Liquid Technologies, Kenya’s foremost fiber optic network provider, has announced significant layoffs amid a mounting financial crisis. This development follows a series of credit downgrades by Fitch and Moody’s, which have further strained the company’s precarious financial standing.
The company’s troubles began with a downgrade by Moody’s Investors Service, which slashed Liquid’s credit rating from “B3” to “Caa1” on June 4, 2024. This rating shift reflects a grim outlook, moving Liquid from a status of “highly speculative” to “substantial risk.” Fitch Ratings compounded the distress by downgrading the company’s rating from “B” to “CCC+” on July 11, 2024. Fitch’s downgrade underscores Liquid’s severe liquidity problems and heightened refinancing risks.
Despite efforts to reassure stakeholders, including a planned $90 million cash injection in fresh equity, Liquid’s financial situation remains dire. The company’s Q1 2025 results revealed a staggering net debt of $52.5 million and a net debt to EBITDA ratio of 3.47. With a substantial loan of $184.8 million due in March 2026, Liquid is struggling to meet its debt covenants, which are set to tighten at the end of August 2024.
As part of a desperate bid to stabilize finances, the company is engaged in discussions with key lenders to refinance its $184.8 million term loan. However, the success of these discussions hinges on securing additional external funding and achieving improved operating conditions.
Amid these financial upheavals, Liquid has also announced that former CEO Nic Rudnick is stepping down from his role as deputy executive chairman. Rudnick, who led the company for nearly two decades before transitioning to the deputy chair position in September 2022, will remain a non-executive director and shareholder. This move signifies a significant shift within the company’s leadership during a turbulent period.
The company’s ongoing cash crunch, combined with the looming risk of a breach of debt covenants, has prompted the mass layoffs. These job cuts are part of Liquid’s broader strategy to reduce discretionary capital expenditure, enhance working capital management, and seek external funding to stave off a liquidity crisis.
As the company grapples with these challenges, the future remains uncertain. The potential for further downgrades and the possibility of a debt restructuring event loom large, casting a shadow over Liquid Technologies’ prospects in Kenya’s competitive telecom sector.