Centum debts rise to $190m in grand plan

Centum Investment CEO James Mworia. PHOTO | FILE 

By JAMES ANYANZWA

In Summary

• Heavy investment in mega projects across the region is, however, taking a toll of its finances and the firm must now borrow heavily to sustain growth momentum.
• Firm's borrowing has increased more than ten-fold in the past five years.
• Although analysts see Centum’s accumulated debt as sustainable, some of them consider the prospects of attracting additional equity capital from foreign investors dim in the wake of a bear run in the regional stockmarkets and instability in the global economic environment.

After a sterling performance and the recent unveiling of its $230 million flagship property Two Rivers Mall in Nairobi, Kenyan investment company Centum is on a roll.

It has a pipeline of big ticket investments in the energy sector and is eyeing expansion across the continent.

The heavy investment in mega projects across the region is, however, taking a toll of its finances and the firm must now borrow heavily to sustain growth momentum.

The firm, which is listed on the Nairobi Securities Exchange and cross-listed on the Ugandan Securities Exchange has seen its borrowing increase more than ten-fold in the past five years.

Its debt rose from Ksh1 billion ($10 million) in the 2011/2012 financial year to Ksh10.47 billion ($104.7 million) in the 2015/2016 financial year and for the six months to September 30, 2016, the borrowings climbed to Ksh19 billion ($190 million).

Similarly, third party funds secured from local and foreign investors jumped from Ksh1.39 billion ($13.9 million) to Ksh151.75 billion ($1.51 billion) in the same period, according to the firm’s 2016 annual report.

Sources of funds

The firm said it is looking at borrowing, third party equity funds, proceeds from the sale of its shares from companies that are not listed and cash it generates from its day-to-day operations to drive its growth plan to fruition.

“We finance our investments through a combination of internally generated funds and debt capital,” said James Mworia, chief executive of Centum.

Analysts caution that attracting funding for the projects could prove difficult owing to the poor performance of regional stockmarkets and uncertainty in the global economic environment.

In the 2015/2016 financial year, Centum earned Ksh6.2 billion ($62 million) from the sale of its shares in private companies, including the disposal of its stake in the financial services provider AON for Ksh1.02 billion ($10.2 million).

Although analysts see Centum’s accumulated debt as sustainable, some of them consider the prospects of attracting additional equity capital from foreign investors dim in the wake of a bear run in the regional stockmarkets and instability in the global economic environment.

“Given the large-scale nature of the projects we are seeking to develop, third party equity investment in de-risked projects is a key component of our funding strategy,” said Mr Mworia.

Third party investors

To date, Centum has attracted more than Ksh151 billion ($1.51 billion) worth of third party funds

Analysts at AIB Capital said third party funds could prove a tall order to attract given that the value of private equity deals is shrinking in the wake of falling commodity prices and weakening currencies across the region.

“The worsening negative perception of Africa renders it more difficult to attract third party investors who are key to Centum’s business model for facilitating the increase in value of projects and their completion,” AIB Capital said in an investor note dated October 2016.

Eric Musau, a senior research analyst at Standard Investment Bank, said the mounting debt could be sustainable if it is sufficiently covered by the proceeds from the sale of the development projects, most of which are still under construction.

“I think their debt is sustainable because they are selling off parts of their projects as they develop them to reduce gearing and achieve successful completion,” said Mr Musau.

Edwin Chui, a research analyst at Dyer&Blair Investment Bank said proceeds from some of the subsidiaries provide adequate buffer against debt repayment.