By JAMES ANYANZWA

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East African Cables Plc is fighting off the second insolvency petition in about four years through the sale of Tanzania subsidiary, underlining the persistent cash flow problem facing the company and which has also weighed down the operations of its parent firm, TransCentury Group.

Disclosures through the company’s latest annual report (2022) show that the Nairobi Securities Exchange-listed company had factored in proceeds from the sale of non-operating assets amounting to Ksh350 million ($2.63 million) and financial support from its parent firm’s Ksh2 billion ($15.03 million) cash call to pay its debts and sustain operations following a persistent negative working capital position.

The two transactions which were expected to be successfully concluded by December 31, 2023, seemed to have been key to the company’s lifeline.

“The directors, having considered the initiatives above (sale of non-operating assets) and information at hand, have concluded that the going concern assumption is appropriate in the preparation of these consolidated and separate financial statements,” the company said.

Read: East African Cables to sell stake in Tanzania unit

“However, if the group and company are unable to obtain sufficient funds through the ongoing fundraising process (the rights issue at the ultimate holding company, TransCentury Plc) and the planned disposal of assets described above within the next 12 months from the date of approval of these financial statements, a material uncertainty exists which may cast a significant doubt about the group and company’s ability to continue as a going concern and, therefore the group and company may be unable to realise their assets and discharge their obligations in the normal course of business.”

The cash call results showed that TransCentury missed its target of Ksh2 billion ($15.03 million) despite the offer period being extended twice.

The cash call was undersubscribed by 59.87 percent, only raising Ksh828.1 million ($6.22 million) against a targeted Ksh2 billion ($15.03 million).

“Following the unsuccessful capital raise, the percolation of consequences rests on companies under the TransCentury investment portfolio,” said Daniel Kuyoh, a Nairobi-based independent analyst. “Settling debt and recovery of outstanding /overdue supplier obligations is often the intrinsic aim of receivership, not enterprise recovery to normal business operations.”

The performance of the parent company’s cash call put EA Cables in a difficult financial position, having factored in its success in the preparation of the 2022 financial statements as a ‘going concern.’

By December 31, 2022, the company had overdue loan amounting to Ksh649.73 million ($4.88 million). In June 2023, Equity Bank placed the company under administration while its parent firm was pushed into receivership over a Ksh4.8 billion ($36.09 million) debt load.

Early this month, EA Cables announced it had entered into an agreement to sell 51 percent of its shareholding in its Tanzanian subsidiary to Msufini Tanzania Ltd at an undisclosed price.

EA Cables chief executive Paul Muigai declined to disclose how the proceeds of the share sale would be used but a source close to the transaction told The EastAfrican that part of the amount would be used to settle the Equity Bank debt to ward off the “insolvency” tag.

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“The transaction details for the proposed sale by EA Cables Plc of 51 percent of the issued share capital in East African Cables (TZ) Limited will be communicated after requisite approvals have been obtained,” the CEO said.

EA Cables, which is 68.37 percent owned by Transcentury, was however rescued by a court decision that suspended the appointment of the administrator, thereby helping calm jitters from investors, suppliers and creditors.

In 2020, the State Bank of Mauritius (SBM) filed a liquidation petition against EA Cables over a Ksh285 million ($2.14 million) debt. But the two parties struck a debt restructuring deal that saw SBM (formerly Chase Bank) withdraw a liquidation petition.

“The withdrawal of the petition is a significant step towards the Company’s turnaround plan that includes strengthening of the balance sheet, operational improvement and having the right funding structure for growth and profitability,” the company said.

Early this month, EA Cables announced that it had entered into an agreement to sell 51 percent of its shareholding in its Tanzanian subsidiary to Msufini Tanzania Ltd, a manufacturer of chlorine and sodium hydroxide, at an undisclosed price.

EA Cables CEO Paul Muigai declined to disclose how the proceeds of the share sale would be used but a source close to the transaction told The EastAfrican that part of the amount would be used to settle the Equity Bank debt to ward off the “insolvency” tag.

“The transaction details for the proposed sale by EA Cables Plc of 51 percent of the issued share capital in East African Cables (TZ) Limited will be communicated after requisite approvals have been obtained,” the CEO said.