Struggling East African Cables has announced plans to sale a 51 percent stake in its Tanzanian subsidiary – East African Cables (Tanzania), with plans to offload the unit from its business.
The Nairobi Securities Exchange-listed firm has entered into a share purchase agreement with Msufini (Tanzania) Limited, for the sale of 16, 218,000 (16.2 million) ordinary shares.
This is at a par value or original value of Tsh10 (an equivalent of Kenyan shilling 0.56), constituting 51 per cent of the issued share capital of East African Cables (Tanzania) Limited (EAC Tanzania), to Msufini.
The announcement triggered both East African Cables and its parent company– TransCentury's shares at the NSE on Thursday, gaining 3.09 per cent and 4.65 per cent, to close at Sh1 and Sh0.45, respectively.
Msufini is a private limited company incorporated in Tanzania, whose primary business is the manufacture and sale of water treatment chemicals.
EAC Tanzania on the other hand is a private limited liability company incorporated in mainland Tanzania and in the business of manufacturing an extensive range of cables for domestic, industrial lighting and power electricity transmission.
The sale is subject to regulatory and shareholders’ approval, East African Cables CEO Paul Muigai said in a notice.
“Upon completion of the sale, EAC Tanzania will cease being a subsidiary of the company,” Muigai said.
The loss-making cable manufacturer has been struggling to stay afloat with the Tanzanian subsidiary weighing down its balance sheet.
EAC sunk deeper into the red as half-year losses for the period ended June 2023 increased to Sh214.4 million, amid high debt obligations.
This was from Sh185.9 million reported in the same period the previous year, a 15.2 per cent fall, as investors continue to miss on dividends.
The losses came on the back of increased operating expenses, which wiped out gains made in gross profits that went up 24 per cent to Sh312 million.
During the period under review, the Tanzania subsidiary continued to experience working capital constraints, management said, significantly affecting its bottom line and negatively impacting the Group’s consolidated performance.
“East African Cables Plc’s Kenya business has maintained a growth trajectory, sustained by growing demand from retail and wholesale categories for building and construction projects,” it said in its financial statement.
Last year, the group faced an insolvency threat from Equity Bank, a matter that the company challenged in court.
At the end of June, current liabilities outstripped current assets, which stood at Sh3.4 billion against an asset value of Sh891.7 million.
Equity Bank placed TransCentury and E.A cables under receivership over a disputed Sh4.8 billion loan, months after it missed a Sh2 billion cash call.
Last year, EAC reached out to lenders in Tanzania and Kenya for more loans to help fund a working capital gap of Sh1.24 billion, after the parent firm failed to raise the targeted Sh2 billion.
Muniu Thoithi and George Weru of consultancy firm Pricewaterhouse Coopers (PwC) were appointed joint receivers.
However, a commercial court temporarily suspended the decision by Equity to place the affairs of the investment firm under receive managers.
The Judge issued the order after the firm told the court that the appointment of receiver managers would cripple their operations, particularly ongoing massive projects including the ones being carried out by its subsidiaries.
Some of the projects valued at over Sh4 billion are in Kenya, Tanzania, Uganda, DRC, and Zambia.
Most were at an advanced stage while some had been finalised, pending inspection and approval, the parent company had argued.
The completion of the projects, TransCentury said, would raise additional funds for the liquidation of outstanding debt.
The projects vary from the supply and installation of weighbridges, the renewal of expired licenses, among others.
In an interview with the Star, Muigai said the firm has intensified innovation and produced electrical accessories, including switches and circuits alongside cables.
He said the firm's financial health is looking up and they remain focused on growing a strong order pipeline and improving contribution from the export market.
"Our business is on the right path to recovery, and I am confident that as we implement our refreshed strategy, the business will become profitable and give a return to shareholders in the medium term,'' he said.