Deep in debt Kenya Power is at mercy of Banks

Banks could soon go after Kenya Power’s assets for breach of contract after the firm went on a borrowing spree that has rendered the monopoly insolvent.

According to a report by Auditor General Edward Ouko, the country’s sole power distributor went on a debt binge and overborrowed up to Sh60 billion against terms set by lenders.

The report said the banks had agreed to forgive Kenya Power, but the firm was not yet out of the woods as it had not secured unconditional rights against the lenders.

“The company received letters from lenders waiving their rights to demand payment due to a breach of debt covenants even though the company did not have unconditional rights to defer payments,” said Mr Ouko.

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Kenya power owes banks Sh113 billion, which is in breach of ratios for commercial borrowing owed to banks, including Equity, First Rand, Standard Chartered and Stanbic.

Of the extra debt that the company took, Sh9.9 billion has to be paid within the year while Sh49 billion is payable thereafter.

The firm cannot meet its immediate obligations since short-term liabilities are twice as much as its short-term assets which puts it in trouble with its lenders. “CMA (Capital Markets Authority) regulations require that the issuer is not insolvent and should have adequate working capital,” said Ouko.

He added that the company’s current assets of Sh54.6 billion were less than its liability of Sh106.2 billion, resulting in a negative working capital of Sh51.6 billion.

Banks’ patience with insolvent firms has thinned lately, putting several of them, including Athi River Mining and Deacons in receivership.

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BanksKenya PowerAuditor General Edward OukoEquityStandard Chartered