Kenya: Transcentury Running Out of Time, Options Over U.S.$75 Million Loan

By James Anyanzwa

Troubled infrastructure company TransCentury is running out of options to repay a huge $75 million debt owed to foreign investors as the deadline for the loan's maturity draws closer.

Investors are growing wary after a key advisor, Rand Merchant Bank, severed links with TransCentury to protest the board's ignoring of its proposals on how to pay the five-year loan, which matures on March 25.

Divisions in the board on how to tackle the debt were also behind the resignation of long-serving chief executive officer Gachao Kiuna and a director, Joseph Karago, earlier this year, according to correspondence seen by The EastAfrican.

TransCentury, which is listed on the Nairobi Securities Exchange, is now on the brink of default, with severe consequences for minority shareholders and its credit rating.

Disillusioned investors could also launch a winding-up petition should a solution to the payment of the convertible bond not be found in less than a fortnight.

The Kenyan regulator has also been left in a quandary because the bond issue was approved by Mauritius authorities, meaning it does not directly fall under its jurisdiction.

"The bond was not approved in Kenya. It was an instrument by the Mauritius Company (TC Mauritius Holdings). We only approved the listing of TransCentury shares on the Nairobi Securities Exchange," said Paul Muthaura, the Capital Markets Authority acting chief executive.

The company is pondering three options to pay off the $75 million convertible bonds issued by its Mauritius-based subsidiary, TC Mauritius Holdings, in 2011, but the board is hesitant because they invariably involve dilution of their stake in the company or more borrowing.

The options are injection of fresh equity capital through a rights issue, disposal of assets or acquisition of a commercial loan from banking institutions. A fourth option involves restructuring of the bond to extend the payment term, but key creditors are opposed to any plan that is not mutually agreed. From the correspondence, the TransCentury board appears reluctant to negotiate with bondholders on restructuring.

Analysts argue that a cash call may not work at the moment, as it requires at least six months to execute a rights issue by securing the necessary approvals before embarking on road shows to persuade investors.

On the other hand, auctioning of the company's assets -- currently estimated at Ks2 billion ($116.1 million) -- would lead to a drastic scaling down of its operations.

TransCentury's level of indebtedness, as measured by the debt to equity ratio, does not permit the company to take up more debt on its books, giving rise to fears that even lenders will be reluctant to take a risk on such a company.

"TransCentury already has a lot of debts and cannot take up more. They cannot use the assets they have to pay the debts because it will mean downsizing their operations," said Amish Gupta, a director of investments at Kenya's Standard Investment Bank.

According to the correspondence, the TransCentury board is accused of rejecting "fair" proposals from the bondholders aimed at resolving the problem, including a combination of partial repayment, principal haircut, extension of maturity, and conversion of the debt to equity.

One bondholder, in a letter to TransCentury chairman Zeph Mbugua dated February 24, said the board has not come up with a viable alternative strategy to ensure the company's survival.

No engagement

"Our recent conversations with TransCentury's management and other stakeholders lead us to believe that very little progress has been achieved to address the upcoming bond maturity, and that the company finds itself today in a very precarious situation and on course to default," said Sancta Capital Group investment managers, who are investors in the bond.

Sancta, a Texas-based investment manager specialising in equity and debt investments across Africa and the Middle East, said there had been little by way of any engagement between the board and the bondholders. "The board has in fact rejected several fair proposals from the bondholders aimed at resolving the current state of affairs," the fund manager said.

Should TransCentury agree to an arrangement where the creditors convert their bonds into shares, it would also be forced to renegotiate the terms of the swap. The conversion rate had been set at Ksh49.60 ($0.47) per share, but the company's share price had fallen to almost a tenth of that price, at Ksh5.75 ($0.05) per share as of Thursday last week.

According to the correspondence, the debt obligations the company should meet in the next 12 months include the Eurobond and bank loans.

"In this instance, the shareholders can expect at best further deterioration in the share price, or worse, a complete wipe out of their ownership," said Sancta.

On February 12, the board announced that TransCentury together with its Mauritius subsidiary was working on a fundraising programme and that an agreement on repayment would be reached before the debt matures.

"A formal announcement, including all relevant information on the entire process, will be made at the appropriate time," said TransCentury board in a media statement. The company declined to give an indication of progress in its fundraising plans.

"We are not ready to talk about that now," said communications manager Phyllis Gachau by phone.

The convertible bond was issued by TC Mauritius to finance the group's investment in Rift Valley Railways (RVR) -- a consortium that won the 25-year concession to operate the Kenya-Uganda railway. They were in denominations of $100,000 with a coupon rate of six per cent.

The proceeds were to help TransCentury meet its shareholder commitment of Ksh2.2 billion ($21.28 million) as part of the Ksh23 billion ($222.53 million) capital that was needed to revitalise RVR.

TransCentury was listed on the NSE by way of introduction in July 2011 and the company's issued shares are estimated at 280.28 million.

TransCentury has operations in Kenya, Uganda, Tanzania, Rwanda, Zambia, Mauritius, Democratic Republic of Congo and South Africa.

It mainly deals with infrastructure projects in power, transport and engineering sectors.

Source: All Africa