Koko’s carbon credits find no buyer as creditors fund UK wind-down

Koko Networks (UK) Limited, the British arm of insolvent Kenyan clean-cooking company Koko Networks, has failed to find a buyer for its carbon credits at a fair price, leaving creditors expecting little or no recovery as the company winds down.

The trouble began in Kenya when Koko Networks Limited, the operating company that served more than one million households with subsidised cooking fuel, laid off more than 700 employees in January and entered administration on February 1. The Kenyan government had declined to issue the Letter of Authorisation needed to sell carbon credits into international compliance markets, cutting off revenue that helped keep the fuel affordable.

The carbon credits are the UK arm’s main asset, as Koko Networks (UK) Limited sold them and guaranteed group debts. Without a sale, FirstRand Bank, which is owed $60 million, and other unsecured creditors owed about £126 million ($167 million) expect to recover nothing. The administration is expected to cost close to £880,000 ($1.16 million), excluding administrators’ fees.

“We do not anticipate that the bank (FirstRand) will be repaid in full from the company’s assets,” PwC, the accounting firm appointed administrator of Koko Networks (UK) Limited on February 19, said in a progress report dated September 17.

The sale process began on July 17, when PwC started marketing Koko’s assets as part of the insolvency process. It initially sought buyers for the wider business, including its technology, manufacturing operations and fuel distribution platform, in deals worth more than $15 million.

According to the report, PwC held talks with three potential purchasers and five brokers before appointing a broker to market the credits. Offers have since arrived, but the administrators said they “do not consider that these offers would generate a meaningful return to the estate.” PwC will continue marketing the credits.

The report did not disclose how many credits Koko holds, what type they are, or their value on the company’s books.

Creditors fund the wind-down

With little cash coming in, creditors are financing the closure. Koko UK received about $659,000 during the period from the administrators of the Kenyan business. The report said the money comes from certain creditors under a wider group arrangement.

The funding carries interest and is treated as an administration expense, meaning it must be repaid ahead of unsecured creditors, those with no security over company assets.

The administrators project costs of about £880,000 ($1.19 million), before their own fees. Lawyers are the largest expense, led by DLA Piper UK, the law firm advising on the case.

Creditors will also be asked to approve about £181,000 ($245,000) of unpaid costs from before the appointment, most of it PwC’s own time. The company has not yet approved its remuneration.

Against that bill, there is very little to recover, as the company holds under £280,000 ($379,000) in cash.

Koko’s largest receivable, a debt of about £1.1 million ($1.49 million) from Koko Rwanda, the group’s Rwandan business, is not expected to be repaid because that company is itself insolvent.

The biggest creditor is FirstRand Bank, acting through its Rand Merchant Bank division, the South African lender’s investment banking arm.

The bank’s collateral does not include the company’s main assets, so administrators do not expect it to recover anything. Other unsecured creditors are also expected to receive nothing, as is His Majesty’s Revenue and Customs (HMRC), the UK tax authority.

The administrators are also assessing possible legal claims with their counterparts in Kenya and the group’s Mauritius company and are seeking outside funding to pursue them. The report did not state who the claims would target. It warns that if they go ahead, “significant costs will arise” on top of the current estimates.

Koko’s failed carbon-credit model

Koko Networks was founded in 2014 as a clean-cooking company focused on replacing charcoal and other polluting fuels with subsidised bioethanol cooking fuel. The company sold the fuel to about 1.3 million Kenyan households and relied on carbon revenue to keep prices low.

Its Kenyan operating company, Koko Networks Limited, entered administration on February 1 after the government declined to issue the authorisation letters needed to sell credits into international compliance markets. The UK company, which commercialised the credits generated in Kenya, entered administration on February 19.

PwC expects to send its next report in about six months, or at the end of the administration if that comes sooner.

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