Old Mutual Group Holdings is preparing to sell its Old Mutual Tower in Nairobi’s Upper Hill due to rising debt service costs.
The company announced on Monday that shareholders must approve the sale and transfer of the office building during the Annual General Meeting set for November 14, 2023.
The decision to divest the 31-story office tower is in response to increasing debt servicing expenses, prompting the insurer to contemplate restructuring its balance sheet by converting shareholder loans into preference shares. As of the year ending December 2022, the company valued the 324,881-square-foot tower, which also serves as its headquarters, at KES 5.5 billion, maintaining the same value as in 2021.
Old Mutual Tower stands as the company’s most significant investment property, surpassing Uganda’s Nakawa Business Park, South Sudan’s Equatorial Tower, and Equity Centre, the headquarters of Equity Group, a prominent lender.
The sale of the tower at its carrying value would reduce the group’s investment property portfolio, which was appraised at KES 19.2 billion by the end of 2022.
Old Mutual has faced pressure due to several years of losses and high borrowing, leading to substantial finance costs. However, in the first half of 2023, the financial services provider managed to reduce its half-year losses by over half, from KESS 1.1 billion to KES 348.0 million. Nonetheless, finance costs nearly doubled due to higher interest rates and the depreciation of the local currency.
The company explained, “Finance costs on borrowings were up 96.0% over the same period in 2022 due to increased interest rates as well as forex losses on the portion of the debt denominated in US dollars. The Libor, which determines interest rates for US dollar loans, rose by 4.4% to 5.0% in 2023, up from 0.6% in 2022, while the Kenyan shilling depreciated by 19.3% against the US dollar over the same period.”
Finance costs increased to KES 1.8 billion from KES 937.0 million as the pool of borrowed funds expanded to KES 15.7 billion from KES 14.4 billion in December 2022.
Old Mutual’s strategy for future growth involves providing a range of financial services to customers. The company stated, “Our strategy is focused on delivering our integrated financial services offering to meet all of our customers’ financial needs under one roof. This will enhance our customer experience and improve the productivity of our distribution channels in the various markets we operate.”
Shareholders of Old Mutual will also vote on the conversion of shareholder loans into preference shares at the upcoming AGM in the following month.
