Longhorn takes Sh900m loans at 16pc interest

Centum chief executive James Mworia. FILE PHOTO | NMG 

By VICTOR JUMA
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Summary

• It was not immediately clear why the Nairobi Securities Exchange-listed firm is incurring finance costs above the legal requirement.
• The publisher took loans from NIC Bank (Sh419.5 million), SBM Bank Kenya (382.9 million) and Standard Chartered Bank Kenya (94.1 million).

Longhorn Publishers has taken bank loans amounting to Sh896.5 million at an average interest rate of 16 percent, significantly above the maximum annual lending rate of 13 percent for commercial bank loans.

It was not immediately clear why the Nairobi Securities Exchange-listed firm is incurring finance costs above the legal requirement.

Details of Longhorn’s financing activities have been disclosed by its parent firm Centum Investment Company Plc in financial statements for the year ended March. The publisher took loans from NIC Bank (Sh419.5 million), SBM Bank Kenya (382.9 million) and Standard Chartered Bank Kenya (94.1 million).

“The facility was advanced to Longhorn Publishers Limited to finance working capital requirements. It is priced at 17 percent for a tenor of one year,” Centum said of the NIC loan.

“Longhorn Publishers Limited has an asset financing facility for acquisition of vehicles.

The loan is secured by the company (Longhorn) vehicles and attracts interest at 15.75 percent. The loan tenor is 60 months,” Centum said of the SBM loan.

The StanChart loan has an interest of 14 percent, is secured by the publisher’s buildings and matures in 12 months. The loan is for working capital.

Centum’s chief executive James Mworia declined to comment on the unusual pricing of the loans in the context of lending rate controls which currently fix interest on commercial bank loans at no more than 13 percent.

According to the law, commercial banks can price their loans at up to four percentage points above the Central Bank Rate which has been held at 9 percent since July last year.

By tinkering with duration and other charges levied on a loan, however, banks can legally raise the effective cost of money beyond the stipulated 13 percent.

Such relatively more expensive loans can be made by issuing them on shorter tenors like monthly or loading large charges on the credit facilities.

Loans from the three banks comprise most of Longhorn’s liabilities of Sh1.2 billion in the year ended June.

The publisher made a net profit of Sh185.1 million in the review period, a marginal rise from Sh183.6 million the year before.

Sales in the same period declined 5.6 percent to Sh1.6 billion from Sh1.7 billion.