Centum announced on Wednesday that it has suspended further capital expenditure and will put key investments on auction to pay off its mounting debt.
The Nairobi-based investment firm’s latest move is part of a recalibration of its recent expansion as the company’s cash flow tightened and debt-coverage ratio fell.
The firm’s latest debt-driven policy shift is in stark contrast to most analysts’ views that its debt could be paid off using internally generated funds.
Centum, which is cross-listed on the Uganda Securities Exchange, also said it had dropped the “development” aspect of its investment portfolio and shifted focus to “real estate, private equity and marketable securities over the next five years (2019-2024).”
The company has suspended investments in education, agribusiness, power, infrastructure, manufacturing, health, and ICT.
“Over the next five years, our focus is on cash annuity income and holding optimal liquidity reserve. Investments will be in cash-generating assets with no further capital deployments in the development portfolio,” said James Mworia, the firm’s chief executive.
“Under the new plan, our business has been simplified into three units namely private equity, real estate and marketable securities,” he added.
Centum’s audited financial statements for the year ended March 31, 2019 show that the Nairobi Securities Exchange-listed firm has an accumulated debt of Ksh16.16 billion ($161.6 million), of which Ksh5.5 billion ($55 million), Ksh6.1 billion ($61 million) and Ksh4.5 billion ($45 million) are maturing in 2020, 2021 and 2022 respectively.
Its long-term borrowings rose to Ksh13.88 billion ($138.8 million) from Ksh11.38 billion ($113.8 million) in 2018, against cash reserves of Ksh5.25 billion ($52.5 million).
As a result, the firm’s debt-service coverage ratio, a measurement of the cash flow available to pay current debt obligations, weakened to 1.7 in 2019 from a high of 9.3 in 2015 and 3.2 last year. A ratio of less than 1 means that the firm has a negative cash flow and is not able to pay its current debt obligations using internally generated funds.
Last week, Centum, which is majority-owned by Kenyan businessman Chris Kirubi, disclosed that it had signed an agreement to sell the total combined stake in Almasi Beverages Ltd and Nairobi Bottlers Ltd to Coca-Cola Sabco East Africa Ltd for Ksh19.5 billion ($195 million). This translates into a Ksh2.7 billion ($27 million) gain, going by the valuation of Ksh16.8 billion ($168 million) as at March 31, 2019.
Coca-Cola Sabco East Africa Ltd, a subsidiary of Coca-Cola Beverages Africa Ltd, already owns 72.4 per cent of Nairobi Bottlers.
The transaction is expected to be completed in the current financial year (2019/2020), subject to regulatory approvals.
Proceeds of the asset sale will repay debts of Ksh7.5 billion ($75 million) and the balance will be invested in the private equity fund and marketable securities.
Mr Mworia said “the company is on course to settling the term loans in 2019 and the bond maturity in 2020.”
For private equity, Centum expects to invest between Ksh10 billion ($100 million) and Ksh15 billion ($150 million) over the next five years in a fund to be managed by its wholly owned subsidiary, Centum Capital Partners Ltd.
For real estate, the focus is on activation of development sites and landmark monetisation through infill projects and the sale of development rights.
In the previous financial year ended March 31, 2018, the firm’s net profit declined by 67 per cent to Ksh2.79 billion ($27.9 million) from Ksh8.31 billion ($83.1 million). This year, Centum’s net profit rose to Ksh4.12 billion ($41.2 million) from Ksh2.79 billion ($27.9 million).
Its share price rose on the NSE by 3.4 per cent to close the trading session on Wednesday at Ksh33.9 ($0.33).