Circle Gas Builds Expansion on Debt and Carbon Credit Sales

Circle Gas is funding a clean cooking ambition with bank debt priced above 20 percent and a carbon strategy that has yet to clear its final regulatory hurdle.

That tension sits at the center of the group’s latest UK filings. Its Kenyan subsidiary, M-Gas, drew down a Sh750 million secured line from I&M Bank on February 9, 2023 to finance smart meters, LPG cylinders and cooking stoves. The facility carries interest at the prevailing 91-day Treasury bill rate plus 4.026 percent and falls due in a lump sum within 24 months of the final drawdown, which occurred on May 31, 2023. Circle Gas issued a corporate guarantee.

On July 18, 2023, M-Gas secured a further $30 million line from the same lender. This one is priced at the 91-day Treasury bill rate plus 4.482 percent, equivalent to about 20.2 percent per annum at the reporting date for the year ended December 2024. Each disbursement is repayable over 60 months in monthly instalments. By December 2024, the full $30 million had been drawn, up from $10.3 million a year earlier. Again, the parent guaranteed repayment.

The group’s external net borrowings stood at $20.2 million in 2024, compared with $14.9 million in 2023. Operating losses narrowed to $24.2 million from $33.3 million, yet losses remain substantial relative to cash generation. The business reported positive operating cash flow of $1.7 million, reversing negative $5.1 million in 2023, but that improvement rests heavily on carbon credit presales of $15.6 million. Capital investments consumed $17.7 million.

This is a company selling gas to low-income households in Kenya on a pay-as-you-cook model. Its cylinders, supplied by TotalEnergies, are fitted with smart meters that disconnect once paid units are exhausted. The system alerts the firm when gas runs low and triggers home delivery. It is a tight operational loop, and capital-intensive. Cylinders and meters sit on the balance sheet long before cash is fully recovered from customers.

Borrowing at rates near 20 percent to finance hardware deployed in households earning thin margins is a high-wire act. It can work, but only if growth and carbon revenues keep pace with interest and repayment schedules.

Carbon Credits as Balance Sheet Strategy

The more revealing element in the filings is the scale of reliance on Circle Gas carbon credit funding.

The group has secured an offer for future carbon credit certificate purchases worth more than $27 million, of which $8.5 million had been received by December 2024. Management is negotiating to upgrade its credits to a Paris Agreement Letter of Authorisation, which would allow transfers under Article 6 with corresponding adjustments to Kenya’s national carbon accounts. The company estimates that such an upgrade could unlock at least $9 million in additional value based on accredited credits held at the reporting date.

This is not a side business. It is a core funding line. Cash flow projections to June 30 indicate that additional net funding will be required to meet liabilities. Directors assume $20 million in third-party funding will be raised by then to finance expansion, including further smart meter deployment. As of December 2024, that funding had not been fully secured. Without it, investment plans would be curtailed to preserve liquidity.

Carbon presales are doing heavy lifting in the interim. In 2024, receipts of $15.6 million from carbon credit rights helped produce positive operating cash flow. Strip that out and the picture changes.

Carbon markets are volatile. Pricing varies between voluntary credits and those backed by a Letter of Authorisation. Kenya has tightened oversight after years of loose governance in parts of the market. Approval now carries geopolitical weight because credits transferred abroad require adjustments in national emissions accounting.

Circle Gas has secured a Letter of Approval from the Kenyan government. It is progressing toward the next authorisation stage. That places it ahead of at least one high-profile casualty.

After Koko: A Narrower Gate

Koko Networks shut down on January 30 after failing to secure a Letter of Authorisation despite a 2024 investment framework that would have enabled carbon sales. The government argued that granting its request could have exhausted Kenya’s allocation in global compliance markets. Koko had invested about $300 million and served over 1.5 million households. It is now under administration.

The contrast is hard to ignore. M-Gas announced its Letter of Approval roughly a week before Koko closed operations. Both businesses relied on subsidised clean cooking models tied to carbon revenues. One moves forward in the authorisation queue. The other stalled.

That divergence will shape investor perception. Carbon credits are no longer a technical detail buried in sustainability reports. They are underwriting debt, supporting hardware rollouts, and influencing survival.

If Circle Gas secures full authorisation and taps higher-value compliance markets, its funding mix stabilises. If approval drags or pricing disappoints, the pressure shifts back to bank debt and equity raises.

Safaricom in the Background

Safaricom holds 18.96 percent of Circle Gas. Its current CEO, Peter Ndegwa, and former CEO, Michael Joseph, sit on the UK parent’s board. The Kenyan government owns 35 percent of Safaricom.

That shareholding structure places a partially state-owned telecom operator in the orbit of a carbon-funded LPG distributor negotiating with the Kenyan government for international credit transfers. It is a web of interests rather than a straight line, but it will draw attention in a policy environment already alert to carbon market concentration.

There is also the practical link between telecom infrastructure and pay-as-you-cook technology. Smart meters rely on connectivity and mobile payments. Safaricom’s ecosystem provides both. The overlap is commercial. It is also political.

None of this implies impropriety. It does suggest that clean cooking, carbon accounting, and digital finance are converging in ways regulators will examine closely.

Debt, VAT, and the Cash Clock

Circle Gas is pursuing an $8.2 million VAT refund from the Kenya Revenue Authority tied to pre-July 2023 VAT changes. Since 2024, it has received about $230,000 per month. That steady inflow helps, but it does not erase the funding gap implied in projections to June 30.

The $750 million Shilling facility matures 24 months after the last drawdown in May 2023. The $30 million facility amortises over 60 months. Interest costs float with the 91-day Treasury bill rate. If domestic rates remain elevated, financing expenses stay high.

At the same time, the business model demands continued capital expenditure. Cylinders must be manufactured or procured, fitted with meters, distributed, maintained and replaced. Revenue accrues gradually as households top up small amounts. The asset base grows ahead of cash collection.

Positive operating cash flow of $1.7 million in 2024 is thin relative to a $24.2 million operating loss. Carbon presales narrow the gap but also create expectations. Buyers of future credits are effectively advancing funds against environmental claims that must be verified and authorised.

The Path Ahead Is Narrow

Circle Gas plans to raise $20 million in third-party funding by June 30 to support expansion. If secured, it buys time and scale. If delayed, investment will slow.

Kenya’s carbon market governance is tightening. Approval processes are becoming more deliberate. International buyers are demanding higher standards. Local scrutiny has intensified after a $300 million clean cooking venture collapsed.

The company’s model addresses a real problem. LPG adoption reduces reliance on charcoal and kerosene, with public health and environmental benefits. The pay-as-you-cook system lowers entry barriers for households that cannot afford full cylinder refills upfront. Those gains are tangible.

Yet the financing structure is exposed to interest rates, regulatory discretion, and carbon pricing. Borrowing at roughly 20.2 percent while counting on carbon upgrades to unlock at least $9 million in additional value is a calculated bet.

Circle Gas carbon credit funding is therefore more than a sustainability angle. It is a funding mechanism stitched into debt covenants, expansion targets and cash forecasts.

Whether that stitch holds will depend on regulatory approvals in Nairobi, credit buyers in international markets, and the willingness of lenders to extend capital at a cost that does not overwhelm margins.

For now, the company is pressing ahead. Cylinders are being deployed. Carbon credits are being pre-sold. Bank facilities are drawn.

The clock, however, is not theoretical. It is dated in months and denominated in dollars.

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