State-owned National Oil Corporation of Kenya (Nock) is the latest parastatal that is teetering on the edge of bankruptcy after it defaulted on five bank loans and breached several lending conditions for others.
The Nation has learnt that the State corporation, which dropped its Chief Executive Officer (CEO) MaryJane Mwangi on Wednesday, has been operating at the mercy of bank overdrafts and loans from KCB and Stanbic Bank, which are now threatening to pull the rug from under its feet, having ran out of patience.
On Wednesday, after a charged board meeting, the oil marketer said its CEO had opted not to renew her contract, a polite language used by companies to communicate sacking decisions. The board replaced her immediately, pointing to a fallout.
“During a board meeting held on October 9, 2019, the CEO of National Oil Corporation of Kenya, Ms MaryJane Mwangi, communicated her decision not to renew her contract. In this regard, the board has accepted her decision and has with immediate effect appointed Mr James Nyamongo to serve as CEO in an acting capacity pending recruitment of a substantive CEO,” Nock said in a statement.
The practice is, when a CEO opts not to apply for a second term, she remains in office for the remainder of her term or until a replacement is found.
In the past, the National Oil board has been accused of being hostile to its CEOs if they do not ‘play ball’. Big tenders at the agency that have caused friction include the oil jetty and the mwananchi gas project, which has since hit a dead end, and a fuel supply quota to government entities.
Documents seen by Nation paint a picture of a firm that is in financial stress and its lenders are preparing to draw blood. National Oil uses KCB and Stanbic Bank to fund its petrol and diesel purchases. A default means it will soon run out of stocks and its petrol stations will be empty if the banks do not loosen their purses.
“Further to our various correspondences and discussions with regard to your facilities with us, and the various meetings held with you and the finance manager, Mr Alex Magu, we wish to inform you that your accounts continue to be irregular,” KCB says in a letter addressed to National Oil.
According to the letter, the bank and Nock already had two meetings mid-September that did not bear fruit. KCB went ahead and gave the firm 14 days to regularise its debt or face sanctions. The deadline elapsed.
By September 13, the overdraft account had Sh814.7 million in arrears and had been in arrears for 97 days, which has now crossed 110 days.
The other term loans the bank wants to recover include Sh9.5 million that was 13 days in arrears and Sh23.3 million that was 35 days in arrears. The other two term loans that were in arrears are Sh6 million and Sh11.3 million. In total, the bank is demanding Sh865 million.
KCB also said it was in the process of reporting Nock to credit reference bureaus in compliance with the requirements of the Central Bank of Kenya.
The bank said it was constrained to now pursue suitable recovery actions unless the position is regularised.
That is not all the trouble at its doors. Nock is also in breach of loan conditions, among them sharing of signed, audited accounts within 180 days of the end of the fiscal year, June 2018.
To set the stage that could declare Nock bankrupt, the bank also said it was planning to do an independent business review of the oil marketer, as it prepares to take painful recovery paths that could bring in auctioneers or take over the management to protect their loans.
In its letter, Stanbic accused National Oil of being in breach of covenants and recapitalisation of the firm.
“Please also note the bank’s concern regarding National Oil company’s status as a going concern. Kindly revert in writing, outlining the possible causes and remedies being pursued by the company to correct the breaches as well as actions, including timelines being taken by the corporation, to recapitalise the business,” says the letter signed by Mr Renato D’Souza (oil and gas sector head) and Mr Roy Kimandi (credit manager).
When banks do not believe the financial records as presented by a firm or are about to declare an entity bankrupt or place it under receivership, they carry out an independent audit of their books to get a true picture of the state of affairs.
It is not just KCB that is breathing down the throat of National Oil.
Stanbic Bank has also fished out its scalpel and is ready for war.
When a company is said not be a going concern, it means that all factors remaining constant, the auditor does not see if the company will survive for another year.
The four major ratios it has breached include the ratio of EBIT to gross interest payable, the ratio of current assets to current liabilities, borrowings to tangible net worth and the trade accounts receivable, which are all blinking red.
“Notwithstanding the above, be further advised that the bank reserves its right to take any action legally available to it under the facility letter in respect of the breach as may be deemed necessary in the sole discretion of the bank,” Stanbic adds in its threat.
The firm is expected to appear before parliament’s Public Investment Committee (PIC) next week to answer questions raised by the auditor general in its previous financial statements.