Electricity distributor Kenya Power's #ticker:KPLC 47.7 per cent surge in short-term debt has plunged the company into a Sh16.1 billion negative working capital position, forcing it to open negotiations for loan restructuring.
Kenya Power said last week that it had opened talks with its creditors to extend the payment period for segments of its loan obligations that are due to mature in the current financial year.
"We are beginning to renegotiate part of the loans and convert them into long-term debt to bridge the negative liquidity gap," acting chief executive Jared Othieno said.
Renegotiating some of the debt covenants with the creditors is aimed at ensuring that the current liabilities do not exceed current assets.
Kenya Power's financial statement that was released last week showed that liabilities that are due for servicing in the next 12 months stood at Sh106 billion or 48.5 per cent higher than the Sh54.6 billion current assets available to service such obligations.
This negative working capital position coupled with insufficient provisioning for outstanding debts forced Auditor-General Edward Ouko to offer a qualified opinion on the company's accounts.
"Were the accounts qualified? Yes they were. It relates mostly to the borrowing covenants. The covenant we have is that we should maintain a cash ratio of 1:1 for some of these loans," Mr Othieno said.
Kenya Power's total debt stands at Sh113 billion, down from last year's Sh122 billion but it is the surge in short-term liabilities that has caused the latest pressure.
Mr Othieno, however, ruled out asking shareholders for funds to bridge cash flow shortfalls.
"We have not reached a point where we are going back to our shareholders for a rights issue. We are keen on restricting (this) debt into the long term," he said.
In the year under review, cash flow constraints forced Kenya Power to turn to short-term borrowing to finance some of its operating costs, a development that increased its finance costs by 29.3 per cent to Sh7.8 billion.
Besides, electricity generator KenGen has hit Kenya Power with a Sh1 billion interest penalty for late payments for power supplied.