Pan- African mortgage lender seeks to have its short-term debt restructured

The aftershocks of the 2016 crisis that hit pan-African mortgage lender Shelter Afrique seem to be still being felt two years on.

The bank has gone to creditors to have its short-term debt restructured, attributing the crisis to loss confidence that saw lenders abandon the mortgage firm.

This was after former Head of Finance Godfrey Waweru blew the lid on accounting and lending irregularities at the mortgage lender.

The scandal that saw embattled Shelter Afrique boss James Mugerwa kicked out over allegations of conflict of interest, staff harassment, and blowing up $7,845 (Sh784,500) has tested the lender’s ability to survive.

The Pan African mortgage lender was forced to make a regulatory warning to its bond holders last week over its plan to renegotiate its debts - revealing the extent of the damage caused by the crisis.

“During the last quarter of 2016, negative information on Shelter Afrique surrounding the credibility of its financial statements and provisioning policies came out into the public domain,” the lender said in an information memorandum.

“Due to this negative publicity, Shelter Afrique was unable to access adequate funding from its lending partners. As a result, Shelter Afrique experienced liquidity constraints making it difficult for the company to underwrite new business and meet some of its short-term obligations,” the mortgage lender said.

PROFIT WARNING

The lender which recently got Daniel Nghidinua of Namibia as chairman, replacing Jean Paul Missi of Cameroon, also issued a profit warning.

This has been kept alive by hunting for support from its shareholders but would now need a radical debt restructuring to pull through.

On 30 September 2013, the Issuer issued an initial tranche of the Sh5 billion Fixed Rate Notes and Floating Rate Notes due September 30, 2018 which it insists it can still settle.

The actual principal aggregate value of the Notes outstanding as at the date of the Memorandum was Sh825 million, the balance having been paid in line with the Pricing Supplement (details about the specific security issuance) dated September 6, 2013.

The bank said that during the standstill period - time while they are negotiating restructuring - the existing debt obligations will be restructured.

The process is expected to commence after completion of the independent business review expected to be finalised by the end of this month.

The firm is in the process of negotiating a debt restructuring scheme with the international development finance institutions such as Kfw and European investment.

“This restructuring is part of a general turnaround process initiated by the board and management, which has received broad support from our lenders and shareholders,” the lender said. “The company is in the final stages of the turnaround, and a satisfactory resolution is expected in the coming weeks.”

One of its prime lenders is the Kenyatta family linked bank Commercial Bank of Africa (CBA) which has been approached to restructure Shelter Afrique debt.

According to the lenders books, Shelter Afrique had four facilities with CBA in 2016 worth Sh368 million.

Though details remain scanty, the mortgage lender has approached CBA for additional money.

“During the standstill period, Shelter Afrique shall not, save with the consent of the lenders that have entered into the standstill agreement, incur any new financial indebtedness (with the exception of the emergency liquidity facility between AfDB and Shelter Afrique for a nominal amount of Sh2 billion ($20 million) the CBA restructuring and any foreign exchange transactions in relation to the normal course of business,” the lender said.

However CBA boss declined to give details of the help they will be granting Shelter Afrique.

“As a matter of policy, we do not comment on client transactions due to confidentiality reasons,” said CBA Group Executive Director Martin Mugambi.

The lender has been forced to re-look its business in a move that will see it abandon private projects which have been notorious for defaults.

It has promised its creditors that it intends to change the business model to funding public private partnership housing developments and co-operatives as well as scaling down on private sector construction finance housing developments

Due to the crisis, Shelter Afrique limited disbursement last year to committed and existing projects only estimated at (Sh5 billion) $50 million.

In 2017, the cash outflow on disbursement was Sh2.8 billion ($28 million). The lender says it has improved collections from its existing loan portfolio.

For the year ended December 31, 2017, Shelter Afrique collected Sh8 billion ($79.9 million), a year-on-year improvement of approximately 56 per cent.

The mortgage lender also said it wants to invite new shareholders to help it meet maturing debt as countries drag their feet to fund it.

Shelter Afrique which is co-owned by 44 African nations, the AfDB and the Africa Reinsurance Company has been calling for a bailout to meet liquidity ratios, pay its debt and finance needed its strategic goals.

Kenya is the largest country shareholder, with an 11.16 per cent stake.

“We are exploring shareholder financing, we have raised a significant amount from our current shareholders, and we have also resolved to open a new class C group of shareholding for African and non-African entities alike,” Pan African real estate financier said in an email.

“We have begun talks with some keen organisations and countries who share our commitment to affordable housing in Africa.”