DEBT

KCB seeks to liquidate National Oil over Sh3.8bn debt

The limping state agency needs Sh500 million every month for 16 months to get back on feet.

In Summary
  • NOC is in talks with the National Treasury for a Sh5.1 billion bailout
  • Shareholder’s equity has significantly reduced from Sh1.62 billion in 2018 to a paltry Sh0.28 billion by the end of 2019.
National Oil Copoeration along Jogoo Road.
National Oil Copoeration along Jogoo Road.

State-owned National Oil Corporation of Kenya (NOC) could be  wound up by Kenya Commercial Bank over a Sh3.8 billion debt.

 In April the lender gave NOC a moratorium on principal and interest up to February 2021 in anticipation of lump-sum repayment.

It however changed heart after commissioning an independent liquidity review that revealed the sorry state of finances at the state owned oil marketer.

The report found out that in order to turn around the business, NOC requires a working capital injection of Sh500 million monthly for 16 months. This is a total of Sh8 billion.

A detailed analysis of NOC’s financial status shows that it has over-borrowed resulting in a Debt to Equity ratio of 8:1 (792 per cent). Its debt is currently standing at Sh11.71 billion against the equity of Sh1.41 billion as per the audited financials of 2018/19.

A report by the Senate Energy Committee shows KCB issued a letter to NOC on August 13, demanding full settlement of the loans within 30 days, failure to which it will institute recovery measures.

 

Efforts to reach the lender for more information did not yield an immediate response. A communication officer requested for more time to consolidate details.

The industry standard of Debt to Equity ratio is 1:1. Financial institutions suspended all credit lines after the corporation defaulted on servicing its loans for lack of sufficient cash flows.

Besides KCB, the corporation owes Stanbic Bank Sh1.46 billion, Sh1.29 billion being the principle amount and sh162.1 million in accrued interests as of the end of August this year.

According to the agency’s financial records as at end of August this year, it owed suppliers Sh628 million. This is attributed to a shortfall in revenue arising from working capital constraints.

As the debts pile, its revenue has been shrinking, with its end-year loss growing to Sh1.3 billion up from Sh0.35 billion in 2018/19.

 
 

Sales volume declined from 322.8 million litres in 2018 to 124.8 million litres last year, an aspect attributed to limited working capital. The financing cost rose to Sh881 million during the year under review from Sh725 million in 2018.

Consequently, the shareholder’s equity significantly reduced from Sh1.62 billion in 2018 to Sh0.28 billion by the end of 2019.

Petroleum Cabinet Secretary John Munyes yesterday snubbed the Senate Committee’s invitation to shed more light on the status of the corporation and the Mwananchi Gas project, forcing the Ephraim Maina led the team to adjourn prematurely.

Senators accused Munyes of arrogance and being dodgy especially on matters touching NOC.

Narok Sentator Ledama Olekina, claimed there was a plot by some cartels in the oil sector to sell off the Nairobi Oil Terminal owned by NOC.

''Chairman, I have collected details of how some people are planning to sell off the Nairobi Oil Terminal. Please let's take these allegations seriously,’’ Olekina said.

NOC chief executive officer Morintat Leparan declined to comment promising to give a statement later.

''I am not in a position to talk about that now. I will get back to you later,’’ Leparan told the Star on phone.

Financial problems at the agency saw his predecessor Mary Jane Mwangi resign in October last year.

The corporation’s financial woes have put on hold the government’s bid to revive the ambitious plan to supply poor households with affordable cooking gas, with Sh3 billion earmarked for the Mwananchi Gas project bundled in corruption allegations.

According to the report tabled at before Senate, the ministry procured 357,355 cylinders of 6Kg during the 2017/18 financial year, from Allied East Africa Ltd, Surge Energy, Accurate Power Systems and Metal Mate.

Out of the total number of 357,355 procured, 200,257 were supplied out of which 139,946 cylinders (70 per cent) of the total cylinders received were inspected. Of those inspected, 80,839 cylinders were accepted for circulation while 59,107 cylinders were rejected for being defective.

The state agency is in talks with the National Treasury for a Sh5.1 billion bailout.