Picture: 123RF/Eric Basir
Picture: 123RF/Eric Basir

Can it get any weirder at Namibian investment company Trustco?

The company — which owns insurance, banking, property and mining interests — surged to a new high of R13.49 on August 31 … the same day that Global Credit Ratings (GCR) slapped it with an ominous credit downgrade.

This is the second time Trustco’s shares have suddenly surged at month-end — the price having also spiked on smallish trading volumes at the end of June.

GCR downgraded Trustco’s long-and short-term national scale ratings to limited default (LD) from BBB+(NA) and A2(NA) respectively.

The LD designation means a company has failed to meet scheduled payments or interest payments on one or more of its obligations.

The ratings specialist noted there had been an agreed creditor standstill between Trustco and its key funding partners — "under which we understand that there have been two nonpayments of originally contracted principal".

GCR said the request for the restructuring was initiated by Trustco before the payment obligations were due, and that all the funders of the group agreed to it.

The terms of Trustco’s credit standstill stipulate that no principal payments will be made until the restructuring is complete — regardless of whether the funds are available at the time.

GCR did say that Trustco — which has come under scrutiny in previous editions of the FM for poor cash-flow generation — continues to service its interest in line with the original agreements with lenders.

The ratings firm indicated that while renegotiations are expected to be successful — due to strong funder buy-in — it believed there might be some further nonpayment of principal during the restructuring period. "Post the restructuring or upon evidence that there will be no more nonpayment of principal, we will be able to lift the ratings to a nondefault grade."

GCR also cited Trustco’s "material reduction" in profitability and cash flow — which it said has placed undue strain on the group’s liquidity.

Trustco recently raised substantial fresh capital by selling 25% of subsidiary Legal Shield to the Riskowitz Value Fund, which happens to be one of the biggest shareholders in Trustco.

Trustco indicated at the end of August that PwC had been appointed as debt-restructuring specialist to assist with the process of realigning covenants and payment terms.

The group said the parties would assess and reconsider some of the restrictive and obsolete financial covenants — aiming to replace these with an updated and modernised set more aligned to Trustco’s current capital structure.

The debt-restructuring process is expected to be finalised by December.