KENYA – Paint manufacturer Crown Paints has written off a total of US$6 million it had invested in its subsidiaries in Uganda and Tanzania, which are in losses, according to its annual report for the year ended December 2019.
This is the latest challenge for the Nairobi Securities Exchange-listed firm, which in 2018 converted loans amounting to US$8.3 million it had provided to its subsidiaries into equity.
“During the year ended December 31, 2019, a provision of US$6 million was made, being impairment in subsidiaries,” the company says in the report.
The move saw the value of its investment in the subsidiaries drop to US$10million in the review period from US$17million a year earlier.
The company wrote off US$2.6 million in Regal Paints Uganda and US$3.4million in Crown Paints Tanzania.
The value of Crown Paints Rwanda increased and there was no impairment in the subsidiary.
The company says the impairment is based on the invested amounts and likelihood that the same can be recouped from the subsidiaries’ future cash flows.
Before the write-off, the investment in the subsidiaries represented about a third of Crown Paints’ total assets.
The three subsidiaries have made cumulative losses of more than US$10 million.
“Regal Paints Uganda Limited, Crown Paints Rwanda Limited and Crown Paints Tanzania Limited have a history of losses,” the company says in the report.
“Further, the subsidiaries rely on the parent company for the provision of working capital and their ability to continue as a going concern depends on the continued support, they receive from the parent company.”
The paints manufacturer is seeking to raise US712,000 through a rights issue to reduce its debt load and turn around the fortunes of the subsidiaries.
The company plans to invite outside investors to take up stakes in the cash call without first making an offer to all the existing shareholders.
“The rights issue will specifically enable the company to secure its balance sheet strength to give it a competitive advantage in competitive market conditions,” the company said in a notice.
“Allow the company to invest in its subsidiaries which have hitherto made losses to retain financial flexibility in line with its long-term strategy.”
Crown added that it would also use part of the funds to manufacture new products such as alcohol-based sanitisers.
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