ARM Cement retains strong rating after 40pc share sale
A worker at ARM Cement plant. The company is diversified in fertiliser business which recorded growth last year. PHOTO | FILE
What you need to know:
ARM Cement credit rating has been retained at A1 by South African Global Credit Rating agency.
The rating agency downplayed the cement-maker’s loss of Sh2.8 billion in its appraisal which also classified ARM’s outlook as stable.
GCR estimates ARM controls 18 per cent of the competitive cement industry up from 11 per cent five years ago, indicating the ambitious expansion plans are paying off in terms of sales.
Listed cement-maker ARM Cement credit rating has been retained at A1 by South African Global Credit Rating agency, following its ceding a 40.6 per cent stake to UK development finance institution CDC.
The management of the heavily leveraged manufacturer turned to a strategic investor last year to ease its debt position that was threatening to suffocate the company having touched highs of Sh24 billion.
“Aside from easing the debt and interest burden and returning the balance sheet to a more sustainable position, introducing CDC as a strategic partner will provide the financial muscle for ARM to continue with its expansion plans” said GCR in its rating report.
The rating agency downplayed the cement-maker’s loss of Sh2.8 billion in its appraisal which also classified ARM’s outlook as stable.
ARM’s decision to fund its expansion through debt, mainly of short term nature, came to haunt it last year as financing costs shot to Sh1.8 billion and the foreign denominated debt pushed it to book forex losses of Sh3.7 billion.
CDC injected Sh14 billion into ARM, of which Sh11 billion was set aside for settling debts while the remainder was for funding capital expenditure.
GCR estimates ARM controls 18 per cent of the competitive cement industry up from 11 per cent five years ago, indicating the ambitious expansion plans are paying off in terms of sales.
“With the completion of the Tanga plant (Tanzania) in 2014, ARM has secured clinker sufficiency and is now one of the lowest-cost producers in the region, enabling it to compete aggressively,” said GCR.
Clinker is the main ingredient used in making cement. Manufacturers have been looking for ways of feeding their clinker demand in order to avoid importing as it inflates their production price.
Some of the new projects that have been linked to the cement maker include the construction of a $250 million (Sh21.9 billion) clinker factory in Kenya.
GCR had warned in a previous rating report that uptake of additional debt through a proposed bond was likely to result in downgrading of ARM’s credit rating, a position that could have advised ARM’s decision to go for a strategic partner.
Control of the Paunrana family in the company founded by their father is expected to have been diluted significantly with the entry of CDC.
The family through investment vehicle Amanat Investments owned 28 per cent of the company while Pradeep Paunrana who is also the chief executive of ARM has an 18 per cent stake putting their total ownership at 46 per cent.
The combined stake is estimated to have dropped to 27.6 per cent with CDC becoming the largest shareholder.
ARM share has gained 11.8 per cent in the last three months to the current Sh33 following the CDC deal.
The counter had taken a beating as questions arose over its debt position and following declaration of the financial loss.
Apart from cement, the company is diversified in fertiliser business which recorded growth last year.
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