Insurance group Old Mutual Holdings will prioritise the payment of up to Sh1.8 billion dividend per annum to its Cape Town-based parent firm as part of a plan to settle Sh8.8 billion of debt owed to the multinational.
The insurer now plans to issue 1.75 billion preference shares of Sh5 each to the parent company, with the decision coming after multiple restructuring of the credit facilities over the years including postponement of the repayment of the principal amounts.
Old Mutual says the preference shares — which are given the first priority in payment of dividends before the holders of ordinary stock— will earn a return of 21 percent of their value in a year when the insurer decides to make cash distributions to its owners.
The preference shares can be redeemed by Old Mutual at its discretion. They will not be convertible into ordinary shares, meaning that they will continue to get the first priority in earning dividends until they are redeemed.
“If the company declares, makes or pays any dividends or distributions, the holder(s) of the preference shares shall participate pari-passu with other members of the company but shall be paid and receive such dividends or distributions from the company in priority to the holders of the ordinary shares,” Old Mutual, which has insurance operations in Kenya and other regional markets, said in a notice.
The preferred stock to be issued to the parent company will add to its existing ordinary shares in Old Mutual which gives it a controlling stake of 66.58 percent.
Other holders of ordinary shares in the insurer include businessmen Joe Wanjui (15.79 percent) and James Muguiyi (4.6 percent), according to disclosures as at December 31, 2022.
The company also has hundreds of retail investors who previously held shares in UAP Holdings which was acquired by the South African company.
UAP and Old Mutual’s operations in Kenya and the region were subsequently merged and rebranded to identify with the parent firm.
The merged business has been juggling multiple shareholder loans before the decision to turn the obligations into preference shares.
They include credit facilities amounting to $48.1 million (Sh7.2 billion at current exchange rates) and local currency loans of Sh1.9 billion.
Borrowings up
Turning the shareholder loans into preference shares is expected to give the insurer more flexibility to address its debt load.
The company’s finance costs nearly doubled to Sh1.8 billion in the half year ended June compared to a restated Sh937 million a year earlier.
