Centum is trying to be clever in the way it’s managing its risks especially on real estate.

They had the real estate subsidiary take on a bond that works almost similar to securitized mortgages.

The bond they are issuing is a zero coupon bond that is backed by deposits from people who will buy the real estate units in projects they intend to invest in.
Zero coupon means they wont pay anything until bond maturity. At maturity the bondholders will be paid out of the deposits collected from the housing unit sales. In the event that there are insufficient funds to cover bond payments, investors will have to take up housing units.

This means that investors will carry the risk that the projects won’t be completed in time and the risk that the real estate market might perform poorly and Centum might be unable to meet housing units sales targets. So Centum only biggest risk there is reputation risk.

They are also saying they want to keep the holding company balance sheet ‘debt free’ by having subsidiaries take on debt against their own assets. Without guarantees from parent it means that subsidiaries can be closed down without necessarily hurting the parent company,assuming the group does not depend too much on the subsidiary (ies) closed down and that the parent does not try to shift capital around through inter-company debt/dividends.
At group level, debt taken by subsidiaries is still debt carried by the company

CEO said dividend is guaranteed since they have the cash despite being paid less dividend from their private equity portfolio. On the bright side, Isuzu has resumed paying dividends and they are finalizing a number of land sales. They only need Ksh800 million in cash to pay a dividend and as at half year they have 1.7 billion. Since the banks are not paying any dividend next year, I will gladly take a 7% yield from Centum.
Centum has a market Cap 11bn, yet it has 7 bn in pure cash and cash equivalents so the rest of the business less debt is valued at 4bn. It is still a buy for me below 20 despite the heavy exposure in real estate. Real estate will recover at some point in future.

Try Custody on the contacts below
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Standard Street
P.O. Box 8484-00100
Nairobi 2230518
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Share price has overtaken Nation media on it's way down.
There has been heavy trading on the counter for the past one week with daily trades of over a million shares

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