Centum Considers Treasury Bonds to Boost Cash Flow and Cover Losses
Centum Investments Company plans to reinvest the proceeds from the sale of its shares in Sidian Bank into treasury bills to recoup losses incurred in the transaction and improve cash flow.
Last week, the company, which is listed on the Nairobi Stock Exchange (NSE), announced that it had sold 83.4% of its shares in Sidian Bank to a Nigerian lender – Access Bank Plc – as part of a a transaction valued at 4.3 billion Ksh ($37.06). million).
The agreement can be viewed from two aspects. On the one hand, Centum gained as the market value of the third tier lender had fallen to Ksh 2.7 billion ($23.27 million) in September 2021.
But the proceeds from the sale of shares compare unfavorably with the initial investment of Ksh4.7 billion ($40.51 million), which translates to a loss of Ksh400 million ($3.44 million). of dollars).
“We never realized a gain compared to the initial investment. For us, then, it was a matter of recovering value.
“The option we had was to stay on board and invest more capital or get out and recoup our capital and redeploy it,” group chief executive James Mworia told The EastAfrican in an interview. last week.
“Every year we are required to reassess the bank. Revaluation is not related to cost; it depends on the market situation and the value of the bank’s shares,” Mr Mworia said.
“So at the end of March last year (2021), we increased it (Sidian Bank) to 2.4 billion Ksh (20.68 million dollars), then at the end of September we increased it to 2.7 billion Ksh. Ksh ($23.27 million). So when you revalue the bank below cost, it goes through your profit and loss account.
“We have very good assets but they are not generating cash, so we want to exit these assets with a premium for more cash-generating assets,” he added.
Centum acquired Sidian Bank (formerly K-Rep Bank) in 2014 as part of a basket of its private equity investments as the group pursued acquisitions that could secure high returns for shareholders.
But the bank has failed to live up to its expectations by not generating dividends for the past seven years.
“Sidian Bank is a good asset. It grows but does not pay dividends or contribute to the company’s cash flow. So our strategy has been to upgrade those types of assets, exit them and redeploy capital to more cash-generating assets,” Mr. Mworia said.
He said the goal was to boost cash flow through opportunities in the bond and equity markets.
“You know, valuations have gone down and so there’s a lot of opportunity in the market.”
Among the companies in the Kenyan firm’s private equity portfolio are Sidian Bank, Isuzu East Africa, Longhorn Publishers, NAS Servair and ACE Holdings.
In 2019, Centum completed the sale of beverage companies Almasi Beverages, Nairobi Bottlers and King Beverage Limited, realizing total sales proceeds of Ksh 19.6 billion ($168.96 million).
Last year, the company said it had taken a cautious approach in venturing into new lines of business and was preserving capital in government bonds to protect against a volatile operating environment that pushed it in deficit territory.
In 2020, Centum increased its investments in government securities to Ksh 7.5 billion ($64.65 million) from Ksh 4.1 billion ($35.34 million) in 2019. six months to September 30, 2021, it narrowed its loss to $5.7 million from $17.06 million in 2020 helped by lower finance charges.