Markets & Finance

National Cement secures Sh6.4bn for Kajiado plant

ceo

Mr Narendra Raval said IFC will get a seat on the National Cement board. Photo/Courtesy

National Cement Company is set to get a Sh6.4 billion ($74 million) cash and equity injection from the World Bank’s private lending arm, IFC, to finance construction of a new factory.

The International Finance Corporation said on Friday it is in talks with the cement producer to fund expansion of the cement factory in Athi River, and construction of a new one in Kajiado County.

Disclosure documents by IFC showed the money will be released in form of a loan and acquisition of a stake in National Cement, though management of the company said negotiations for the deal are still ongoing.

“We are still negotiating how much stake they will get,” said Devki Group chief executive and founder of National Cement Narendra Raval in an interview.
He, however, said the IFC will get a seat on National Cement’s board.

Mr Raval said National Cement made Sh600 million in gross profit last year, but declined to disclose turnover and net earnings for the company.

National Cement is part of the Devki Group, which also has interests in local steel and services industries. The Kenyan-based conglomerate was started by Mr Raval in 1986.

The proposed investment will see National Cement undergo a two-phase expansion expected to be completed by 2016.

The first part will see the Athi River-based plant add new production equipment that will increase the factory’s output to 1.7 million tonnes per annum (mtpa) from the current 0.35 mtpa.

READ: National Cement to open Sh11bn plant

The second expansion phase will see National Cement set up a plant in Kajiado County that will manufacture clinker, a key ingredient in the making of cement.

“The company has acquired 2,200 acres/890 ha of land between Merrueshi and Mbirikani (Kajiado County) with limestone and clay deposits on which it will build and operate the clinker production facility. The area is estimated to have up to 60 million tonnes of limestone reserves, according to NCCL, or sufficient reserves for up to 45 years of production,” said the disclosure documents.

The clinker plant will have a capacity of 1.1 mtpa when completed in 2016.

Analysts said National Cement could save significant costs by making its own clinker and have a reliable supply of the key ingredient.

“It is more economical (since) you can save between 20 and 25 per cent in production costs,” said Eric Munywoki, a research analyst at Old Mutual Securities.
The closer the clinker facility to a cement plant, the higher the cost savings which can be as much as 40 per cent, added Mr Munywoki.

The clinker plant will be located 120 kilometres from the Athi River-based plant.

Kenya’s cement industry has been growing with the entry of more companies and expansion of production capacity to supply ready markets in real estate and the massive infrastructure projects being done across the region.

ARM Cement plans to construct a Kitui-based plant this year, which is expected to churn 2.6 mtpa.

Dangote Cement has also said it is making a $400 million (Sh34.6 billion) investment in a plant that will produce 1.8 mtpa.

Analysts, however, say that it remains to be seen if additional capacity will hold retail prices of the commodity due to the heavy capital expenditure nature of the business.

Mr Raval said that the entry of new players has been responsible for keeping prices within the range of Sh600 per bag, a 12-year low, and that more output is likely to see prices remain at this level.

“It might (however) not necessarily lead to lower prices because of the (factory) set-up costs,” said Eric Musau, a research analyst at Standard Investment Bank.