East African Cables could raise only Ksh31.29 million ($234,713) from the sale of its stake in the Tanzania subsidiary after the investment was impaired by over Ksh83 million ($628,426) last year, due to persistent loss-making, the company says in its financial report.
The sale is part of measures taken by the cable manufacturer, which is weighed down by debt, to avoid further financial distress.
The company owes banks an estimated Ksh2.41 billion ($18.24 million) the bulk of which — Ksh2.04 billion ($15.44 million) — is due to Equity Bank.
The Nairobi Securities Exchange-listed company is working with limited options after Equity got administrators to take over its operations after its default last year.
In its latest annual report (2023), the company says the attempted receivership has impaired its standing in the corporate world and in the eyes of investors and lenders.
Some banks have become jittery to open their vaults to the company and even those that had started negotiations for lending have gone slow.
“The appointment of Administrator mid-2023, adversely disbursements of the much-needed working capital by potential lenders, some of whom had committed,” it says.
“However, the group and company continues to seek partnerships for trade facility financing.”
The company also owes Ecobank Kenya and SBM Ksh129.48 million ($980,345) and Ksh241.58 million ($1.82 million) respectively, putting the total bank debt at Ksh2.41 billion ($18.24 million) as at December 31, 2023.
The company is considering three things: Sale of non-core assets, support from the parent company, TransCentury, and lately the sale of the loss-making Tanzania subsidiary.
“The group and company owe Equity Bank Kenya Ltd Ksh2 billion, being a joint borrowing by the company and Tanzanian subsidiary.
Divestiture from the subsidiary will not only reduce the outstanding debt obligation but will also make the group leaner for quick turnaround,” the company says.
It is expected that the settlement of the Tanzanian portion of the loan, which has been non-performing, will largely cure the default.
The company announced in March that it had entered into an agreement to sell its entire 51 percent stake in Tanzania subsidiary to Msufini Tanzania at an undisclosed price subject to shareholder and regulatory approvals.
Although the cost wasn’t revealed when announcing the transaction, company disclosures show the firm could book a loss of Ksh83.74 million ($634,029) on the share sale.
It says that the Ksh115.03 million ($870,938) investment it had made in the Tanzanian unit through the acquisition of 51 percent stake in 2005 has been impaired by Ksh83.74 million, reducing its market value to Ksh31.29 million.
The Tanzanian subsidiary closed 2023 with a net loss of Ksh196 million ($1.48 million) and net liability position of Ksh396 million ($2.99 million).
“With fewer options of raising working capital required to resuscitate this business, the board has decided to divest from this business...A potential buyer has been identified and share purchase agreement signed pending regulatory and stakeholder consents, approvals. The proceeds from this transaction will be utilised to reduce outstanding debt.”
“The group and company are focused on generating cashflows internally to improve business performance, make the business financially sustainable and settle outstanding debt. To improve cashflows the company is aggressively seeking to sell non production assets as well as the Tanzania subsidiary to reduce outstanding bank borrowings."
The company is also pursuing discussions with other financiers to provide non-funded working lines to unlock idle capacity and improve performance.
Usually, companies that go into administration have their shares suspended from trading at the bourse, but East African Cables escaped this courtesy of a court injunction to the administration process.
Its negative working capital expanded to Ksh2.63 billion ($19.91 million) in 2023 from Ksh1.24 billion ($9.38 million) in 2022.
”The group and company had overdue loans amounting to Ksh659.73 million payable to Equity Bank Kenya Ltd. Due to the loan arrears, the main lender Equity Bank Kenya Ltd, demanded payment of outstanding balances and appointed an Administrator on 16th June 2023, to manage the affairs of the company. However, the company obtained an injunction from the High Court allowing the Board of directors and management to continue running the business until the matter is heard and determined," the company says.
“While the group and company does not have ability to settle these arrears in the normal course of business, the board and management is working on various actions to ensure that the outstanding debt is regularised.”
East African Cables, which is 68.37 percent owned by TransCentury, is now fighting to shed the insolvency tag.
It expects to raise only Ksh350 million ($2.64 million) from the sale of non-core assets while Transcentury is struggling financially and its planned Ksh2 billion ($15.14 million) cash call from shareholders fell below target by 59.87 percent.
It only raised Ksh828.1 million ($6.26 million) from the rights issue against a targeted Ksh2 billion($15.14 million).
