Shelter Afrique seeks bondholders’ help to avoid default

Pan-African housing financier Shelter Afrique said on Tuesday it will seek permission from the holders of a bond it issued in 2013 to reschedule payments as part of a planned restructuring of a Sh13 billion debt it owes 10 development finance institutions and safeguard against a possible default.

The agency warned that failure to get the bond holders’ consent at a planned extra ordinary meeting in Nairobi would plunge it into deeper financial stress, effectively risking a default on repayments to noteholders that are due in September.

Shelter Afrique listed Sh5 billion five-year medium-term unsecured note on the Nairobi Securities Exchange (NSE) in 2013 with a September 28, 2018 maturity date.

One tranche of Sh4.23 billion has a coupon rate of 12.75 per cent while the other Sh760 million is priced at 11 per cent.

Shelter Afrique wants the Sh699.55 million 12.75 per cent fixed note and Sh125.44 million 182-day bills and 1.5 per cent per annum floating rate notes due in 2018 holders to enter a “no objection” to the agency delaying payment to selected lenders. They will also waive the right to declare default.

“The purpose of entering into the standstill agreement is to allow Shelter Afrique to preserve its existing capital and liquidity levels by deferring certain principal repayments on outstanding loans to enable it continue to run its operations and pay noteholders,” the agency said in a notice.

Shelter Afrique owed the 10 financiers a cumulative Sh13 billion (about $129 million) as at October last year.

READ: Shelter Afrique now kicks off search for debt-fixing director

Principal due without the standstill agreement with the lenders amounts to about Sh6.6 billion ($65.63 million) and is expected to more than halve to Sh2.1 billion or $21.1 million with debt restructuring.

The list of financiers includes European Investment Bank , German Development Bank, French Development Agency, African Development Bank, West African Development Bank, Ghana International Bank, and the Islamic Corporation for the Development of Private Sector.

The troubled housing financier’s decision to seek a compromise with its financiers comes as it prepares to meet bondholders’ claims in less than six months.

On Tuesday managing director Femi Adewole exuded optimism that the Shelter Afrique would successfully cater for the bond repayments despite the seemingly dire financial situation.

“We are not in any danger of default on the bond payment. The March payment was made and on time and the September payment will be made,” Mr Adewole said.

“The notice is only statutory, seeking non-objection on other matters relating to refinancing of our DFI facilities,” he said.

Questions, however, remained as to whether the company has the financial muscle to meet the huge financing needs.

Shelter Afrique suggested in the regulatory notice that both repayments to the bond holders and the debt owed to the DFIs would be at risk of non-payment if bond holders fail to adopt its debt restructuring proposal at the upcoming extra-ordinary meeting. Defaults typically occur when a bond issuer has run out of cash to pay its bondholders.

This problem is, however, often resolved by a “restructuring” — an agreement between the issuing agency and its bondholders to change the terms of a debt — rather than an outright default.

A default by Shelter Afrique would be the first at the Nairobi bourse outside the one by collapsed Chase Bank.

Such a default would focus attention on the moribund corporate bond sector which has not seen new issues since the collapse of Chase Bank.