Crown Paints has invested an additional Sh832.5 million in its regional subsidiaries, largely by turning debt owed by the fully-owned loss-making units into equity.
The move is expected to ease pressure on the technically insolvent subsidiaries which rely on the Nairobi Securities Exchange #ticker:NSE -listed firm to fund their operations.
The paints manufacturer raised its investment in the units in Kenya, Uganda and Tanzania to Sh881 million in the year ended December 2016 compared to Sh48.5 million the year before
Only a fifth of the additional investment was in cash, with the balance taking the form of debt-to-capital conversion.
“During the year ended December 31, 2016, directors resolved to capitalise Sh665.6 million…out of the amount owing from the subsidiaries making losses,” Crown said in its latest annual report.
The company noted that an additional investment of Sh167 million was made from earlier cash deposits for extra shares in Regal Paints Uganda Limited and Crown Paints Allied Industries Limited.
The Sh665.6 million debt converted into equity is comprised of Sh382.2 million that was owed by Crown Paints Tanzania and Sh283.4 million (Regal).
Crown’s external auditors Ernst & Young (EY) noted that the subsidiaries continue to rely on their parent firm for the provision of working capital.
“The subsidiaries are loss making and rely on the parent company for the provision of working capital,” EY said in the report.
“The parent company has undertaken to help the subsidiaries meet their financial obligations.”
The units had a combined negative net worth of Sh108.9 million in the year ended December, a position brought about by multi-year losses that have piled up at Sh798 million in the same period.
“Further, the directors have assessed business outlook of the subsidiaries and they are confident that their financial performance will improve, and they will become profitable in the foreseeable future,” the company said.