Chike Africa, a company registered in Port Louis, Mauritius has put in a formal expression of interest (EoI) for buying a stake in Real People, a non-deposit taking financial solutions provider and settling its debt.
For this to be realised, Real People has asked holders of its Ksh 1.3 billion outstanding corporate bond to take a 70 per cent cut on the principal amount covering the first part of the issue worth Ksh 267.1 million.
This is part of the Extraordinary Resolutions proposed by the Nairobi Securities Exchange fixed-rate note issuer, ahead of its 21st December 2021 for the purpose of considering and, if thought fit, passing them.
If passed, the Bondholders will have waived Ksh.187 million in due payments.
Chike Africa intends to invest Ksh 675 million ($6 million) in two equal tranches in the distressed firm.
Other proposed resolutions require the bondholders to waive accrued and unpaid interest for the period from August 2020 to February 2022. The 30 per cent balance in principal is expected to be cleared in three equal instalments starting from February 28, 2023, to February 28, 2025.
Redemption of the bonds has been delayed by three times to date.
“In our view, although the proposal offers a solution for noteholders whose maturity dates have been extended 6 times, the 70.0 per cent haircut, which would amount to approximately Kshs 0.9 billion, would represent a significant loss to investors and in turn dampen investor confidence in public markets,” Cytonn Investments note in a markets’ update.
“Key to note, the Noteholders had been offered an equity stake in the company in order to decrease the liability and interest expense while also boosting working capital as it scouted for a strategic partner.”
The Real People MTN adds to the list of regulated entities that have led to losses for investors in Kenya, amounting to approximately Kshs 209.4 billion, and further debunks the myth that regulated products are always safer.
“In our view, the Capital Markets Authority (CMA) should put in place sufficient mechanisms to protect investors’ funds in the capital markets, such as a Capital Markets Compensation Fund which would pool funds from market transactions and step in to compensate investors in the event of losses or illiquidity.
Currently, investors in the capital markets are only protected by the Investor Compensation Fund (ICF), which only secures investors from failure of a licensed broker or dealer to meet contractual obligations,” Cytonn notes.