Portland defaults on Sh263m KCB loan

East African Portland Cement Company #ticker:PORT (EAPCC) has defaulted on a Sh263 million loan it took from KCB #ticker:KCB, prompting the lender to recall the credit facilities.

Details of the Nairobi Securities Exchange-listed firm’s default have been disclosed in a report by its external auditor PricewaterhouseCoopers (PwC) seen by Business Daily.

The report relates to an audit of the cement manufacturer’s accounts for the year ended June 2019, which are yet to be made public in the wake of a vacancy at the Auditor-General’s office.

“In the year under review, the entity defaulted on the contractual loan repayments to KCB Bank, totalling Sh263 million, prompting the lender to issue a demand notice dated April 8, 2019 for all its facilities,” PwC said in the report to the board of the cement manufacturer.

“As a result all the borrowings advanced to the entity have been classified as current.”

PwC noted that the magnitude of the debt repayments falling due within a year further strains EAPCC’s cash flows, adding that the company also risks losing assets that were used to secure the bank loans.

The cement manufacturer’s earnings, meanwhile, continue to deteriorate.

The company made a pre-tax loss of Sh2.8 billion in the year ended June, according to the report.

This reversed a pre-tax profit of Sh6.7 billion the year before and which was obtained from major revaluation gains.

Sales in the review period dropped 45 percent to Sh2.8 billion.

“Revenues declined … as a result of significant cash flow constraints in the period that affected the purchase of inputs and hence production,” the report says.

“The throughput in the period was approximately 300,000 tonnes, against the plant capacity of 1.3 million tonnes, pointing to the severe underutilisation of the plant, which translated to low revenues.”

The PwC report shows that the figures for the previous year (ended June 2018) have been restated.

The consultancy firm had completed most of its audit procedures and few modifications, if any, are expected to be made in the final report.

The leaked financial statements underline the impact of delayed funding for the State-owned cement firm.

Unable to run its operations profitably, the company recently announced that it would fire nearly all its employees to further cut costs. PwC says the company has negative gross margins, meaning it would be in a better financial position if it stopped production.