Lender banks on Nakumatt debt swap deal in Sh3.6b debt

Jennifer Theuri, Chief Executive of Integrated Payments Services (IPSL) Limited reviews the PesaLink platform with Nasim Devji, Group CEO and Managing Director, Diamond Trust Bank (DTB) Kenya Limited during her courtesy call visit to DTB Kenya Limited.

NAIROBI, KENYA: Diamond Trust Bank is banking on Nakumatt’s creditors taking up a debt swap deal offered to them to recoup some of its money from the ailing retailer.

The lender is owed Sh3.6 billion, which is about half of the Sh6.9 billion that Nakumatt owes local banks and more than 10 per cent of the Sh30 billion owed to all creditors, including suppliers.

The bank said on Wednesday the success of Nakumatt’s turnaround depended on all creditors, including suppliers and banks, accepting a revival strategy that has been proposed by the retailer’s court-appointed administrator.

The proposal has not gone down well with many of the suppliers, who will be required to waive part of their debt and convert the balance to equity.

The bank’s non-performing loans in the year to December 2017 nearly doubled to Sh14.8 billion from Sh7.5 billion in 2016, largely on the back of a booking of Nakumatt’s huge debt.

The lender, however, did not increase the cover of the growing loans despite the momentous growth in NPLs having reduced provisioning from Sh2.8 billion to Sh2.6 billion despite the uncertain future of Nakumatt.

DTB Chief Executive Nasim Devji downplayed the impact the loan has had on the bank's books, saying the loans to Nakumatt were secured and that this had considerably brought down the risk that the bank bore.

“We need to give the process (turnaround) a chance to happen. If it does not happen, the other option is the liquidation. In case of such an eventuality, the banks are secured, but nobody else is secured and so it will probably be a loss. There will not be any winners out of this,” said Ms Devji.

She spoke in Nairobi when the bank signed an agreement with the African Development Bank that will see DTB get a Sh7.5 billion loan from the pan-African development finance institution for onward lending to small businesses.

The money owed to the lender is in comparison to Nakumatt’s assets valued at Sh1.4 billion by the administrator, meaning they are barely enough to cover half the debt.

Creditors have shown their apprehension with the debt swap deal, storming out of a recent meeting that was meant to endorse it.

“They are asking us to convert our debt into shares in a white elephant,” one creditor told a local daily.

Devji said the bank supported the retailer’s revival on account of the numerous suppliers who, in addition to the money that is at risk of being lost, would also lose an avenue to grow their businesses.