98 firms face insolvency on turbulence
Some of the businesses placed under receivership.
What you need to know:
- As the global economy grapples with uncertainties businesses are finding themselves on precarious ground.
- Companies are eating into their cash reserves, and could be in line for a significant step-up to their borrowing costs.
2023 has witnessed an unprecedented rise in the number of businesses placed under receivership across various sectors, indicating the impact of economic turbulence due to high taxes, high costs of operations, and low earnings.
As the global economy grapples with uncertainties businesses are finding themselves on precarious ground.
Data from the Office of the Receiver shows there were 98 insolvencies filed between January and October this year, with the highest applications received from debtors or courts.
Companies are eating into their cash reserves, and could be in line for a significant step-up to their borrowing costs. Energy bills have soared, post-pandemic government support has waned, and repayments have also come due.
Mastermind Tobacco (K) Ltd is the latest company to fall under administration over undisclosed debt, adding to a growing list of struggling businesses hoping for rescue under the formal insolvency process.
Others that have sought reprieve from creditors by going under administration are TransCentury while its subsidiary East African Cables was placed under receivership by Equity Group, Desire Flora Kenya Limited, and logistics firm Sendy among others.
Administration occurs when a business can no longer meet its debt obligations and an administrator is appointed to either restructure the business and come to an arrangement with creditors or to sell off assets, pay off creditors, and liquidate the business.
The Kenyan based logistic startup Sendy fell under administration in September due to financial difficulties amidst talks and search for a buyer.
"The placement of TransCentury into receivership was occasioned by the company's continued failure to meet its financial obligations for Equity Bank after advancement of certain loan facilities to the company in 2013," said PricewaterhouseCoopers, the consultancy firm taking over management of the troubled investment firm.
The year was characterised by high cost of living which sparked anti-government protests, leading to the destruction and looting of businesses, higher taxes, and increased interest rates which negatively affected business operations.
Companies have also reported profit warnings, anticipating lower earnings this year with banks reporting lower profit in the third quarter of 2023.
Central Bank of Kenya (CBK) data shows that banks' pre-tax earnings dipped 4.9 percent to Sh177.8 billion in the nine months to September from Sh187 billion in a similar period a year earlier, marking a rare occurrence for the industry that has generally been enjoying growth in profits.
Listed companies have also sent out warnings to investors that their 2023 profits will be lower than the year before.
Sanlam Kenya is the latest bringing to 13 the listed companies to project lower net profits, citing a tough operating environment among other factors, for their reduced earnings.
“Based on the current unaudited financial results, the Board of Directors of the Company are of the view that the company’s projected earnings after tax for the year ending December 31, 2023, are at least 25 percent lower than the earnings after tax reported for the year ended December 31, 2022,” said Sanlam in a notice.
“The projected decline in earnings ... is due to the prevailing high-interest rates leading to increased finance costs and unrealised fair value losses on our portfolio of government securities.”
Businesses endured increased operating costs and weakened demand for goods and services, tearing into their books, and heightening insolvencies and job losses.
An increase in firms placed under administration and liquidation has resulted in job losses such as the case of Mastermind, Sendy, and insurance firm Invesco.
Mastermind has issued a notice to lay off about 1,000 employees after it was pushed into administration by I&M Bank while Sendy laid off 20 percent of its workforce citing funding challenges.
This year, businesses have had to face the high cost of imports on the back of a strengthening dollar against the Kenya shilling.
Trade data released by CBK shows that Kenya’s imports in the first eight months of the year fell by 13.8 percent to $11.45 billion (Sh1.7 trillion) from $13.28 billion (Sh1.97 trillion) in the corresponding period of 2022.
The negative impact of the cost of dollars is seen in the motor vehicle sector, where dealers and assemblers have had to raise prices to cover their higher expenses and protect margins.
Manufacturers who import raw materials have also taken similar measures to stay afloat.
