TransCentury strikes equity, loan deal with bondholders over debt

Investment group TransCentury Ltd has found a lifeline against potential default on a $80 million bond that matures on Friday, March 25.

Under an equity and loan deal brokered by South Africa’s Kuramo Capital, the company intends to pay half of the debt to its bondholders and to settle the balance some time next year.

If the company does not honour its obligations, the bondholders will then be at liberty to convert the outstanding debt into equity, reducing the current shareholders to minority status.

Details of the deal with Kuramo Capital are scanty but sources said the $20 million the private equity fund injected into TransCentury last week was in consideration for a stake believed to be about a quarter of the company.

Kuramo Capital is also said to have guaranteed a further financing of $20 million by Friday this week to help settle half of the bond dues in a “principal haircut.”

TransCentury will then schedule when the bondholders are to be paid the balance from its internal cashflows. Kuramo is acting as the midwife in the deal, which creditors are said to have bought into because the option is the best alternative to a default.

The deal, which basically involves reduction of the debt and extension of the repayment period, is expected to ease financial strain on the Nairobi Securities Exchange-listed company.

“TransCentury is raising Ksh2 billion ($20 million) from a strategic investor who has bought a stake in the company and has to raise another Ksh2 billion on its own. After this transaction, there will be a liability of Ksh4 billion ($37.5 million), which the bondholders have given a timeline on to be paid or take a debt/equity stake in the company,” a source told The EastAfrican.

TransCentury declined to confirm the details, saying it was not authorised to disclose market sensitive information to third parties without informing the Capital Markets Authority and the NSE. 

The company chairman Zeph Mbugua however confirmed a deal had been reached. “I agree [there is a deal with bondholders]. [It is] within the law,” he said in an SMS last Thursday. Some analysts had raised misgivings that it is too late for such an arrangement, which should ideally been done a couple of months before the maturity date.

Last week on Tuesday, TransCentury’s board said it had received $20 million from Kuramo Capital, which will be used together with other options to settle the bond.

The terms of the deal were not disclosed but sources said the private equity fund would exit TransCentury once the company stabilises and starts meeting its financial obligations.

However, in the event TransCentury is unable to pay off its debts, Kuramo will also convert the debt it has guaranteed into equity and take over a majority stake in the company.

The bondholders will also exercise a similar option by converting the outstanding debt into equity in a move that will see the existing shareholders lose control of the company.

The regulator — the Capital Markets Authority (CMA) — declined to comment on the deal.

“Please contact TransCentury to get the most up-to-date position,” said CMA acting chief executive Paul Muthaura.

The debt was secured by TransCentury’s Mauritius-based subsidiary, TC Mauritius (Holdings), in 2011.

The proceeds of the loans were to allow TransCentury to meet its commitment to invest Ksh2.2 billion ($21.31 million) as part of the Ksh23 billion ($222.8 million) capital expenditure programme to revitalise Rift Valley Railways (RVR).

The bonds were issued in denominations of $100,000 with a coupon rate of six per cent.

The TransCentury board was reportedly initially reluctant to negotiate with the bondholders on how to repay the debt that is generating anxiety in Kenya’s capital markets.

It appears the board had also rejected proposals from the bondholders aimed at resolving the deadlock including a combination of partial repayment, principal haircut, extension of maturity, and conversion of the debt to equity —which, in the event, is exactly what has happened.

TransCentury’s major shareholders were afraid of converting the debt into equity for fear of their stake being diluted, but have now apparently bitten the bullet.

TransCentury’s issued shares are estimated at Ksh280.28 million. Its stock on the NSE has dropped 89 per cent to a low of Ksh5.75 ($0.05) per share from a high of Ksh50 ($0.48) per share in July 2011.

The company, which mainly deals with infrastructure projects in power, transport and engineering sectors, has operations in Kenya, Uganda, Tanzania, Rwanda, Zambia, Mauritius, the Democratic Republic of Congo and South Africa.