How mighty TransCentury lost its business to Equity Bank
Equity Bank building on Kimathi Street in Nairobi. The infrastructure-based investment firm, TransCentury, has been placed under receivership by Equity Bank over a debt estimated at Sh4.8 billion, months after it missed a Sh2 billion cash call target on its second attempt.
When a repeat cash call by infrastructure-based investment firm TransCentury failed to meet its target by closure in April this year, the fate of the once thriving firm was fully thrust into the hands of its creditors amid pilling debt exposure above Sh9 billion.
The failed Sh2 billion rights issue, which only realised Sh548 million in cash, formed part of TransCentury’s core survival plan alongside property sales and loan restructures. The company had targeted to apply the proceeds of the rights issue to settle debts owed to creditors, repaying part of the holding company debt owed to lenders and in return unlocking additional working capital financing for the group and its subsidiary businesses.
The cash call that was keenly followed by creditors including Equity Bank raised Sh828.1 million, a 40.13 per cent subscription from the uptake of 752.8 million new shares. TransCentury had offered shareholders 1.876 billion shares valued at Sh2.063 billion, at five new ordinary shares for each held for Sh1.10 each.
Shareholders took up 480.1 million shares worth Sh528.1 million before the application for additional 498,725 shares with a value of Sh548, 598. A further 272.7 million shares were taken up by converting shareholder loans for Sh300 million.
The failed cash call opened a can of worms with Equity Bank going hard on TransCentury amid the dimmed prospects of repaying an estimated Sh4.8 billion owed to it.
Confidential reports seen by Sunday Nation showed that in desperation, TransCentury offered Equity Bank some Sh108 million out of the Sh548 million cash netted from the failed rights issue—a paltry sum given the billions due to the lender by the investment firm.
TransCentury also requested a $20 million (Sh2.79 billion) debt restructuring as part of a deal to avoid an imminent takeover of its business by Equity Bank. Both offers hit a wall.
“From the Sh538 million funds raised, the client proposed to down pay Sh108 million to our debt and requested debt significant discounts of over $20 million and a new restructure over the facilities. This proposal was reviewed and considered unacceptable,” Equity Bank said.
“The bank has thus communicated this to the customer and declined their proposal for a restructure and issued demands as of June 8, 2023, with the plan being to initiate a receivership by June 16, 2023,” the lender said in an internal communication.
Equity Bank observed that TransCentury and its subsidiaries East African Cables and Civicon Africa Group Limited both had serious capital constraints with no upcoming projects hence there is no guarantee that its debt would be serviced.
Joint receivers
And yesterday, Equity Bank made good its resolutions and appointed Mr Muriu Thoithi and Mr George Weru of consultancy firm PricewaterhouseCoopers (PWC) the joint receivers of TransCentury effective June 16, 2023.
“The powers of the receivers extend to all assets and undertakings of the company. Only the receivers and their representatives are authorised to handle the assets of the company,” the bank said.
“The powers of directors in terms of dealing with the company’s business and assets no longer apply. Any person who purports to hold, receive, use, or attempts to buy or sell, contract or otherwise deal with the assets of the company without the prior written consent of the receivers will be acting in contravention of the law and will be liable to legal action,” the lender added.
Equity Bank also appointed Mr Thoithi and Mr Weru as joint administrators of East Africa Cables Limited which is a subsidiary of TransCentury.
“With their appointment, the administrators shall now take control over the assets and the management of the affairs of the company,” the bank said about East African Cables.
“The joint administrators are currently engaging all key stakeholders of the company as they seek to achieve the best possible outcome of the current situation in the company,” it said.
The receivership is projected to close in 12 to 18 months if no litigation arises but could extend to 24 months in the event of court tussles, a work plan by Equity Bank shows.
The receivership deals a major blow for TransCentury which had lined up a major plan in a desperate race for survival, including Sh1.1 billion in property sales and Sh5.2 billion in loan renegotiations.
A memorandum showed that the investment firm had plans to dispose of properties worth Sh1.1 billion in Mombasa and Uganda as part of its efforts to improve its cash flow position from the sale of non-core assets.
This would add to previous asset sales including a market listing of leased residential houses in Nairobi’s Lavington estate and Dar es Salaam in 2019.
The memorandum linked to the failed cash call also showed that TransCentury engaged its main shareholder, Kuramo Capital, and other lenders including Equity Bank to restructure loans worth Sh5.2 billion after defaulting on the initial terms of the debt.
“A shareholder of the company, Kuramo... agreed to subordinate all shareholder loans and signed amended terms for shareholder loans amounting to Sh1.9 billion on April 22, 2022, to extend the maturity of the loans to December 31, 2022,” TransCentury said.
“On September 2, 2022, the shareholder extended the subordination to September 30, 2023.”
TransCentury said Sh3.01 billion also became due to Equity Bank on December 31, 2020.
The receivership comes as records show that TransCentury and its subsidiaries East African Cables and Civicon Africa Group Limited had a total debt exposure of about Sh9.6 billion by various creditors, including Equity Bank.
TransCentury has an outstanding debt of Sh4.68 billion in debentures and shares guarantees while East African Cables holds debt totalling Sh1.94 billion and Sh2.94 billion for Civicon.
The receivership marks a new low for the investments that thrived under the late President Mwai Kibaki’s rein, snapping major multi-billion shilling contracts. The company’s founders had close ties with the Kibaki regime and this helped prop up its profile.
The company has in recent years generated most of its cash from financing activities rather than operations. It has been banking on the asset sale and the rights issue to boost its cash flow and working capital, enabling it to undertake projects it said it has already signed up for.
