Private equity firm Kuramo Capital and a group of Kenyan investors, including Peter Kanyago, Anne Gachui, Zephaniah Mbugua, Eddy Njoroge and Joseph Magari, are staring at a combined loss of more than Sh14 billion from the bankruptcy of TransCentury and its key subsidiary East African Cables.
The shares of the two companies were suspended from trading on the Nairobi Securities Exchange effective Monday after they were seized by their main creditor—Equity Bank Kenya Limited—following defaults on Sh4.7 billion loans.
The founding shareholders, who rose to prominence during the administration of Mwai Kibaki, had a combined wealth of Sh7.8 billion based on their holdings in TransCentury as it went public in July 2011 for Sh50 per share.
TransCentury’s share price rose to highs of Sh57 in the early trading days but then tanked below the listing price, embarking on a long-term decline fuelled by years of losses, a heavy debt burden and dilution of the early investors.
TransCentury’s last stock price of Sh1.12 means the founders had already suffered a capital loss of 97.7 percent before Equity Bank’s enforcement action that has basically wiped out shareholders.
The company paid negligible dividends since listing on the Nairobi Securities Exchange, doing little to cushion the impact of share price erosion and eventual bankruptcy.
When TransCentury went public, it was controlled by the founders whose stakes were valued ranging from Sh542 million to more than Sh1 billion each.
Ms Gachui, the widow of James Mungai Gachui, was the top investor with an 8.16 percent stake worth Sh1.1 billion based on the listing price of Sh50.
Most recent filings show her stake had been diluted to 1.9 percent that was worth Sh23.9 million before Equity Bank placed the company under receivership on Friday last week. The dilution, which affected all the founding shareholders, was due to the sale of a 25 percent stake to Kuramo Capital for Sh2 billion in 2016 and a rights issue in 2023.
The founders hardly sold their holdings except investment banker Jimnah Mbaru who had offloaded his 16.6 million shares by the end of 2015.
The estate of the late Michael Waweru—former Commissioner General of the Kenya Revenue Authority—saw its stake decline to 1.89 percent valued at Sh23.8 million from 8.16 percent worth Sh1.06 billion.
Mr Peter Kanyago’s ownership dropped to 1.25 percent (Sh15.8 million) from 6.99 percent (Sh958 million). Mr Eddy Njoroge, who was previously the managing director of KenGen, saw his holdings fall to 0.85 percent (Sh10.69 million) from 5.63 percent (Sh771.4 million).
Former TransCentury chairman Zephaniah Mbugua saw his stake reduced to 1.07 percent worth Sh13.5 million from the initial 6.06 percent that was valued at Sh830.5 million.
Kuramo, whose entry was meant to rescue the company, has suffered the largest loss of more than Sh6 billion comprising the initial equity investment, rights issue participation and a series of shareholder loans to the investment firm over the years.
TransCentury’s debt spiral started with a $75 million (Sh6.7 billion) convertible bond issued in Mauritius shortly before the company was listed on the NSE.
The debt had grown to Sh8 billion due to accrued interest and a weaker shilling by the time it was due for redemption on March 25, 2016.
Kuramo’s initial investment of Sh2 billion was used to repay part of the bond whose holders forfeited a substantial part of their claims.
The remaining claims have been restructured multiple times, leaving a balance of more than Sh1 billion that was due to be repaid by Monday next week before the company was seized by Equity Bank.
The bondholders are expected to join other creditors in the receivership process at a time when TransCentury’s liabilities exceed its assets by Sh12.8 billion, indicating major losses for unsecured creditors.
After divesting from the doomed Rift Valley Railways concession in 2014, TransCentury’s main operations were concentrated in power and engineering mainly through East African Cables and Civicon Africa.
The subsidiaries faced strong competition in their industries and inadequate funding hindered their ability to take on more business.
As the debt problems facing TransCentury and East African Cables became widely known, scores of speculators spent millions of shillings buying their shares in recent years, in trades that culminated in losses.
Similar trades at other firms such as Kenya Power had generated major gains after the electricity distributor emerged from multi-year losses to resume dividend payouts.
