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Old Mutual swaps Sh2.6bn loan into UAP stake

Financial services giant Old Mutual is set to take an extra 6.5 per cent stake in UAP Holdings in a deal that will see the London-based firm convert a Sh2.6 billion loan it gave the Kenya insurer into shares.

Old Mutual already has a 60.7 per cent stake in UAP following its 2015 buyout of billionaire Chris Kirubi, his investment firm Centum and a consortium of private equity firms at a cost of Sh20 billion.

The proposed transaction is part of UAP’s efforts to ease its heavy debt burden that has seen it explore multiple options, including renegotiating loan terms with financiers such as the International Finance Corporation (IFC).

Short-term Old Mutual debt that is to be converted into equity includes a $16.5 million (Sh1.6 billion) loan with an interest rate of three months London Inter-bank Offered Rate (Libor), a global benchmark, plus a 3.5 per cent premium.

“These borrowings are set to be converted into equity in 2018 subject to approval of the board,” UAP says in its latest annual report.

“During the year, a breach was recorded for the Norfund and IFC facilities in UAP’s South Sudan Properties. Terms of the loan require that its service cover ratio be greater than 1.4 times,” the insurer said in the report.

“By December 31, 2017, both facilities had a ratio of -0.4 times. The balance outstanding on the two facilities as at December 2017 was $7.3 million split equally between both lenders.”

UAP says it is exploring several options to resolve the debt burden, including renegotiating terms of the loans with the two lenders and paying them off using new loans from other financiers.

The insurer is also considering taking more debt from its parent company, Old Mutual and its affiliate Nedbank. The company’s chief executive, Peter Mwangi, told the Business Daily that talks with the IFC and Norfund are still ongoing.

“Once these discussions are concluded and a way forward agreed, we shall make the relevant disclosures as per regulatory requirements,” Mr Mwangi said.

UAP did not disclose the conversion price for the proposed debt-to-equity transaction. Using the Sh180 per share at which Old Mutual bought out the Kirubi group, the Sh2.6 billion worth of loans will leave the multinational with 14.7 million shares, equivalent to 6.5 per cent stake, and dilute existing shareholders by a similar margin.

Old Mutual’s overall equity will, however, rise to 63.2 per cent thanks to the new shares. Its interest in UAP could jump even higher if the company’s directors Joe Wanjui and James Muguiyi exercise their right to sell a combined six per cent stake in the insurer to the multinational in a potential deal worth £24 million (Sh3.2 billion).

The duo did not participate in UAP’s 2015 share sales, with Mr Wanjui retaining his 20.46 per cent equity and Mr Muguiyi also holding onto his 5.97 per cent stake.

They, however, signed an option to sell the six per cent stake to Old Mutual in the future.

At Sh3.2 billion or Sh254 per share, the offer to the two shareholders represents a 41 per cent premium on the Kirubi group’s buyout price of Sh180 per share.

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