Suppliers seek State help over logistics firm’s Sh400m unpaid bill

Atlas Development & Support Services (ADSS) CEO Carl Esprey speaks at the NSE on December 17, 2014 when the firm's shares began trading in Kenya. PHOTO | SALATON NJAU | NATION MEDIA GROUP

What you need to know:

  • Creditors are seeking urgent measures because the firm has announced its exit from the Kenyan market.

  • The NSE listed company owes some of its employees salaries and pensions.

  • Atlas is also listed on the London Stock Exchange.

  • In an email interview with Smart Company, Atlas said that suppliers have until February 12 to prove their claims to “allow the liquidation process to move forward to the next stage”.

Suppliers of the loss making Atlas Development and Support Services Ltd want the government to appoint independent auditors to probe the company’s financial affairs.

It has emerged that the firm, which mainly focuses on providing logistical support to oil and gas exploration companies, owes more than Sh400 million to creditors. 

The appeal by creditors has assumed an urgent tone because the firm has announced its exit from the Kenyan market.

A list of creditors seen by Smart Company includes the Turkana County government and a community group from the area which are owed Sh1.5 million and Sh302,919 respectively.

The company, which is listed on the Nairobi Securities Exchange, is said to owe some of its employees salaries and pensions.

EXITING KENYAN MARKET

Also affected are firms involved in electrical, logistics and energy provision that were contracted by Atlas in different periods when it operated in Kenya.

It is alleged that most of the firm’s creditors were instructed to invoice Atlas’ subsidiaries — Ardan Logistics Kenya Ltd, Ardan (Medical services) Ltd and Ardan (Civil Engineering) Ltd — which have since December 1 been liquidated, raising questions whether it was a scheme by the UK company to defraud local firms.

Atlas is also listed on the London Stock Exchange.

Last month, it announced that it would close its Kenyan subsidiaries to allow it shift its administrative functions and activities to Ethiopia, marking its exit from the local market.

At the time, the company said delayed payments from its debtors due to a downturn in global oil prices led to budget cuts by many of its clients.

“We have taken steps to place our Kenyan subsidiaries into formal liquidation proceedings. Since the downturn in the oil and gas market, we have found that clients are no longer placing a premium on our high quality services and are demanding terms which are not economically viable,” said Atlas’ chief executive officer Carl Esprey in a statement issued last year.

PROMISED TO PAY

In a letter dated August 24, 2015 Atlas admitted that it was undergoing cash flow challenges and that it would settle outstanding debts to suppliers out of receipts from its debtors.

They did not, however, say when they would pay up. 

“We are conscious of our obligations towards our suppliers and creditors and are working to make provision so that our suppliers and creditors are not unnecessarily prejudiced by the current events. Our intention and proposal is to make gradual settlements of amounts due to our suppliers and creditors from monies collected from our debtors,” reads the letter co-signed by Atlas’ regional director Nick Arnold and chief finance officer Barry Lobel.

In an email interview with Smart Company, Atlas said that suppliers have until February 12 to prove their claims to “allow the liquidation process to move forward to the next stage”.

In February last year, Atlas said it was considering venturing into oil and gas drilling through partnerships with firms that already hold exploration licences in a bid to diversify operations instead of just providing logistical services.

The company unsuccessfully bided for a contract from state-owned Geothermal Development Company (GDC) to develop geothermal steam at the Baringo field, in partnership with Iceland Drilling from Iceland.

Atlas cross-listed at the Growth Enterprise Market Segment at the Nairobi Securities Exchange in December 2014 in a strategic move to allow the company tap into local business.

Its main clients included Tullow Oil Plc of UK that together with its partner Africa Oil Corporation of Canada are responsible for most oil discoveries in Kenya. 

GDC is also a client of the firm.

Atlas’ listing on the NSE was followed by acquisition of about six per cent of the company’s stake by African Alliance Asset Management to become the fifth largest shareholder in the logistics company.

TERMINATED OIL CONTRACTS

However, Atlas has faced a series of hurdles, hurtling from one loss after another. 

It recorded a Sh1 billion net loss for the year ended June 30, 2015 on account of cancellation of contracts by oil and gas exploration companies following a tough operating environment resulting from a more than 60 per cent plunge in global crude prices.

During the previous year, it reported a net loss of Sh147 million that was followed by a Sh609 million loss for the half year period to December 2014.

In November, Atlas entered into a partnership with EAPH, a company established to build a bottle manufacturing facility 45 kilometres north of Addis Ababa, Ethiopia. The move, that marked its entry into the industrial sector, was aimed at broadening its revenue sources.

Due to dwindling income, Atlas’ share has been among the worst performing at the NSE. In mid November, the company’s share lost 22.95 per cent of its value in a week’s trading to close at Sh2.35.

Last Friday, Atlas’ share stood at Sh2.05 from Sh2.25 during the close of trading for the previous week.

The firm’s dismal fortunes are largely attributed to crude prices which have drastically plummeted to about $30 a barrel due to increased supply and uncertain demand from China whose economic growth is expected to slow down further.

The weak crude prices experienced since mid-2014 have seen many international oil and gas exploration companies cut their budgets and redirect their resources to areas where they are already carrying out oil production.

As a result, firms involved in supportive services have suffered cancellation of contracts and shrinking revenues leading to considerations for complete closure of operations and diversification to stay afloat.

Frontier Services Group (FSG), another logistics firm that is listed on the Hong Kong Stock Exchange, entered the Kenyan market with an eye on the oil and gas sector and has had to diversify into transport business in West and Central African markets.

FSG announced last year that it had bought Cheetah Logistics SARL, a Congolese logistics firm operating in those markets.