From riches to ruin: Tragic tale of booming Kenya firms burst in iceberg of debt

It is in the 1926 novel, The Sun Also Rises, Mike, one of the characters, when asked how he went bankrupt responds: “Two ways. Gradually and then suddenly.”

Mike, when probed further on what brought the bankruptcy, says he had a lot of false friends and then “I had creditors, too.”

This reads like a script for many of the Kenyan firms that were at some point the Goliaths that towered over the corporate scene, but are now chocking under an iceberg of debt. And banks’ patience is being put to a big test.

Phoenix Publishers, which was founded in 1988, in 2021 decided to put itself under administration to give itself time to recover by keeping away creditors, including banks, from attaching its property. But for many, it is creditors who knock at the door first.

For many of these firms, including Uchumi, Nakumatt, Mumias Sugar, ARM Cement and now TransCentury, their false friend was high ambition and governance lapses. Then they turned to loans in an attempt to lift their heads from the raging waters. But they are instead sinking under weight of their own debts.

And banks, increasingly running out of patience, have become more aggressive at pouncing on these struggling firms, triggering legal battles that do not seem to benefit anyone—except leaving a trail of once-upon-a- time tales in corporate Kenya.

TransCentury and its subsidiary, East African Cables, have become the latest firms to feel the heat of bankers over piling debt. Equity Group on Saturday placed the two under administration and receivership respectively.

The firm, which recently raised Sh538 million from the targeted Sh2 billion cash call from investors, now faces a survival battle after Equity rejected its debt repayment plan which it termed as “unacceptable.”

TransCentury had proposed to pay down Sh108 million of Equity debt, estimated at $34.3 million (Sh4.8 billion), and requested significant discounts of over Sh2.8 billion ($20 million) and a new restructure but the lender declined.

Like many other firms who have walked in this murky waters, TransCentury Monday morning moved to the High Court seeking a temporary suspension of the administration, pending inter-parties hearing.

This has now become a tool familiar script for many other companies whose strategy to ride out of the storm using debt has driven them straight into the direction of even stronger headwinds.

From retail to manufacturing and hospitality to fashions industry and education, corporate Kenya is increasingly witnessing once booming companies stare at the risk of going burst. Like Mike’s tale, it is always gradual, then sudden.

Retail giants

Tuskys Supermarket, once a success story and a retailer that was at some point supposed to rescue Nakumatt Supermarket, opted to follow its competitor to the graveyard as both were hounded by debts owed to suppliers and banks.

The High Court early this month ordered the liquidation of the nearly Sh20 billion debt-riddenTuskys, ending a 30-year long journey for what was once one of the largest family –owned businesses in the East African region.

Equity last year put on auction Tusky’s five-storey commercial building at the junction of Tom Mboya Road and Accra Road in Nairobi over a Sh650 million debt as lenders and suppliers ran out of patience with the retailer.

Such has been the story of Nakumatt, which has survived over three liquation attempts with lenders including Bank of Africa, DTB, Standard Chartered Bank, UBA and Guarantee Trust Bank all having camped at the doors of the retailer over unpaid loans running into billions of shillings.

Uchumi Supermarket still puts on a fight but it is nowhere near the retailer that many Kenyans had come to love since 1975 and even operated in Uganda. From being known for serving customers for over 40 years, its story is now more of court battles.

It has just three branches still standing—Langata Hyper, Nairobi West and Adams Arcade. Lenders such as KCB, UBA and Co-operative Bank  have found it increasingly difficult to recover their loans from this retailer.

For such businesses and those in hospitality sector such as Boma Hotel and English Point Marina, Covid-19 only served to take an already fragile situation and make it worse.

National Bank of Kenya in 2019 placed the Red Cross-owned Boma Hotel under receivership due to huge debt, while KCB in June last year seized English Point Marina over a Sh5.2 billion debt and placed it under receivership, triggering legal battles.

For some other brands, like Mumias Sugar, which for ages awed Kenyans with its ‘natural sweetness’ tag, the beautiful story soon ran into debts.

KCB, with a Sh545 million outstanding loan in the sugar miller, was the first to pull the plug in 2019 by placing it under receivership.

Other lenders including Ecobank and Commercial Bank of Africa also laid claim on the miller over debts, leading to legal and political process that culminated in the leasing of the miller to save it from total collapse.

Away from the sweet sugar turning bitter for banks, the crunchy biscuits at Britania Foods in August 2021 also turned less attractive as banks including Diamond Trust Bank (DTB) were forced to place it under administration over Sh1.3 billion loan.

Britania, which had operated for over 30 years said its woes were not fully of its own making but of Nakumatt and Tuskys, which went under while owing it more than Sh50 million.

Cement manufacturer East African Portland Cement Company (EAPCC), partly owned by government, has also not had the best of times as it chokes under debt and high operating costs.

KCB was at some going to sell EAPCC assets including land to recover its loan. But EAPCC acted fast by transferring part of it its land to the lender to cut debt by over Sh4.8 billion.

EAPCC last year also rolled out a plan to subdivide 907 acres of land into 50-acre plots to raise about Sh5 billion to help in settling all debts and boosting its working capital.

But ARM Cement, another cement firm, was put under liquidation in October 2021, costing creditors Sh11 billion at the end the process. The firm had racked up Sh14 billion in debt and had negative equity of Sh2.4 billion before collapse.

Fashions retailer Deacons in 2018 moved into administration as losses piled and debts crossed Sh600 million mark. It was owing UBA Sh98.38 million and Sh94.28 million to NIC, now NCBA following the merger with CBA.

ARM’s financial difficulties saw it placed in administration in August 2018 after failing to service loans from banks such as Absa Bank Kenya, Stanbic and UBA Bank Kenya as losses piled up and ate into its capital.

NCBA and Co-op Bank mid last 2021 placed Kaluworks Ltd, part of billionaire Manu Chandaria’s Comcraft Group, under receivership for defaulting on over Sh9 billion debt.

The two lenders in August last year, however, surrendered Kaluworks, one of Kenya’s largest manufacturers of aluminium utensils and roofing sheets, back to Comcraft after balking at having to inject Sh750 million to revive the company.

Cases between banks and companies over debt repayments have continued to be reported, showing that the troubles are far from over, even though lenders are having to spend a lot of time in the legal process.

Karuturi Limited, a grower of roses that was exporting more than one million stems annually, was put under receivership in 2014 after failing to repay a Sh1.8 billion loan from Stanbic Bank.

The receivership triggered a legal battel that went all the way to the Supreme Court before Stanbic was in 2021 allowed to auction the firm’s assets including a 70-hectare piece of land to recover the money.

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