Centum Investments Company is considering reinvesting the proceeds from the sale of its stake in Sidian Bank in government bonds to try to offset losses incurred in the transaction and improve cash flow.
Last Last week the Nairobi Securities Exchange (NSE)-listed company announced that it had sold 83.4 percent of its shares in Sidian Bank to a Nigerian lender – Access Bank Plc – in a transaction valued at Ksh 4.3 billion ( $37.06 million) /p>
The deal could be viewed from two angles. On the one hand, Centum gained considering the market value of the third lender had fallen as low as Ksh 2.7 billion (US$23.27 million) as of September 2021.
But the proceeds from the share sale compares unfavorably to the initial investment of Ksh 4.7 billion (US$40.51 million), resulting in a loss of Ksh 400 million (US$3.44 million)
“We have never made a profit on the original investment. So for us it was a question of value recovery.
“The option we had was to stay on board and invest more capital or exit and get our capital back and redeploy it,” he said Group CEO James Mworia said in an interview with The EastAfrican last week.
“Every year we have to re-evaluate the bank. The revaluation is not linked to costs; it depends on where the market is and what the stock value of the bank is,” said Mr. Mworia
“So at the end of March last year (2021) we (Sidian Bank) carried it at Ksh2 0, 4 billion ($20.68 million) and then at the end of September we carried it at Ksh 2.7 billion ($23.27 million). So if you revalue the bank below cost that goes through your income statement.”
“We have very good assets but they don’t generate cash so we want out of those assets at a premium to exit 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, which could guarantee high returns for shareholders.
But the bank has not met their expectations as it has not generated any dividends for the last seven years.
“Sidian Bank is a good one Attachment. It’s growing but doesn’t pay dividends or contribute to the company’s cash flow. So our strategy was to upgrade these types of assets, divest them and reallocate the capital into more cash-generating assets,” said Mr. Mworia /p>
He said the goal was to leverage cash flows through opportunities in the bonds – and stock markets.
“They know valuations have fallen, so there are many opportunities in the market. ”
The Kenyan company’s existing PE portfolio companies include Sidian Bank, Isuzu East Africa, Longhorn Publishers, NAS Servair and ACE Holdings.
In 2019, Centum completed the sale of the beverage company Almasi Beverages ab , Nairobi Bottlers and King Beverage Limited, which reported total sales revenue of Ksh 19.6 billion (US$168.96 million).
Last year the company said it was taking a cautious approach to venture into new business areas and preserve capital in government bonds to cushion against a volatile operating environment that has propelled it into loss-making territory.
In 2020, Centum increased its investments in government bonds from 4, Ksh 1 billion (US$35.34 million) in 2019 to Ksh 7.5 billion (US$64.65 million). For the six months ended September 30, 2021, it reduced its loss to $5.7 million from $17.06 million in 2020, helped by a decrease in funding costs.