Equity Group Holdings (EGH) Ltd has taken over more than $20 million worth of loans owed by the loss making East African Cables Ltd in a major debt restructuring plan aimed at returning the manufacturer to a strong financial footing.
The restructuring will result in the refinancing of East African Cables existing debt over a longer period to allow it plough back cash flows into the business and reduce monthly principal loan repayments.
The savings from the transaction are expected to be booked in the financial statements for the year 2019 which has been delayed until July 31.
The East African Cables, which is listed on the Nairobi Securities Exchange, is struggling with a huge debt portfolio amounting to Ksh3.55 billion ($35.5 million) on its balance sheet that has eroded its cash flows pushing it into a negative working capital position of Ksh3.27 billion ($32.7 million).
The debt, according to the firm’s annual report of 2018, is owed to several banks including Standard Chartered Bank Kenya, $25.6 million, and Standard Chartered Bank Tanzania, $5.32 million.
Other lenders are Ecobank Kenya Ltd, $1.61 million, State Bank of Mauritius, $2.85 million and Credit Bank Kenya Ltd, $38,200. The debt was due for repayment on December 31, 2018.
As a result, Equity Bank took over loans amounting to Ksh1.6 billion ($16 million) relating to Standard Chartered Bank Kenya Ltd and Standard Chartered Bank Tanzania Ltd at a discount and restructured them over a tenure of 10 years including a moratorium of two years on principal loan repayments and six months on interest repayments.
At the same time, the firm opened discussion with Equity Bank to take over and restructure over a tenure of 10 years the other loans due to Ecobank Kenya Ltd and SBM Bank Kenya Ltd amounting to Ksh161 million ($1.61 million) and Ksh285 million ($2.85 million), respectively, which were due and payable on demand. This brought the total loans acquired by Equity bank to $20.46 million.
“The Group and the company have concluded discussions with a new lender (Equity Bank) who has taken over the debt owed to Standard Chartered Bank Kenya Ltd and Standard Chartered Bank Tanzania Ltd as at December 31, 2018,” said East African Cables in its annual report of 2018.
“Discussions are progressing to complete the takeover of the loans owed to the other two lenders, Ecobank Kenya Ltd and SBM Bank Kenya Ltd. The new lender has offered the group a tenure of 10 years with a moratorium of two years on principal repayments and a six months’ moratorium on interest payments.”
In May, East African Cables announced that it had reached an agreement with SBM (formerly Chase Bank) over the restructuring of Ksh285 million ($2.85 million) debt that is due and payment on demand.
The agreement saw SBM withdraw a liquidation petition against EA Cables.
“The agreement involves a restructure of the outstanding facilities by the bank under a new long term facility and security arrangement,” company secretary Virginia Ndunge said in a public notice.
“The company has continued to actively engage all the lenders and has made significant progress to complete the remaining phase which includes debt with SBM Bank Kenya Ltd.”
The firm’s chief executive Paul Muigai could not respond to our emailed questions by the time of going to the press.
EAC has manufacturing facilities in Kenya and Tanzania and presence in Uganda, Rwanda, Burundi, Southern Sudan and Eastern Democratic Republic of Congo, through a distribution network.
The firm which is 68.38 per cent owned by Kenya’s infrastructure investment firm Transcentury Group made losses amounting to Ksh568.38 million ($5.68 million) and Ksh662.83 million ($6.62 million) in 2018 and 2017 respectively.
In 2016 losses stood at Ksh583 million ($5.83 million) compared with Ksh741 million ($7.41 million) in 2015.
In 2014 the firm made a net profit of Ksh341 million ($3.41 million).