TransCentury bets big on Civicon deals for rebound

Money Markets

Civicon site engineer Gaddafi Odhiambo (left) and TransCentury CEO Gachao Kiuna at GZ Industries Aluminium Cans Factory. PHOTO | FILE 

By JOHN GACHIRI, jgachiri@ke.nationmedia.com

In Summary

• Chief executive Gachao Kiuna told analysts at a conference call that the company will go for deals worth between $5 million (Sh473 million) and $50 million (Sh4.73 billion) through Civicon.
• Analysts, however, point out the future revenues for Civicon are not assured since oil and gas exploration firms, who are major clients for its engineering subsidiary, are cutting back on their budgets as a response to falling oil prices.

TransCentury, a listed infrastructure firm that has recently plunged deep in the red, says it is eyeing multibillion shillings deals through a subsidiary.

Chief executive Gachao Kiuna told analysts at a conference call that the company will go for deals worth between $5 million (Sh473 million) and $50 million (Sh4.73 billion) through Civicon.

Dr Kiuna said such deals are too small for foreign companies and too big for many local contractors, giving the listed firm room to comfortably bid for contracts.

“…but also Group Five (of South Africa) or the Chinese are not going to do a $50 million project most of the time. It is just too small. They want at least $100 million. But at the same time you can’t get the guy in a bakkie (pick-up) to come and build it for you because it is still $50 million. That is basically where Civicon really does well and has historically been able to really command good business at an above-average margin,” he said.

Recent contracts that Civicon has bagged include construction of the $20 million (Sh1.84 billion) GZ Industries Aluminium Cans Factory near Emali and a $36 million (Sh3.3 billion) contract at the Lake Turkana Wind Project. TransCentury is also set to reap more from its investments in Civicon after it increased its shareholding to 78 per cent from 62 per cent.

Analysts, however, point out the future revenues for Civicon are not assured since oil and gas exploration firms, who are major clients for its engineering subsidiary, are cutting back on their budgets as a response to falling oil prices.

“Of concern to Civicon’s revenues is the company’s exposure to the East African basin oil exploration projects whose operations have significantly contracted in the last year owing to 50 per cent attrition in oil prices—making exploration activities unfeasible with high breakeven costs,” said a report by Genghis Capital.

“Based on management’s guidance of more than 50 per cent of the $82 million pipeline contracts emanate from oil-diversified projects, assuring non-disruption in revenues.” Tullow Oil, one of Civicon’s customers, has said it will reduce its exploration budget in most markets, but would continue with work on its northern Kenya blocks.

READ: Tullow spares Kenya in Sh9.1bn budget cut

Dr Kiuna added that the engineering division suffered setbacks in Rwanda over the refusal by one of its clients to pay the firm $12 million (Sh1.1 billion) it owes for work done at a methane power plant.

“We have been in arbitration in London. We had one case in the High Court in London which we won, and now we have another arbitration case which is ongoing. We understand from the client that they want alleviation (resolution). So we have been waiting to see what happens with that,” he said.

The drop in revenues from the engineering division and losses associated with its investment in Rift Valley Railways contributed to the company reporting a Sh2.28 billion loss in 2014 from a Sh626 million profit a year earlier.