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Kenya: Restructuring Quarterly Bulletin

9 February 2021
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The year 2020 was not business as usual as the outbreak of the new COVID-19 virus disrupted and tested the resilience of global economies, health systems, supply chains, industries and businesses. It is no wonder that the year was a busy year on the restructuring front at both the local and global level as many businesses and organizations went into survival mode as their revenues and cash flows dried up due to inter alia reduced consumer spending.

In Kenya, we witnessed a number of large companies such as the retail chain Tuskys in dire financial distress leading to the retail chain seeking a court order to bar its creditors from auctioning its assets. East African Portland Cement Company, a cement maker, became insolvent after it failed to repay a long-term loan, its suppliers and other relevant authorities like the Kenya Revenue Authority (KRA). East African Cables reached an agreement with the State Bank of Mauritius (SBM) over the restructuring of a Ksh285 million ($2.85 million) debt. Kenya Airways sought funding from the Government of Kenya to navigate the crisis experienced by the aviation industry as a result of the pandemic.

On the lenders side, we saw commercial banks increase their loan provisions, temporarily bar dividend distributions and report significant restructuring of their loan books. This was on the back of a directive by the Central Bank of Kenya to commercial banks to provide relief (in whatever form the banks saw fit) to borrowers whose loan repayments were up to date as at 2 March 2020 and to bear the costs related to the extension and restructuring of loans.

On the global front, the UK introduced the Corporate Insolvency and Governance Act 2020. This Act allowed companies such as Virgin Atlantic to come up with a new restructuring plan which saw Richard Branson and US hedge fund Davidson Kempner Capital Management inject US$1.6 billion (£1.2 billion) into the airline. A number of brick and mortar stores saw a drastic decline in footfall and faced fierce competition from from online retailers.  Several retailers went into administration such as Debenhams, the UK arm of Candadian footwear chain Aldo, Arcadia Group, Laura Ashley, the UK arm of Victoria’s Secret, TM Lewin and Monsoon.

The US economy suffered its most severe contraction in more than a decade. The nation saw bankruptcies surpass levels previously reached in 2008 from car rental companies such as Hertz to the nation’s oldest department store Lord & Taylor.  Importantly, a Chapter 11 bankruptcy filing in the US indicates that a company is struggling, but it doesn’t necessarily mean that it will cease operating. The Chapter 11 process shares some similarities with the administration process in Kenya. The election of President Joe Biden and the first female Vice President – Kamala Harris- ended the year on a positive note.

Our expectation in 2021, is that the ongoing vaccinations across the world is likely to mark the beginning of the world’s economic recovery phase. Companies will be looking to clean up their balance sheets and streamline their operations. We expect to see M&A activity in the sectors that have been hardest hit by the pandemic and more companies voluntary undergoing business rescue procedures.