Heading downwards to bei ya koo/patco 1 bob

Kuramo Capital controlling stake in TransCentury likely positive. TransCentury Limited (TCL) shareholders will be diluted by at least 65% (by our estimates), following the entry of Kuramo Capital Management (Kuramo) into the business. A level of around 50% is consistent with the previously expected level of dilution from bond holders. The higher dilution follows bondholder’s refusal to exercise conversion rights to equity following a share price decline, and a depreciation of the KES against the USD (on which the conversion was based). On 14 March 2016, the Group reached an agreement with Kuramo, an African focused investment manager, to inject USD 20m (approximately KES 2bn) of fresh equity into the business. The funds are expected to be received in September 2016 and will be used settle 50% of the bond debt. TCL signed an agreement with the bondholders on 24 March 2016 to effectively amend the terms and conditions of the bond to: 1) Reduce the quantum of the bond liability from USD 80m (due 25 March 2016) to USD 40m as the final and full settlement of the bond; 2) The repayment period was extended by six months to 25 September 2016; and 3) The first USD 20m of the revised loan balance of USD 40m is to be paid by 25 September 2016, and the balance of USD 20m likely to be converted to unsecured loan repayable over a three years period. The impact of these changes will see TCL write back principal and the interest charges amounting to KES 2bn (USD 19.4m) in 2016. TCL has also consolidated all existing trade finance and term loan facilities of the business across the sub-Saharan Africa into one global facility with African Export-Import Bank (Afreximbank). The facility will be KES 15.3bn (group loans are at KES 13.1bn), including additional facilities to fund the group expansion facility. This decision is expected to achieve economies of scale. After these changes, we estimate NAV per share will be above KES 10, implying that the current share price is trading at a substantial discount of at least 60%. Our estimates though, are subject to the level of dilution - which as noted above, could be far higher than 65%. (Company filing, Standard Investment Bank)

Wow! So the bondholders got screwed by TCL. What a bunch of negotiators. Bonds reduced by 50%. And to be repaid over a longer period. Slowly. And secured debt is not unsecured.

Financial doping

In short, TCL defaulted and is still going to default. A restructuring of debt is technically a default(which has already happened). The same applies to a moratorium (which it will be taking from September this year).

Why would/did the bondholders take such a huge loss and a further downgrade of their debt instead of pressing for payments or seek to wind up the company altogether?

Secondly, why would the minority bondholders convert their holdings into equity with heavy dilution just around the corner?

Thirdly, who are the faces behind kuramo capital and why are they injecting such a hefty amount in a company that ain't worth as much? With a given certainty of continued hemorrhage for the remainder of the outstanding bond amounts and loss making by TCL, kuramo may not get a return on equity for a long time... Why invest?

This is baffling/does not add up on so many levels.