Regional microlender Real People is asking its bond holders to convert the debt into equity even as it eyes a new capital injection in January in a bid to shake off an auditor’s warning of its imminent collapse.

Auditor Deloitte & Touche has cast doubt on the ability of the South African microfinance institution to continue its East African operations due to accumulated losses over the past two years.

Real People which operates 10 branches and seven satellite offices in Kenya, three branches in Uganda and two branches in Tanzania, has accumulated Ksh444 million ($4.4 million) in losses.

In the year ended March, the firm, ranked the largest microlender in Kenya as at 2015, reported a Ksh591 million ($5.9 million) loss on the back of 2016’s Ksh93.7 million ($937,000) loss.

Real has increased debt collection efforts to bring down its non-performing loan portfolio which stood at Ksh1.9 billion ($19 million) as at end of March.

Impairments were the lender’s highest expense at Ksh929 million ($9.2 million) underlining its struggle with loan defaults.

“By the time of concluding the audit, we had not obtained sufficient evidence that adequate financing arrangements had been concluded that will reasonably guarantee the ongoing operations of the business to meet its future obligations as they fall due,” says the Deloitte report.
Real People, however, holds that it is a going concern and is working on refinancing the business.

Debt equity swap

It is negotiating with some of its Ksh1.63 billion ($16 million) bondholders to convert the debt into equity and lower its interest expenses which stood at Ksh300 million ($3 million) as at March.

Part of the Ksh270 million ($2.7 million) bond matures in August next year, with the remaining Ksh1.36 billion ($13.6 million) falling due in 2020. The bondholders earn a return of 13.65 per cent on the debt.

Real People said it expects to raise capital in January without detailing how this will be done. It may be yet turn to its parent company in South Africa for a cash injection to remain afloat.

Real People has also sought to recruit Kenyan managers to spearhead its turnaround.

It has recently witnessed some top-level resignations with its chief executive, Daniel Ohonde, exiting last December and the chief financial officer, one month earlier.

Four of five Kenyans who served in its top management have left leaving the C-suite dominated by South Africans.