KenolKobil of Kenya Abolishes Fuel Hedging After Posting Losses

KenolKobil Ltd., a Kenyan fuel retailer with operations in nine African countries, will stop buying volumes forward following a currency loss last year.

“It has been decided by the board not to take any more forward covers on the exchange,” Managing Director Jacob Segman told shareholders today at a meeting in the capital, Nairobi.

The company, which previously hedged a quarter of its fuel imports, posted a foreign-exchange loss of 4.6 billion shillings ($54 million) in 2012, erasing full-year profit. Fuel companies are scaling back forward purchases to increase exposure to the market price of oil.

“Most companies are now adopting a more conservative hedging policy, they are no longer hedging as much as they used to,” said Eric Musau, an analyst at Standard Investment Bank Ltd. “The oil-price volatility caused a lot of aviation companies and oil companies huge losses.” KenolKobil said today it’s reducing supplies of aviation fuel as it’s unprofitable.

KenolKobil rose 1.9 percent to 10.5 shillings in Nairobi trading. The stock has fallen 23 percent this year, compared with a 33 percent gain on the Nairobi Securities Exchange All-Share Index. (NSEASI)

The company increased borrowings in the first half of last year to finance hedging, Finance Director Pat Lai told shareholders today, without providing figures. It’s now considering shifting toward dollar-debt to curb costs, she said.

“We’re looking at the composition of our borrowings,” Lai said. KenolKobil is studying “moving shillings to dollars, which will be better for us because the dollar interest rates are lower.”

Cutting Payroll

The company, Kenya’s biggest fuel retailer by market value, is cutting costs by identifying idle and “low-performing” assets for sale and reducing the wage bill, Segman said. It will cut staff to 360 by June from 570 a year earlier by eliminating the posts of retiring employees and ending lapsed contracts.

The Nairobi-based company has long been looking for a partner to help fund expansion. On March 1, KenolKobil said it ended talks on selling a controlling stake to Puma Energy BV, a Geneva-based fuel supplier owned by Trafigura Beheer BV.

“We are still seeking a strategic investor, if we want a better future we need a strategic investor,” Segman said today. “There are a number of companies who are either traders in the midstream or in the midstream and upstream who have the capacity to contribute to the growth of this organization.”

To contact the reporter on this story: Eric Ombok in Nairobi at eombok@bloomberg.net

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net

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