Centum mulls T-bonds to boost cashflow, cover losses
Saturday June 11 2022
Centum says it has opted to increase its investments in market securities, after its Sidian Bank acquisition failed to generate recurrent income in dividends. PHOTO | FILE
Centum Investments Company is considering re-investing proceeds of the sale of its shares in Sidian Bank in Treasury bonds in an attempt to recover losses incurred on the transaction and improve cash flow.
Last week, the firm, which is listed on the Nairobi Securities Exchange (NSE), announced it has sold 83.4 percent of its shares in Sidian Bank to a Nigerian lender –Access Bank Plc – in a transaction valued at Ksh4.3 billion ($37.06 million).
The deal could be viewed in two aspects. On one hand, Centum gained considering that the market value of the third tier lender had fallen to as low as Ksh2.7 billion ($23.27 million) by September 2021.
But the proceeds from the share sale compare unfavourably to the initial investment of Ksh4.7 billion ($40.51 million) translating to a loss of Ksh400 million ($3.44 million)
“We never made a gain against the original investment. So for us it has been an issue of value recovery.
“The option we had was to stay on board and put in more capital or exit and get back our capital and redeploy it,” the group’s chief executive James Mworia told The EastAfrican in an interview last week.
“Every year we are required to revalue the bank. The revaluation is not tied to cost; it depends on where the market is and what the share value of the bank is,” said Mr Mworia
“So at the end of March last year (2021) we were carrying it (Sidian Bank) at Ksh2.4 billion ($20.68 million) and then at the end of September we were carrying it at Ksh2.7 billion ($23.27 million). So when you revalue the bank below cost that goes through your profit and loss account.”
“We have very good assets but they are not generating cash so we want to exit from those assets at a premium to more cash generating assets,” he added.
Centum acquired Sidian Bank (formerly K-Rep Bank) in 2014 as part of a basket of its private equity investments as the group pursued acquisitions that could guarantee high returns for shareholders.
But the bank has not lived to its expectations by failing to generate dividends for the past seven years.
“Sidian Bank is a good asset. It is growing but it is not paying dividends and it is not contributing to the cashflows of the company so our strategy has been to improve these kind of assets, exit them and redeploy the capital to more cash-generating assets,” said Mr Mworia
He said the objective is to boost cash flows through opportunities in the bond and stock markets.
“You know valuations have come down and so there are a lot of opportunities in the market.”
Among Kenyan firm’s existing PE portfolio companies are Sidian Bank, Isuzu East Africa, Longhorn Publishers, NAS Servair and ACE Holdings.
In 2019 Centum completed the sale of beverages companies Almasi Beverages, Nairobi Bottlers and King Beverage Limited, realising total sales proceeds of Ksh19.6 billion ($168.96 million).
Last year, the firm said it had taken a cautious approach in venturing into new business lines and was preserving capital in government bonds to cushion against a volatile operating environment that pushed it into loss-making territory.
In 2020 Centum increased its investments in government securities to Ksh7.5 billion ($64.65 million) from Ksh4.1 billion ($35.34 million) in 2019. During the six months to September 30, 2021 it reduced its loss to $5.7 million from $17.06 million in 2020 helped by a decline in finance costs.