East Africa Portland Cement Company (EAPC) is set to begin repayment of a Sh1.9 billion loan from the Overseas Economic Co-operation Fund of Japan (Jica), which was taken over by the State.
The cement manufacturer says it is nearing an agreement with the government to clear arrears from the loan, which include accrued principal and interest.
“The company is at the tail end of signing off a subsidiary loan agreement with the Government of Kenya (GoK), relating to the Japanese loan taken over by the government,” Portland Cement notes in its newly published annual report.
Portland Cement contracted a Sh6.5 billion (¥7.67 billion) loan from Jica in 1990, with a guarantee from the GoK and used the loan’s proceeds for plant upgrades including the conversion of its clinkering process from wet to dry.
Wet clinkering in cement manufacturing refers to grinding raw material into slurry after mixing with water and then feeding them into the wet process kiln. Dry clinkering is the reverse of this and involves the use of dry material in a dry kiln to reduce the need for time and energy sapping evaporation.
EAPC was unable to service the loan whose interest was charged at 2.5 percent per annum, forcing a recall from Jica and the eventual takeover of the facility by the government through the guarantee.
“There were no Group or company assets pledged as security, and neither are there any covenants attached to the loan facility. The loan was repayable in instalments-twice a year, on March 20 and September 20 with effect from September 20, 2000. The last repayment was by the government on March 20, 2023” EAPC said.
The loan amount due to the GoK accumulates from the interest and principal repayments made on the Japanese loan by the government on behalf of Portland Cement.
The government is typically forced to take over loans from State-linked enterprises on its role as a guarantor of most loans when the corporations fall into default.
Portland Cement will begin payments to the government at a time when the operations of the company are cash-strapped, with the Group remaining technically insolvent with a negative working capital of Sh6 billion. The manufacturer has mulled land-debt swaps to clear its borrowings from the government even as it eyes Sh10 billion working capital from the sale of its non-strategic land holdings.
“We have made substantial strides in reducing legacy debt through carefully planned asset sales. This ongoing strategy has already provided meaningful improvements to our balance sheet, with further debt reduction anticipated through ongoing negotiations with government stakeholders,” Portland Cement says in its latest annual report.
“The potential debt reduction, facilitated by a land-debt swap, would reduce our liabilities by a substantial margin, providing much-needed working capital flexibility to support operational efficiency and growth initiatives.”
The Sh1.9 billion pending payment to the government presents Portland Cement’s only borrowing liability.
The company however has other liabilities including trade and other payables, post-employment benefits obligations, lease liabilities, and unpaid dividends.
The Group’s current liabilities closed the financial year to June 2024 at Sh12.8 billion, against just Sh6.7 billion in current assets.
Portland Cement is banking on the sale of land parcels in Athi River, including portions that are currently occupied by squatters to unlock new capital.
