What you need to know:
- Goldfinch says it lent $5m (Sh18.6b) to Tugende Kenya but $1.9m (Shs7b) was irregularly lent to the Ugandan unit, which created repayment difficulties
Goldfinch, a US based lender, has said it has reached an understanding with Tugende on a process in which a $5m (Sh18.6b) loan advanced to the asset financing company would be restructured.
In an investor update, Goldfinch, which advanced a loan facility of $5m (Sh18.6b) to Tugende Kenya, part of which was irregularly lent to the Ugandan unit, said Warbler Labs, a law firm representing its interests, had “signed a term sheet with Tugende agreeing in principle to a comprehensive restructuring plan that may result in a material recovery ”.
“Based on the current facts and circumstances, including legal work and any necessary regulatory approvals, the restructuring and first payment are expected to occur prior to the end of 2023. However, it could be delayed due to unforeseen issues,” Goldfinch said, noting that if the restructuring successfully closes at the indicated terms, the potential net write-down of a part of its pool’s net asset value due to the Tugende default may reduce from about 3.95 percent to less than 0.79 percent.
In July, Goldfinch told investors that Tugende Kenya had defaulted on the $5m (Sh18.6b) loan and the possibility of making a full recovery of the principle in October was minimal.
This had come on the back of a discovery that Tugende Kenya, which had borrowed the money in 2021, had irregularly made a $1.9m (Shs7b) intercompany loan to Tugende Uganda to shore up its operations weakened by macroeconomic factors.
In a July update, which followed another in February, Goldfinch said it had discovered the irregular lending, which had made repayment difficult, in December 2022 and efforts to remedy the situation had been futile.
“The Tugende Kenya facility will need to be restructured, leading to losses possibly [of] up to the entire amount of the loan,” Goldfinch said then.
Last month, Tugende which has its headquarters in Uganda, confirmed there were ongoing discussions after Goldfinch said it was looking at different alternatives that would help it to recover its money.
“We are in ongoing discussions with all our current investors, including Goldfinch on capital solutions that [will] ensure positive outcomes,” Mr Michael Wilkerson, the Tugende founder and chief executive officer, said then.
In 2022, Tugende, which operates a subsidiary in Kenya under a holding company based in Mauritius - Tugende Global - stepped up efforts to improve its balance sheet, which had been impacted by a tough global macroeconomic environment.
The slowdown occasioned by Covid-19 restrictions resulted into a rise in repossessions and lease cancellation, impacting the company’s balance sheet.
Ability to repay
Mr Blake West, the Goldfinch chief technology officer, told investors last month that they had reservations about the ability of Tugende Kenya and Uganda to repay the Shs18.6b, noting that they were in talks to recover value from the loan.