Insurer UAP seeks loan to pay off Sh2bn bond

UAP Holdings is seeking a loan to pay off its Sh2 billion corporate bond that is due for redemption next month.

The insurer issued the bond in July 2014 at an annual fixed interest rate of 13 percent to finance its expansion and working capital requirements.

UAP says in its latest annual report that it plans to take new loans to settle the bond and a Sh3.1 billion loan from South Africa-based Nedbank.

The five-year dollar-denominated Nedbank loan, attracting an interest rate of three months London Inter-bank Offered Rate (Libor) currently at 2.47 percent plus a 3.5 percent premium, is set to be repaid next year.

“The directors have instituted the following measures: put in place arrangements to refinance the maturing corporate bond and the Nedbank loan, including negotiations with its bankers and ultimate parent (Old Mutual),” UAP says in the report.

With Kenyan commercial banks currently lending at a maximum annual interest rate of 13 percent, taking a local loan will see UAP roll over the bond at an effective lower cost as the interest will be charged on a reducing balance.

The corporate bond last traded slightly above par as investors factored in the remaining short period to maturity.

I & M Bank #ticker:I&M is one of the top investors who have held the UAP bond, according to previous disclosures. The bank, for instance, invested Sh313.1 million while asset manager Sayani Investments bought bonds worth Sh31.3 million.

Holdings of the bonds could have changed since the security is listed on the Nairobi Securities Exchange (NSE) where it is tradable though.

UAP has in recent months moved to restructure its debt and is counting on its parent company Old Mutual to assist in the moves aimed at meeting creditors’ conditions and avoiding a squeeze on its cash flows.