Shelter Afrique seeks to avoid bond default

Monday April 16 2018

Ujenge Palm Estate, an affordable housing

Ujenge Palm Estate, an affordable housing project undertaken by a local developer in Uganda, with funding from Shelter Afrique and Ecobank. FILE PHOTO | NATION 

By ALLAN OLINGO
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Pan-African housing financier Shelter Afrique has written to the Nairobi Securities Exchange seeking permission to restructure its debt to avoid a possible default.

Shelter Afrique could default on its $50 million corporate bond listed on the NSE if it fails to get the bond holders’ consent to reschedule payments.

It wrote to the NSE seeking permission from the holders of the bond it issued five years ago as part of a planned restructuring of a $130 million debt it owes 10 development finance institutions (DFIs).

Failure to get the approvals at a planned extraordinary meeting, the lender said, would plunge it in deeper financial stress, “effectively risking a default on repayments to noteholders.”

Shelter Afrique said that the regulatory notice that both repayments to the bondholders and the debt owed to the DFIs would be at risk default should the bond holders reject its debt restructuring proposal at the upcoming extra-ordinary meeting scheduled for May 10.

The firm listed $50 million five-year medium-term unsecured note on the NSE in 2013 with a September 28, 2018 maturity date. One tranche of $42.3 million has a coupon rate of 12.75 per cent while the other $7.7 million is priced at 11 per cent.

Shelter Afrique wants the holders of the $6.9 million 12.75 per cent fixed note, the $1.25 million 182-day bills and the 1.5 per cent per annum floating rate notes due in 2018 to enter a “no objection” to its delaying payments.

They will also need to waive the right to declare default.

Restructure

“The purpose of this solicitation is to seek a ‘no-objection’ from noteholders to enable Shelter Afrique to enter into a Standstill Agreement and to request Noteholders to waive the right to declare an event of default. During the standstill period, Shelter Afrique proposes to restructure its loans and advances.

Upon completion of the restructure, Shelter Afrique is expected to have more cash flow available to manage its operations that will allow the institution to resume its lending activities. Noteholders’ consents to the proposals are conditions precedent to the finalisation of the Standstill Agreement,” it said in a notice.
Mid-week, the firm’s managing director Femi Adewole was confident that they will secure the bondholders approval, that will enable the agency to cater for the bond repayments despite his firm’s financial situation.

“We are not in any danger of default on the bond payment. We were able to make the March payment on time and I am confident we will meet the September obligations. The notice is only statutory, seeking non-objection on other matters relating to refinancing of our DFI facilities,” Mr Adewole said.

The firm made its September 2017 bond payment of almost $10 million, which included the principal plus interest due.

Non-performing loans

Shelter Afrique has been in the news over the last two years over its poor financial health due to its growing non-performing loans that nearly doubled to $185 million following restatement of its non-performing loans.

In April last year, it received $5.8 million from Cameroon and African Reinsurance in April last year, following a capital call on arrears to its shareholders as it sought to remain afloat.

Then, Cameroon paid $2.3 million and Africa Re contributing $3.5 million, with Kenya, Rwanda, Nigeria and Ghana jointly pledging to inject about $47.2 million into the business to enable it finance its cash obligations and meet liquidity ratio requirements.

In January last year, the firm also turned to one of its principal shareholder, seeking a $60 million bailout from regional multilateral development bank, AfDB after it ran into a cash crisis.

Its financial problems also saw it part ways with its former managing director James Mugerwa in February last year.