Regional oil marketer KenolKobil turns to three key depots for funds, seeks dialogue to end raging disputes with rivals and oil refinery. FILE/TEA Graphic
What you need to know:
The firm is selling its depots in Kisumu, Eldoret and Sagana to raise money to settle expensive debts as it continues to search for a new strategic investor.
In a research note, Standard Investment Bank said the move could help the oil marketer improve its cash flow and reduce borrowing, while pursuing other options including taking on potential long term strategic investors.
The new CEO, David Ohana, is expected to oversee the process of retiring expensive debts of KenolKobil, restructuring of the firm to improve its cash flow, and the evaluation of potential business partners.
Regional oil marketer KenolKobil has put some of its assets in Kenya up for sale, in a fresh bid to overturn its fortunes that have dwindled over the past two months, following disputes with rivals and the oil refinery.
The firm is selling its depots in Kisumu, Eldoret and Sagana to raise money to settle expensive debts as it continues to search for a new strategic investor.
This week, South African-based firm Global Credit Ratings downgraded the oil marketer’s long-term debt rating to an A with a negative outlook, from an A+ given last year.
KenolKobil owes the Kenya Petroleum Refineries Ltd Ksh1.2 billion ($14.4 million). Late last month, Kenya’s Ministry of Energy suspended KenolKobil from the competitive open tender system as a buyer and seller, over the refinery debt and failure to lift 19,610 tonnes of fuel produced by the plant in Mombasa.
The suspension means that KenolKobil cannot access cheaper refined fuel.
Discussions
On Friday, KenolKobil and the refinery’s top executives were said to have met in Nairobi to resolve the dispute. Sources said the oil firm promised to pay the outstanding debt.
Also discussed in the meeting, sources said, was a case in which KenolKobil is demanding Ksh3.1 billion ($36.5 million) from the refinery.
On June 5, KenolKobil sued the refinery demanding Ksh1.9 billion ($22.35 million) for not releasing its petroleum stocks, and Ksh1.2 billion ($14.11 million) for loss of business after the former failed to deliver 15,000 tonnes of the gasoline blending product TOPS in a deal entered into last year.
Sources said the firm was receiving selective bids from multinationals. Depots in Mombasa and Nairobi, which are jointly owned with Total, are not targeted.
The KenolKobil management declined to comment on the sale.
In a research note, Standard Investment Bank said the move could help the oil marketer improve its cash flow and reduce borrowing, while pursuing other options including taking on potential long term strategic investors.
“This is with a view to securing and growing long-term shareholder value. This follows termination of discussions with Puma Energy. Management did not declare a dividend for the year (2012),” said Standard Investment.
Bloomberg reported on Tuesday that KenolKobil had kicked off a private placement to raise Ksh1.7 billion ($19.6 million) to fund its day-to-day business.
Quoting Andre DeSimone, chief executive officer at Kestrel Capital East Africa Ltd, the arranger and placing agent for the transaction, the report said the placement was a continuation of an existing commercial-paper programme.
Tough measures
KenolKobil plans to slash operating costs and cut down the wage bill by reducing its workforce from 570 to 350, either through retrenchment or non–renewal of contracts.
The restructuring also involves reducing financing costs through borrowing levels reduction, and improving negotiation of financing terms with banks to reduce the debt burden.
The firm posted a loss of Ksh6.3 billion ($73.4 million) in the year ended December 2012, from a net profit of Ksh3.3 billion ($38.4 million) the previous year, and attributed the results to foreign exchange losses and higher financing costs in Kenya and regional markets.
The petroleum firm owns storage facilities in Mombasa, Nairobi and other towns in Kenya, with affiliates trading in Uganda, Ethiopia, Tanzania, Burundi, DR Congo, Zambia, Rwanda, Zimbabwe and Mozambique.
KenolKobil acquired the 33,000m3 storage World Oil Terminal Complex in Dar es Salaam in July 2011. The facility includes two large dry cargo warehouses. In Uganda, the company bought Phoenix Uganda Petroleum Ltd, acquiring oil storage capacity of 1,800m3.
Data from the Petroleum Institute of East Africa shows that KenolKobil had 17.5 per cent market share between January and March 2013, Total 21 per cent, Vivo formerly Kenya Shell 14.5 per cent) and Oil Libya (8.1 per cent).
“In case KenolKobil continues to experience problems, its market share will be taken up. Kenya’s petroleum industry is very competitive as gaps are quickly filled,” said Robert Shisoka, the lead consultant at Hydrocarbons, a Kenyan petroleum consultancy firm.
Analysts said KenolKobil must manage its laying-off of workers, as some could go to court as happened during the tenure of the former chief executive officer Jacob Segman.
The new CEO, David Ohana, is expected to oversee the process of retiring expensive debts of KenolKobil, restructuring of the firm to improve its cash flow, and the evaluation of potential business partners.
The fuel marketing company is also facing the challenge of mending its frosty relations with the Ministry of Energy, Kenya Pipeline Company and KPRL.
