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KenolKobil Kenya’s Managing Director Plans to Eliminate Debt

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April 24 (Bloomberg) -- KenolKobil Ltd., a Kenyan fuel retailer with operations in nine other African countries, plans to be debt-free by the end of the year and is consolidating its business, Managing Director David Ohana said.

“We are busy paying our loans to the banks,” Ohana, who took the position in July, said in an interview on April 22 in the capital, Nairobi. “In the past we borrowed monies for expanding our business. But we are now changing our strategy a bit. We want to reduce our loans completely by 2014 so that the company can stabilize.”

Commercial lending rates in Kenya averaged 17.1 percent last month, according to the country’s central bank. The East African nation’s government wants these levels cut to less than 10 percent within the next year, Vice President William Ruto said on April 7. The Treasury is preparing recommendations on how to reduce lending rates to boost investment after consulting with the banks, Treasury Secretary Henry Rotich said in March.

“It’s a concern for the overall economy when interest rates” charged by banks are “anywhere between 13 and 18 percent,” Ohana said. “It makes borrowing money expensive and the margins in retailing oil are not that high. This impacts negatively on the business.”

The company, which is Kenya’s biggest fuel retailer by market value, owes 800 million shillings ($9 million) to lenders including Standard Bank Ltd., Africa’s biggest, he said.

Stabilizing Business

While KenolKobil, which is based in Nairobi, isn’t looking for a strategic partner, local and international investors have shown interest, Ohana said.

In March 2013, the company terminated buyout talks with Puma Energy BV, a Geneva-based refining, retail and storage unit of Trafigura Beheer BV, which had planned to buy a controlling stake in the pan-African retailer.

“The main focus for now is sustainability of earnings because we suffered some volatility in profit earnings in 2011 and 2012,” Ohana said. “We want to focus on stabilizing the business first. We possess a great set of assets.”

KenolKobil reported a profit of 558.4 million shillings in 2013 from a loss of 6.28 billion shillings in 2012 after foreign-exchange losses that erased net income.

The stock declined 3.7 percent to 9 shillings by the close in Nairobi yesterday. It has lost 11 percent this year, making it the worst performer on the 25-member FTSE/NSE Kenya 25 index after Uchumi Supermarkets Ltd. and Kenya Electricity Generating Co. Crude futures rose 0.7 percent to $102.16 at 4:29 p.m. in Nairobi today.

Kenya, which has attracted explorers including France’s Total SA and Tullow Oil Plc, is headed to become the first oil exporter in East Africa when it starts shipments as early as 2016.

To contact the reporter on this story: Charles Wachira in Nairobi at cwachira@bloomberg.net

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net Ana Monteiro, Sarah McGregor

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