond’s maturity date.
“The company acquired a loan facility of Sh4.5 billion from Co-operative Bank, a related party on October 1, 2019 at a rate of 12.5 percent with a tenure of five years,” the insurer said in the report.
“The loans were obtained mainly to enable the company to repay the corporate bond which matured on October 2, 2019.”
CIC says the principal amount will be paid at the end of the loan term while interest will be paid three times a year in a structure aimed at easing pressure on the insurer’s cash flows.
The bank secured the loan using CIC land, fixed deposits and a corporate guarantee.
The listed underwriter is the latest insurer to refinance its corporate bond after UAP Holdings took a Sh2 billion loan from Stanbic Bank to repay bondholders in July last year.
CIC’s corporate bond was issued on October 2014 and had a fixed interest rate of 13 percent per annum.
The insurer will save some Sh87 million in annual interest expenses, including the impact of refinancing the bond with Co-op Bank’s cheaper facility at the interest rate of 12.5 per cent.
CIC had initially planned to settle the bond using proceeds from sale of its 712 acres of freehold land that dragged, prompting it to take the loan from Co-op.
Sale of the land holdings in Kajiado and Kiambu counties, if successful, will enable the insurer to strengthen its balance sheet.
The company could get upwards of Sh10 billion from the land transactions.
CIC has carried the land holdings at cost, meaning that the sale will result in substantial gains in line with appreciation of land over the years.