ARM Cement #ticker:ARM has signed a deal to sell its loss-making fertiliser and minerals unit to Swiss industrial firm Omya in a transaction that may fetch the distressed company at least Sh5.4 billion.
The cement maker has several subsidiaries that deal in fertiliser blending, processing of industrial minerals and chemicals, and building products such as silicate liquid.
These units — including Mavuno Fertilizer and ARM Minerals and Chemicals — had a book value of Sh5.49 billion as at December 2016 and will all be sold to Omya.
Chief executive Pradeep Paunrana declined to disclose how much ARM will earn from the transaction, citing regulatory constraints.
“We can’t disclose now until we get regulatory approvals,” Mr Paunrana said.
The Oftringen-based company produces industrial minerals mostly calcium carbonate and dolomite which it supplies to food producers and chemicals manufacturers.
Sale of fertiliser and minerals generated Sh2.43 billion or nearly a fifth of ARM’s total turnover of Sh12.8 billion in the year ended December 2016.
The non-cement unit made a pre-tax profit of Sh499.2 million in the review period, rising 5.7 times from Sh86.5 million the year before and helped to lessen larger losses in the mainstay cement business.
The sale comes barely a year after UK-based sovereign wealth fund CDC Group invested $140 million (Sh14 billion) in ARM in exchange for a 41.66 per cent stake. The cash was used to retire expensive debt, reduce interest burden, and generate free cash flow for the loss-making company but ARM is not out of the woods yet.
The company has announced a fresh capital raising that will see it sell an undisclosed stake to a new investor in the short term, diluting existing shareholders.
Ahead of the equity transaction, ARM will be seeking short-term loans from major shareholders.
A global cement firm will be preferred to bring in capital, and technical expertise, Mr Paunrana said.
The cement firm’s net losses widened to Sh1.4 billion in the half year to June from Sh266.7 million a year earlier, attributed to the Tanzanian unit where the firm sold cement at prices below production costs.