Kenya Power #ticker:KPLC has breached the terms attached to Sh59.96 billion worth of its short-term and long-term loans, signalling a biting cash crunch at the State-owned electricity distributor.
The firm, whose total borrowings were Sh113 billion as at the end of June, breached debt covenants for Sh49.99 billion long-term loans and Sh9.98 billion short-term debt, prompting auditor general Edward Ouko to qualify its financial statements.
In the year ended June 2018, its current ratio — a liquidity measure of a firm’s ability to pay short-term and long-term obligations — fell below the 1:1 ratio set by the lenders as a condition during the tenancy of their loans. It sunk into negative working capital of Sh51.6 billion.
Breaching debt covenants placed it at risk of being forced to reclassify the entire Sh59.96 billion debt into short term loans to make it repayable within 12 months.
However, it received a temporary reprieve in the form of a waiver by the lenders, sparing it from a move that would have placed it on the edge given the negative working capital position.
“Subsequent to the financial year end, the company received letters from lenders waiving their rights to demand payment due to the breach of the debt covenants even though the company did not have unconditional rights to defer payment as at 30th June 2018,” notes Mr Ouko.